Single-Leg Airline Revenue Management with Overbooking

Abstract

Airline revenue management is concerned with identifying the maximum revenue seat allocation policies. Because a major loss in revenue results from cancellations and no-shows, overbooking has received significant attention in the literature over the years. In this study, we propose new static and dynamic single-leg overbooking models. In the static case we introduce two models: the first one aims to determine the overbooking limit and the second one is about finding the overbooking limit and the booking limits to allocate the virtual capacity among multiple fare classes. Because the second static model is hard to solve, we also introduce computationally tractable models that give upper and lower bounds on its optimal expected net revenue. In the dynamic case, we propose a dynamic programming model, which is based on two streams of events. The first stream corresponds to the arrival of booking requests and the second one corresponds to the cancellations. We conduct simulation experiments to illustrate the effectiveness of the proposed models.