Determine the cost of denying boarding to passengers: An optimization-based approach

Abstract

We present an optimization-based method to evaluate the financial impact of denying boarding to the lowest-fare customers under airline network overbooking. Airlines are demanding quantitative support to evaluate the impact on revenue when facing the decision to deny boarding to customers. Although overbooking is a well-regulated operation for decades, it has drawn considerable criticism due to, at least partially, disagreement regarding compensation. Usually, airlines deny boarding to the lowest-fare customers to assure seat availability for customers in higher-paying booking classes. We model such an assurance by chance-constrained optimization, and we gain managerial implications for overbooking practices, for low-cost airlines in particular. We conclude that low-cost airlines are vulnerable regarding revenue growth under network overbooking in comparison to other airlines. We explore possible revenue-improving suggestions, which will ease the effects of network booking for airlines both analytically and numerically.