An EMSR-Based Approach for Revenue Management with Integrated Upgrade Decisions

Computers & Operations Research 40 (2013), pp. 2532-2542

35 Pages Posted: 23 Jan 2013 Last revised: 22 Jun 2013

See all articles by Jochen Gönsch

Jochen Gönsch

University of Duisburg-Essen - Mercator School of Management

Sebastian Koch

University of Augsburg

Claudius Steinhardt

Bundeswehr University Munich

Date Written: January 15, 2013

Abstract

We consider the revenue management problem of capacity control with integrated upgrade decision-making. The dynamic programming formulation of this problem is hard to solve to optimality, even in the single-leg case, because multiple hierarchical resource types must be considered simultaneously. Therefore, in this paper, we propose a new heuristic approach that generalizes the idea behind the well-known single-leg EMSR-a procedure to multiple resource types. Similar to EMSR-a, our approach is based on the computation of protection levels, but additionally allows for the integrated consideration of upgrades. In addition, we derive control policies for typical demand arrival patterns. As an extension, we propose a generalization of our approach that allows for arbitrarily ordered prices with respect to the upgrade hierarchy. Furthermore, we perform a number of computational experiments to investigate the performance of the new approach compared to other capacity control methods that incorporate upgrades. We consider typical airlines’ single-leg scenarios with 10 (re)optimizations throughout the booking horizon. The results show that our approach can significantly outperform existing methods in terms of the total achieved revenue, including dynamic programming decomposition approaches that are proposed in literature, as well as successive planning approaches that are widely used in commercial revenue management systems.

Keywords: Revenue Management, Upgrades, Capacity Control, EMSR

Suggested Citation

Gönsch, Jochen and Koch, Sebastian and Steinhardt, Claudius, An EMSR-Based Approach for Revenue Management with Integrated Upgrade Decisions (January 15, 2013). Computers & Operations Research 40 (2013), pp. 2532-2542, Available at SSRN: https://ssrn.com/abstract=2204994

Jochen Gönsch (Contact Author)

University of Duisburg-Essen - Mercator School of Management ( email )

Lotharstraße 65
Duisburg, Nordrhein-Westfalen 47057
Germany
+49 203 379 - 2777 (Phone)
+49 203 379 - 1760 (Fax)

HOME PAGE: http://udue.de/goensch

Sebastian Koch

University of Augsburg ( email )

Universitätsstr. 2
Augsburg, 86159
Germany

Claudius Steinhardt

Bundeswehr University Munich ( email )

Werner-Heisenberg-Weg 39
Neubiberg, 85577
Germany

HOME PAGE: http://www.unibw.de/quantitative-methoden

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