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A Dynamic Airline Seat Inventory Control Model and Its Optimal Policy

Department of Systems Engineering and Engineering Management, The Chinese University of Hong Kong, Shatin, NT, Hong Kong
Department of Management, Long Island University, C. W. Post, Brookville, New York, 11548
yyfeng{at}se.cuhk.edu.hk
bxiao{at}liu.edu

We consider an airline seat inventory control problem with multiple origins, one hub, and one destination. Passengers from the origins fly to the destination via the hub. Seat capacity of the hub-destination flight is fixed. Demands at origins are assumed to obey the Poisson process. To maximize the expected revenue, management faces decisions on allocating seats among competing origin-destination routes. This study presents a stochastic control model and develops optimal control rules. The basic model is subsequently distended to consider multiple fares on each route, time-dependent demands, and booking control on an extended network. A numerical example shows that optimal seat control is simple and efficient.

Subject classifications: Industries, transportation/shipping: airline route revenue management; Inventory/production, perishable/aging items: yield management.; Dynamic programming/optimal control, applications: optimal seat inventory control.
History: Received April 1997; revision received October 1998; revision received May 2000; accepted July 2000.