Overbooking in airline revenue management

Abstract

Overbooking is the practice of intentionally selling more seats than available capacity on the aircraft in order to maximize the expected net revenue. Due to the unpredictable nature of passengers to cancel their booked flights before departure time or to fail to show up for a particular flight, airlines tend to overbook. In this report, we develop and analyze various schemes of overbooking in Single-Leg and Network environment. We investigate the Airline Overbooking problem on Single-Leg under two different frameworks, namely Static and Dynamic. For Static models, we develop several policies to determine the booking limits for each fare class at the start of the booking process by using demand ecasts. Two Dynamic models are discussed in depth. We also represent a model for multi-fare-class in network environment. Two algorithms are proposed incorporating oversales decisions in the underlying linear programming relaxation. Several structural properties of the algorithms are also derived.