PRICING SUBSTITUTABLE FLIGHTS IN AIRLINE REVENUE MANAGEMENT, by Zhang and Cooper

PRICING SUBSTITUTABLE FLIGHTS IN AIRLINE REVENUE MANAGEMENT, by Zhang and Cooper

This paper formulates a multi-flight RM problem, proposes and evaluates several bounds and heuristics. The bounds based on price or capacity pooling ideas work well when the customers’ valuation and fights capacities are homogeneous. The heuristics based on separable bounds (roll out policy), however, perform well regardless the demand and capacity conditions. In particular, value approximation does better than policy approximation, where both of them are of the form , where is chosen to maximize the value function.

It is observed that infrequent change of prices can extract most of the benefits from the real-time pricing policy.

For a given policy, it is easy to evaluate its performance by simulation.