Article ID: | iaor20042191 |
Country: | United Kingdom |
Volume: | 52 |
Issue: | 1 |
Start Page Number: | 19 |
End Page Number: | 30 |
Publication Date: | Apr 2003 |
Journal: | App Stats |
Authors: | Johnson Ellis L., Chen Victoria C.P., Gnther Dirk |
Keywords: | markov processes, programming: dynamic, yield management |
The yield management (YM) problem considers the task of maximizing a company's revenue. For the competitive airline industry, profit margins depend on a good YM policy. Research on airline YM is abundant but still limited to heuristics and small cases. We address the YM problem for a major domestic airline carrier's hub-and-spoke network, involving 20 cities and 31 flight legs. This is a problem of realistic size since airline networks are usually separated by hub cities. Our method is a variant of the orthogonal array experimental designs and multivariate adaptive regression splines stochastic dynamic programming method. Our method is demonstrated to outperform state of the art YM methods.