3. Airline Revenue Management
Even with an optimized fleet assignment and schedule
of operations, some flight departures will have
empty seats while others will experience more passenger
demand than capacity. In an effort to better
match the demand for each flight with its capacity
and to increase total revenues, airlines practice differential
pricing by offering a variety of fare products at
different price levels for the same flight. Revenue management
is the practice of determining the number of
seats on each flight to be made available at each fare
level, limiting low-fare seats and protecting seats for
later-booking, higher-fare passengers. Given that the
operating costs of a scheduled flight departure are in
large part fixed in the very short run, the goal of revenue
management is to fill each flight with the maximum
possible revenue to maximize operating profit.
This section provides a brief review of the role of
operations research in the development of airline revenue
management (RM) models, with an emphasis on
the works that have most influenced the state of the
practice in the industry. A much more comprehensive
survey of OR literature dealing with revenue management
and related problems can be found in McGill
and van Ryzin (1999). In addition, Weatherford and
Bodily (1992) developed a categorization of “perishable
asset revenue management” problems, of which
the airline revenue management problem is the bestknown
example.
This review begins with an introduction to the
functions of typical airline RM systems, followed by
descriptions of the types of OR models employed to
perform three of the principal techniques of revenue
management—overbooking, fare class mix, and O-D
control. Therefore, the focus of this discussion is on
the seat inventory control component of airline revenue
maximization, as virtually all airline RM systems
assume that the fare structure is determined exogenously
by a separate airline pricing function.