Revenue Management

Topics: Airline, Travel class, Inventory Pages: 7 (2423 words) Published: February 13, 2013
Applied Mechanics and Materials Vols. 229-231 (2012) pp 2775-2778 © (2012) Trans Tech Publications, Switzerland doi:10.4028/

Airline Revenue Management: Optimization Using Origin-Destination Strategy Controlled by Nested Heuristics Ajyuk J. Raj1, a, N. Ganesh Kumar2, b, S. Jayaraj3, c 1

M.E., Department of Mechanical Engineering,

PSG College of Technology, Coimbatore-641004, Tamil Nadu, India. 2

Assistant Professor, Department of Mechanical Engineering,

PSG College of Technology, Coimbatore-641004, Tamil Nadu, India. Professor, Department of Mechanical Engineering NIT Calicut, Calicut-673601, Kerala, India. a,,

Keywords: Revenue Management, Airline, Optimization, Nested Heuristics

Abstract. Effective revenue management practice can be the single most important factor in distinguishing between success and failure of an airline and spell the difference between profitability and loss for a particular flight. This paper deals with usage of Deterministic Linear Program to optimize the network as a whole and uses LINGO to solve the DLP as it has 120 variables and 127 constraints and is impossible to solve manually. Optimization strategies taken into consideration are: Leg Based Expected Margins, Seat Revenue (EMSR), and Deterministic Linear Program (DLP). In the seat inventory control process Nested Heuristics is used for an improved and accurate result. Introduction Revenue Management (Fig.1) is an economic discipline appropriate to many service industries in which “market segment pricing” is combined with statistical analysis to expand the market for the service and increase the revenue “revenue” per unit of available capacity. If the market is characterized by customers willing to pay different prices for the product, it is often possible to target different customer segments by the use of product differentiation. This creates the opportunity to sell the product to different customer segments for different prices (Eg: charging different prices at different points in time or offering a higher service level for a higher price). The airline revenue management problem has received a lot of attention throughout the years and continues to be of interest to this day. Other applications of revenue management can be found in the hotel, car rental, railways and cruise-line industries among others. The energy and television broadcast industries have been mentioned as possible applications and it has been argued that the concept of revenue management can even be applied to fast moving consumer goods in supermarkets [1].

Fig. 1: Different components of Revenue Management.
All rights reserved. No part of contents of this paper may be reproduced or transmitted in any form or by any means without the written permission of TTP, (ID:,18:24:05)


Mechanical and Electrical Technology IV

India’s domestic airlines offer 8,600 more flights and 1.7 million more seats year on year and 62% year on year growth in domestic low cost sector. Low cost operations account for 44% of all flights within India [compared to 22% in UK and 19% in US]. International flights show continuous growth, doubled since May 2001. While the need exists for new and improved reservations control systems which permit network control, there are currently many barriers to effective use of such systems. At the individual airline level, data collection and information quality is not always very good, and demand information, for the most part, is not collected and stored at the itinerary level, a necessity in order to manage network flows. At the same time, the basic architecture of most computer reservations systems used today was designed 20-30 years ago when the market environment of the airline industry was much simpler. The objective of this paper is to address the problem of reservations control at the...
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