Research@Smith: Fall 2008

Revenue management with minimal demand information

Hotels, cruise lines and car rental companies all use similarly complicated models for revenue management. These models require information about how many people are going to want those airline seats in the future—they need to forecast demand for their product into the future. Unfortunately, forecasting is notoriously difficult and demand estimates are inaccurate. The state of the economy, seasonal variations in travel demand and even the competitive actions of other airlines make finding reliable information even more difficult.Airlines want to sell their seats to the right customers at the right time for the right price. The more fare classes or products they have, the more difficult it is to optimize the revenue for each product. That is, airlines have turned to complex mathematical models for revenue management.

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