Revenue impacts of demand unconstraining and accounting for dependency
Date
2009Author
Karmarkar, Sandeep
Datta, Goutam
Bandyopadhyay, Tathagata
Metadata
Show full item recordAbstract
Accurate forecasts are crucial to an airline revenue management system. Historical
demand data for two fare classes used for forecasting in an airline are often censored and correlated. In this
article, we propose a methodology that takes into account both censorship and correlation of demands. We
then study its impact on the expected revenue and compare it with three standard methodologies available in
the literature by using extensive simulation. Our results show that the opportunity cost of neglecting demand
censorship is upto 1 per cent whereas that for neglecting the dependency of demands can be of the order of
2 per cent. Consideration of both truncated demand and dependency between fare classes can lead to a
significant (of the order of 2.5 per cent) revenue increase.
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