Abstract
Building on existing fare adjustment methodology for airline revenue management, this article investigates an approach to account for passenger cancel and rebook behavior. Under cancel and rebook assumptions, passengers continuously search for lower priced alternatives for their travel plans (same flights, same travel dates) until departure, and book a lower fare product if and when such a product becomes available. We propose a methodology to account for this behavior in the framework of hybrid network revenue management, and present the theory and simulation results of the benefits of this approach.
This is a preview of subscription content, log in via an institution to check access.
Similar content being viewed by others
References
Barnhart, C., Belobaba, P.P. and Odoni, A.R. (2003) Applications of operations research in the air transport industry. Transportation Science 37 (4): 368–391.
Belobaba, P.P. (1987) Air travel demand and airline seat inventory management. Doctoral Thesis, Massachusetts Institute of Technology, Cambridge, MA.
Belobaba, P.P. (1989) Application of a probabilistic decision model to airline seat inventory control. Operations Research 37 (2): 183–197.
Belobaba, P.P. (1992) Optimal vs. Heuristic Methods for Nested Seat Allocation. Brussels, Belgium: AGIFORS Reservation Control Study Group Presentation.
Belobaba, P.P. (1994) Network Seat Inventory Control without Network Optimization. Hong Kong: AGIFORS Reservations and Yield Management Study Group.
Cleophas, C. (2009) Simulation-based analysis of forecast performance evaluations for airline revenue management. PhD Thesis, University of Paderborn, Germany.
Cooper, W., Homem-de-Mello, T. and Kleywegt, A. (2006) Models of the spiral-down effect in revenue management. Operations Research 54 (5): 968–987.
Cross, R.A. (1997) Revenue Management: Hard Core Tactics for Market Domination. New York: Broadway Books.
Fiig, T. and Isler, K. (2004) SAS O&D Low Cost Project, PODS Consortium Meeting Presentation J, Minneapolis, MN, USA.
Fiig, T., Isler, K., Hopperstad, C. and Belobaba, P.P. (2010) Optimization of mixed fare structures: Theory and applications. Journal of Revenue and Pricing Management 9 (1): 152–170.
Fiig, T., Isler, K., Hopperstad, C. and Cléaz-Savoyen, R. (2005) DAVN-MR: A Unified Theory of O&D Optimization in a Mixed Network with Restricted and Unrestricted Fare Products, AGIFORS Reservations and Yield Management Study Group Meeting, Cape Town, South Africa, May.
Isler, K. (2004) On the Equivalence of Airline Revenue Management and Pricing Problems. Technical Report, Operations Research, Swiss International Air Lines Ltd.
Lautenbacher, C. and Stidham Jr, S. (1999) The underlying Markov decision process in the single-leg airline yield-management problem. Transportation Science 33 (2): 136–146.
McGill, J.I. and Van Ryzin, G.J. (1999) Revenue management: Research overview and prospects. Transportation Science 33 (2): 233–256.
Oosten, M. and Walczak, D. (2005) Transforming Pricing Problems. Presented at the 5th Annual INFORMS Revenue Management and Pricing Section Conference. Cambridge, MA: MIT.
Phillips, R.L. (2005) Pricing and Revenue Optimization. Stanford, USA: Stanford University Press.
Talluri, K.T. and van Ryzin, G. (2004) The Theory and Practice of Revenue Management. New York, USA: Kluwer Academic Publishers.
Walczak, D. (2003) Dynamic Programs for Revenue Management and Dynamic Pricing. Presented at Annual Conference of Canadian OR Society (CORS) Vancouver, BC.
Walczak, D., Mardan, S. and Kallesen, R. (2010) Customer choice, fare adjustments and the marginal expected revenue data transformation: A note on using old yield management techniques in the brave new world of pricing. Journal of Revenue and Pricing Management 9 (1): 94–109.
Zimmermann, B., Cleophas, C. and Frank, M. (2011) Universeller simulator für revenue management. Internationales Verkehrswesen 63 (3): 76–80.
Author information
Authors and Affiliations
Additional information
3graduated from the University of Karlsruhe, Germany, with a degree in Business Engineering, he now is a PhD student of the Freie Universität, Berlin. His doctoral work is sponsored by a Lufthansa fellowship and focuses on analyzing and managing complexity in airline revenue management.
Rights and permissions
About this article
Cite this article
Gorin, T., Walczak, D., Bartke, P. et al. Incorporating cancel and rebook behavior in revenue management optimization. J Revenue Pricing Manag 11, 645–660 (2012). https://doi.org/10.1057/rpm.2012.6
Received:
Revised:
Published:
Issue Date:
DOI: https://doi.org/10.1057/rpm.2012.6