Dynamic Capacity Sharing Models in Airline Revenue Management

We developed methodologies to dynamically determine prices for capacities in different resources.

More specifically, for each combination of remaining time available in the booking horizon and remaining seat inventories in all the compartments, we calculated the opportunity cost (bid price) to accommodate one more booking in each of the compartments, based on information such as expected total demand for each resource, allowable prices, and probabilities of having a customer who purchases at each of the allowable price points for each resource. By jointly considering the remaining capacities in all resources, we reduced revenue loss that results from the conventional approaches when too many economy updates are accepted and also created additional revenue by upgrading some portion of economy passengers into business compartment when the conventional approaches would have rejected them.