A polyhedral graph theory approach to revenue management in the airline industry

Revenue management is a business principle that balances supply and demand to control price and/or inventory availability in order to maximize revenue and profit growth. Airlines offer a variety of fare products to the market place to preserve their regular customers, reduce unsold seats by attractin g lower fare customers, and maintain a competitive image. This article deve lops a new analytical procedure for joint pricing and seat allocation probl em considering demand forecasts, number of fare classes, and aircraft capac ities. The proposed polyhedral graph theoretical approach utilizes split gr aphs and cutting planes and achieves significant computer timesavings when compared to a general-purpose integer programming commercial software. Alth ough this article focuses on the airline industry, the proposed approach ha s a potential utilization in such service and transportation related indust ries as lodging, car rental, trucking, rail, cargo, broadcasting, housing, cruise lines, manufacturing, entertainment, energy, and health care. (C) 20 00 Elsevier Science Ltd. All rights reserved.