Airline Revenue Management with Shifting Capacity
Erasmus Research Institute of Management (ERIM); Erasmus University Rotterdam (EUR) - Department of Econometrics
Erasmus University, Rotterdam (EUR) - Erasmus School of Economics ; Erasmus University, Rotterdam (EUR) - Erasmus Research Institute of Management (ERIM) ; Tinbergen Institute Rotterdam
Erasmus University Rotterdam (EUR) - Centre for Computers and Law; KLM-Royal Dutch Airlines
December 15, 2003
ERIM Report Series Reference No. ERS-2003-091-LIS
Airline revenue management is the practice of controlling the booking requests such that the planes are filled with the most profitable passengers. In revenue management the capacities of the business and economy class sections of the plane are traditionally considered to be fixed and distinct capacities. In this paper, we give up this notion and instead consider the use of convertible seats. A row of these seats can be converted from business class seats to economy class seats and vice versa. This offers an airline company the possibility to adjust the capacity configuration of the plane to the demand pattern at hand. We show how to incorporate the shifting capacity opportunity into a dynamic, network-based revenue management model. We also extend the model to include cancellations and overbooking. With a small test case we show that incorporating the shifting capacity opportunity into the revenue management decision indeed provides a means to improve revenues.
Number of Pages in PDF File: 31
Keywords: convertible seats, dynamic capacity management, revenue management, seat inventory control, shifting capacity
JEL Classification: R4, M, M11, C51
Date posted: August 26, 2006
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