Aydin, Nursen, Birbil, S. Ilker and Topaloglu, Huseyin (2017) Delayed purchase options in single-leg revenue management. Transportation science, 51 (4). 1031 -1045. doi:10.1287/trsc.2015.0643 ISSN 0041-1655.

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Abstract

Many airline reservation systems offer the commitment option to their potential passengers. This option allows passengers to reserve a seat for a fixed duration before making a final purchase decision. In this study, we develop single-leg revenue management models that consider such contingent commitment decisions. We start with a dynamic programming model of this problem. This model is computationally intractable as it requires storing a multidimensional state space because of bookkeeping of the committed seats. To alleviate this difficulty, we propose an alternate dynamic programming formulation that uses an approximate model of how the contingent commitments behave and we show how to extract a capacity allocation policy from the approximate dynamic programming formulation. In addition, we present a deterministic linear programming model that gives an upper bound on the optimal expected revenue from the intractable dynamic programming model. As the problem size becomes large in terms of flight capacity and the expected number of arrivals, we demonstrate an asymptotic lower bound for the deterministic linear programming model. Our extensive numerical study indicates that offering commitment options can noticeably increase potential revenue even though offering a contingent commitment option may not always be in the best interest of the airline. Also, our results show that the proposed approximate dynamic programming model coordinates capacity allocation and commitment decisions quite well.

Item Type:	Journal Article
Subjects:	H Social Sciences > HE Transportation and Communications T Technology > T Technology (General)
Divisions:	Faculty of Social Sciences > Warwick Business School > Operational Research & Management Sciences Faculty of Social Sciences > Warwick Business School
Library of Congress Subject Headings (LCSH):	Airlines, Revenue management , Dynamic programming, Reservation systems
Journal or Publication Title:	Transportation science
Publisher:	INFORMS
ISSN:	0041-1655
Official Date:	November 2017
Dates:	Date Event November 2017 Published 29 February 2016 Available 23 June 2015 Accepted February 2015 Submitted
Volume:	51
Number:	4
Page Range:	1031 -1045
DOI:	10.1287/trsc.2015.0643
Status:	Peer Reviewed
Publication Status:	Published
Access rights to Published version:	Restricted or Subscription Access
Date of first compliant deposit:	15 July 2016
Date of first compliant Open Access:	1 March 2017

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