H. Frenk; "An Introduction to Airline Revenue Management:..."

Faculty of Engineering and Natural Sciences
IE 552 - Graduate Seminar

An introduction to airline revenue management: The problem, the model and its relation to optimization theory
by
Hans Frenk
Erasmus University Rotterdam
Holland

Abstract: In airline revenue management airline companies face the problem of allocating a fixed number of seats over their network of flights to customers willing to pay different prices for a given flight. These allocation decisions have to be taken under imperfect information about the demand for these different so-called fare classes. In this talk we will first start with the simplest static model of allocating seats on a single flight and discuss an efficient procedure to solve this optimization problem. In this model it is assumed that the cumulative distribution functions of the demand for the different fare classes are known. However, in practice this is mostly not the case and we face also imperfect information about these cumulative distribution functions being sample estimates from historical data.
To cope with this a robust approach is suggested in this talk and it is shown that this robust version of the so-called static single leg problem can be efficiently solved. Finally if time permits, we will extend these static models to networks representing the combination of flights performed by an airline company. Although we need some optimization techniques from Operations Research (dynamic programming, simplex method, dual simplex method, concave functions, Lagrangean relaxations, integer nonlinear programming) the main focus of this talk will be on introducing the audience to the field of airline revenue management and explaining how to model these problems. At the same time it will be clear how to use mathematical techniques to solve those models. As such this field represents a nice example of the usefulness of optimization theory in solving practical problems.

Hans Frenk is associate professor of Operations Research at the Econometric Institute of the Erasmus University in Rotterdam, the Netherlands. His PhD. thesis started in stochastic processes (renewal theory and regenerative processes) and through the years he also got interested in optimization and convex analysis. At the moment his reseach is in stochastic models, optimization theory, convex/quasiconvex analysis and the application of stochastic and deterministic techniques to problems in Management Science and Engineering. He published both in theoretical and applied journals. Since he is teaching and has taught a lot of different topics to economics and econometrics students (statistics, simulation, stochastic processes, integer programming, linear programming, modeling and applications of Operations Research to Management Science) he is also interested for
educational purposes in constructing the most elementary proofs of fundamental concepts within optimization and stochastic processes.

March 7, 2007,  13:40, FENS 2019