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Title Revenue Management - Theory and Practice
Author Kjeldsen, Anne H.
Meyer, Pernille
Supervisor Clausen, Jens (Department of Informatics and Mathematical Modeling, Technical University of Denmark, DTU, DK-2800 Kgs. Lyngby, Denmark)
Institution Technical University of Denmark, DTU, DK-2800 Kgs. Lyngby, Denmark
Thesis level Master's thesis
Year 2005
Abstract The main purpose of this work is to develop an efficient dynamic programming (DP) algorithm for the revenue optimization problem in the presence of trade-up behaviour. Trade-up is when a passenger buys a more expensive ticket than originally intended, if the desired ticket is not available. Efficiency of an algorithm is both measured with respect to revenue and running time. To achieve this objective the Seat Inventory Control (SIC) problem without trade-up is described first to give a fundamental understanding of the basic problem. The basic SIC problem is concerned with the allocation of discount and full-fare seats on a flight so as to maximize total revenue. Next, two different cases of the SIC problem with trade-up are investigated, one with general assumptions and one with more specific assumptions made by British Airways. A dynamic programming model is set up for each of these problems and different solution methods, both exact and approximate methods, are introduced for solving the DP model. Finally the methods are tested by simulating arrival processes and results are obtained by a comparison of the methods applied on these arrival processes. Numerical results suggest that in a market where trade-up occurs, a large gain in revenue can be obtained by using methods incorporating trade-up instead of methods without trade-up.
Imprint Department of Informatics and Mathematical Modeling, Technical University of Denmark, DTU : DK-2800 Kgs. Lyngby, Denmark
Keywords revenue management; seat inventory control; dynamic programming; trade-up; approximation method
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Admin Creation date: 2006-06-22    Update date: 2012-12-19    Source: dtu    ID: 185903    Original MXD