Revenue Management

Topics: Operations research, Airline, Yield management Pages: 11 (3181 words) Published: April 29, 2013
Vol. 9, No. 3, May 2009, pp. 135–139 issn 1532-0545 09 0903 0135



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I N F O R M S Transactions on Education

doi 10.1287/ited.1090.0033ca © 2009 INFORMS

Case Article

Introductory Integrative Cases on Airline Revenue Management Tuck School of Business, Dartmouth College, Hanover, New Hampshire 03755,

Robert A. Shumsky


his case article summarizes two case series. Each case series includes three subcases and has an associated teaching note. These six short cases introduce many of the concepts that underlie the practice of airline revenue management: protection levels, overbooking, customer buy-up and buy-down behavior, network controls, bid prices, and the spiral-down effect. The cases are integrative in the sense that they reinforce many of the fundamental concepts taught in business programs, such as the formulation of statistical models, customer segmentation, the meaning of shadow prices in optimization, and the impact of model errors on real-world decisions. The cases also use many of the basic skills and tools taught in business programs: data analysis and forecasting, simulation, and optimization. By applying these tools, the cases move students quickly beyond the standard newsvendor-style formulation of the revenue management problem. Because the cases require students to apply these tools to interesting and relatively complex revenue management problems, the tools themselves gain more credibility among the students. Key words: revenue management; airlines; forecasting; optimization; simulation History: Received: May 2008; accepted: January 2009. This paper was with the author 3 months for 1 revision.

1. Introduction

We describe and make available six short cases on airline revenue management. This article provides an overview of the cases: the topics addressed in each case, the software needed by the students, how the cases relate to each other, how they might fit into a business curriculum, and how these cases compare with existing teaching materials in revenue management. Two teaching notes (see §6) provide more details on the content and uses of each case. This article and the teaching notes, however, do not provide a thorough introduction to revenue management techniques. Talluri and van Ryzin (2004) and Phillips (2005) provide excellent introductions to the field as well as many more technical details. These cases are divided into two series of three cases each. Both case series describe revenue management problems faced by BlueSky Airlines, a fictional passenger carrier. The BlueSky Airlines: Single-Leg Revenue Management Case Series focuses on the calculation of protection levels for a single flight leg, given uncertain demand. The BlueSky Airlines: Network Revenue Management Case Series focuses on the allocation of capacity to customers in a hub and spoke network, given a single class of customers and deterministic 135

demand. Instructors who use both case series should be aware that they provide very different, but complementary, views of airline revenue management. The single-leg case series focuses on the management of capacity in the face of uncertain demand, while the network case series focuses on the management of capacity across a network. The two teaching notes discuss how these two issues are addressed simultaneously in actual revenue management systems. The two series are independent; either can be used without the other, and the two series may be taught in any order. In addition, some cases within each series are independent. For example, Single-Leg Revenue Management (B) can be used without using the (A) Case from that series. Table 1 lists the cases, supporting spreadsheets that should be distributed to the students along with the cases, and the precedence relationships. Table 2 summarizes...
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