Stochastic programming for multiple-leg network revenue management

Abstract

Airline seat inventory control is a very profitable tool in the airline industry. Mathematical programming models provide booking limits or bid-prices for all itineraries and fare classes based on demand forecasts. But the actual revenue generated in the booking process fails to meet expectations. Simple deterministic models based on expected demand generate better revenue than more advanced probabilistic models. Recently suggested models put even more effort into demand forecasting. We will show that the dynamic booking process rather than the demand forecasts needs to be addressed. In particular the nesting strategies applied in booking control will counter-effect the profitability of advanced estimation of booking limits and bid-prices. Keywords: Revenue management, Mathematical programming, Simulation * ORTEC Consultants, Gouda, The Netherlands + ORTEC Consultants, Gouda, The Netherlands and Econometric Institute, Erasmus University Rotterdam, The Netherlands # Econometric Institute, Erasmus University Rotterdam, The Netherlands 1 1.