Abstract
We analyse the revenue potential of incorporating passengers' willingness to pay (WTP) into airline overbooking. Today, overbooking models in commercial revenue management systems balance the risk and associated costs of empty seats and denied boardings using constant spoilage costs during the booking period. The paper examines time-dependent spoilage costs as an extension of the static overbooking model. Simulation results with real airline data indicate that considering the dynamics of passengers' WTP in the overbooking decision leads to consistent gains in net revenue.
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1 Richard Klophaus is Professor of Business Management, Transportation and Logistics at the Trier University of Applied Sciences. He is also executive member of the managing board of the Centre for Aviation Law and Business serving as a consultant for both government and the aviation industry. He holds a PhD in Economics from the University of Mannheim, Germany.
2 Stefan Pölt is a senior manager at Lufthansa German Airlines in the network management IT department. He joined Lufthansa in 1995 and is now responsible for the revenue management and pricing tools. He holds a PhD in Computer Science from the University of Dortmund, Germany. He is recognised as an expert in forecasting and revenue management methods and has given presentations at several AGIFORS Conferences.
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Klophaus, R., Pölt, S. Airline overbooking with dynamic spoilage costs. J Revenue Pricing Manag 6, 9–18 (2007). https://doi.org/10.1057/palgrave.rpm.5160059
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DOI: https://doi.org/10.1057/palgrave.rpm.5160059