Revenue Management

Revenue management (RM) is a short-term planning instrument for matching perishable capacity and heterogeneous demand for differentiated products in order to maximize revenue. The particular control may be either a dynamic pricing or a capacity allocation strategy.

For example, many established airlines determine the revenue-maximizing allocation of capacity to different booking classes, given predetermined fares, a fixed seat capacity, a departure date, and heterogeneous demand. The ultimate decision is to accept a current reservation request or reject it in favor of probably more valuable future demand. The ideal setting for RM is that a set of differentiated products/services is sold in advance (by reservation), demand is fluctuating and heterogeneous, marginal sales cost is low while capacity is relatively fixed, and capacity is perishable.

Our research is focused on the development of optimization models and solution methods for RM applications in various industries such as airlines, railway service providers, cruise operators, telecommunications, retailing, etc. The underlying OR techniques are mostly stochastic dynamic programming or nonlinear programming approaches. Many projects are carried out with industry partners.