Research On Airline Network Capacity Control Under Customer Buy-up Behavior

The emergence of budget airlines, the advent of new sales channels, the disappearance of traditional fare-class fences, and other on-going changes in the airline industry pose serious challenges to traditional revenue management models, which makes some rigid and unrealistic assumptions. One of these is that passengers can not travel who do not get the fare they want to book and travel on other airlines. In reality many can buy a more expensive ticket, i.e. buy up. In this paper, we model network revenue management which incorporates buy-up. Assume that the airline controls the availability of products using a virtual nesting control strategy and would like to optimize the protection levels for its virtual classes accounting for buy-up behavior of its customers.Formulate a continuous demand and capacity approximation for this problem, which allows for the partial acceptance of requests for products. The model admits an efficient calculation of the sample path gradient of the network revenue function. The gradient is then used to construct a stochastic steepest ascent algorithm. In the experiments it produces significant revenue increases relative to traditional virtual nesting methods. The examples also provide interesting insights into how protection levels should be adjusted to account for buy-up behavior. Overall, the results indicate that buy-up behavior has a significant impact on both capacity control decisions and revenue performance and that our method is a viable approach for addressing the problem.