A choice-based mixed integer programming formulation for network revenue management

Michael C. Clough, Timothy L. Jacobs, Esma Gel

Research output: Contribution to journalArticle

Abstract

Airlines routinely use revenue management techniques to improve their revenue performance by optimizing the available fares for the various flights that they operate within their network. These approaches often assume independent passenger demand, which essentially ignores the interactions between various fare classes and routing options. In this article, we build on previous studies that explicitly incorporate passenger choice and fare class/routing interactions using a MultiNomial Logit discrete choice model by presenting an alternative Mixed Integer Programming formulation for the problem. The formulation yields substantial reduction in the number of variables over the Choice-based Deterministic Linear Program while maintaining revenue performance. Using small and larger network examples from the literature, we demonstrate performance improvements that one can obtain in comparison to popular leg-and network-based revenue management methods currently used in practice, and explain how the solution can be implemented in real-life systems.

Original languageEnglish (US)
Pages (from-to)366-387
Number of pages22
JournalJournal of Revenue and Pricing Management
Volume13
Issue number5
DOIs
StatePublished - Jan 1 2014

Keywords

  • airline revenue management (RM)
  • mixed integer programming (MIP)
  • multinomial logit (MNL) choice model

ASJC Scopus subject areas

  • Business and International Management
  • Finance
  • Economics and Econometrics
  • Strategy and Management

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