Simulation-Based Booking Limits for Airline Revenue Management

Operations Research, Volume 53, Issue 1, January-February 2005, pp. 90-106

Posted: 1 Mar 2014

See all articles by Dimitris Bertsimas

Dimitris Bertsimas

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Sanne De Boer

Invesco

Date Written: 2005

Abstract

Deterministic mathematical programming models that capture network effects play a predominant role in the theory and practice of airline revenue management. These models do not address important issues like demand uncertainty, nesting, and the dynamic nature of the booking process. Alternatively, the network problem can be broken down into leg-based problems for which there are satisfactory solution methods, but this approach cannot be expected to capture all relevant network aspects. In this paper, we propose a new algorithm that addresses these issues. Starting with any nested booking-limit policy, we combine a stochastic gradient algorithm and approximate dynamic programming ideas to improve the initial booking limits. Preliminary simulation experiments suggest that the proposed algorithm can lead to practically significant revenue enhancements.

Keywords: simulation, optimization,inventory control, revenue management, booking limits, airline

JEL Classification: C61

Suggested Citation

Bertsimas, Dimitris and De Boer, Sanne, Simulation-Based Booking Limits for Airline Revenue Management (2005). Operations Research, Volume 53, Issue 1, January-February 2005, pp. 90-106. Available at SSRN: https://ssrn.com/abstract=2402533

Dimitris Bertsimas

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

E53-359
Cambridge, MA 02142
United States
617-253-4223 (Phone)
617-258-7579 (Fax)

Sanne De Boer (Contact Author)

Invesco ( email )

1166 Avenue of the Americas
27th Floor
New York, NY 10036
United States

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