Airline Revenue Management with Shifting Capacity

31 Pages Posted: 26 Aug 2006  

Kevin Pak

Erasmus Research Institute of Management (ERIM); Erasmus University Rotterdam (EUR) - Department of Econometrics

Rommert Dekker

Erasmus University, Rotterdam (EUR) - Erasmus School of Economics ; Erasmus University, Rotterdam (EUR) - Erasmus Research Institute of Management (ERIM) ; Tinbergen Institute Rotterdam

Gerard Kindervater

Erasmus University Rotterdam (EUR) - Centre for Computers and Law; KLM-Royal Dutch Airlines

Date Written: December 15, 2003

Abstract

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.

Keywords: convertible seats, dynamic capacity management, revenue management, seat inventory control, shifting capacity

JEL Classification: R4, M, M11, C51

Suggested Citation

Pak, Kevin and Dekker, Rommert and Kindervater, Gerard, Airline Revenue Management with Shifting Capacity (December 15, 2003). ERIM Report Series Reference No. ERS-2003-091-LIS. Available at SSRN: https://ssrn.com/abstract=483854

Kevin Pak (Contact Author)

Erasmus Research Institute of Management (ERIM) ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Erasmus University Rotterdam (EUR) - Department of Econometrics

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Rommert Dekker

Erasmus University, Rotterdam (EUR) - Erasmus School of Economics ( email )

P.O. Box 1738
3000 DR Rotterdam, NL 3062 PA
Netherlands
+31 10 408 1274 (Phone)
+31 10 408 9162 (Fax)

HOME PAGE: http://www.few.eur.nl/few/people/rdekker/

Erasmus University, Rotterdam (EUR) - Erasmus Research Institute of Management (ERIM)

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Tinbergen Institute Rotterdam ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Gerard Kindervater

Erasmus University Rotterdam (EUR) - Centre for Computers and Law ( email )

3000 DR Rotterdam
Netherlands
+31 10 408 1680 (Phone)
+31 10 408 9167 (Fax)

HOME PAGE: http://www.few.eur.nl/few/people/kindervater/

KLM-Royal Dutch Airlines

Antwoordnummer 747
1110 VG Schiphol Airport
Netherlands

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