An analysis of airline seat allocation

This paper considers the airline seat allocation between high and low fares with and without stochastic cancellations. It also analyzes the problem of simultaneously determining seat allocation and overbooking levels for two different classes of passengers, which also extends the existing literature in three ways. First, the cost of lost sales, which has been ignored in the existing literature, is explicitly incorporated into the model. Second, the overbooking phenomenon is also explicitly treated. Third, the paper discusses the trade-off between spill rate and overbooking ratio. It is found that the results obtained here are consistent with actual airline practice.