Revenue management without forecasting or optimization: An adaptive algorithm for determining airline seat protection levels

Revenue management without forecasting or optimization: An adaptive algorithm for determining airline seat protection levels

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Article ID: iaor20011917
Country: United States
Volume: 46
Issue: 6
Start Page Number: 760
End Page Number: 775
Publication Date: Jun 2000
Journal: Management Science
Authors: ,
Keywords: management, adaptive processes, yield management
Abstract:

We investigate a simple adaptive approach to optimizing seat protection levels in airline revenue management systems. The approach uses only historical observations of the relative frequencies of certain seat-filling events to guide direct adjustments of the seat protection levels in accordance with the optimality conditions of Brumelle and McGill. Stochastic approximation theory is used to prove the convergence of this adaptive algorithm to the optimal protection levels. In a simulation study, we compare the revenue performance of this adaptive approach to a more traditional method that combines a censored forecasting method with a common seat allocation heuristic (EMSR-b).

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