Integrating Overbooking with Capacity Planning: Static Model and Application to Airlines

Abstract

Many firms that practice overbooking are able to adjust capacity prior to the service time. This study proposes an integrated approach for a firm's overbooking and capacity planning. We formulate a static model that simultaneously optimizes the firm's capacity level and overbooking limit. We find that the optimal level of capacity with overbooking can be higher and lower than that without overbooking. This is because overbooking has both positive and negative effects on the marginal value of capacity. It suggests that the level of capacity can be set too low or too high if overbooking is not taken into account when making capacity planning decisions. Moreover, our analysis shows that overbooking leads to a lower optimal capacity level if and only if the marginal cost of capacity is below a threshold. It is also shown that a higher cost per denied service or a higher service level does not necessarily lead to a higher optimal capacity level. We then extend the static model to explicitly account for an airline's demand‐driven dispatch (i.e., reassignments of aircraft types to flight legs). Numerical experiments show that the integrated approach can significantly improve an airline's expected profit, compared to the sequential approach that optimizes capacity planning (aircraft type assignments) and overbooking decisions in two separate and consecutive steps. The benefit of the integrated approach remains significant when a service level constraint is imposed.

Preventing food waste in subsidy-based university dining systems: An artificial neural network-aided model under uncertainty

“…However, determining the cost is no longer easy in case of shortage. In addition to the direct cost of food replacement, compensation costs and damaged goodwill (He, 2019) should also be considered in the final tally. Determining these two costs, that is, compensation and damaged goodwill costs, becomes more challenging at the end of each service day.…”

“…According to the reservation management literature which is rooted in revenue management, the shortage cost is actually the denied-service cost. According to a realistic assumption made by Talluri and Van Ryzin (2004), the penalty for shortage in the reservation management models should be in the increasing and convex form which will include the cost of an alternative service, compensation, and loss of goodwill (He, 2019). Given the specific nature of the proposed case study which is arising from government subsidy, the structure of the costs of unserved services in a competitive environment varies.…”

Havayolu İşletmelerinde Gelir Yönetimi: Overbooking Modelinin Dengeli Performans Kartı Yaklaşımı ile Değerlendirilmesi

“…• Bilet fiyatını düşürür • Uçmaktan vazgeçebilecek yolcu için avantajları bulunmaktadır • Daha fazla yolcunun istediği seferde uçmasına izin verir • Havayolu şirketleri farklı fiyatlarla aynı koltuk için yolcunun karşısına çıkar (Lufthansa 2005 yılında overboking ile 570.000 ek yolcu taşımıştır) (He, 2019(He, :1973 Overbookingin dezavantajları aşağıda yer almaktadır:…”

Leveraging Slack Capacity in IaaS Contract Cloud Services

“…It is also worth mentioning that a number of researchers have considered price and service differentiation issues similar to those we study in our research in the context of different industries and applications, such as call center services (Bassamboo et al 2010), primary health care services (Dobson et al 2011), wireless services (Duan et al 2016), airline reservations (He 2019), restaurants (Oh and Su 2018), air traffic control (Starita et al 2020), and so on. Even though those papers have some modeling similarities and use some similar methodologies (e.g., queuing theory), they do not incorporate the unique features of the cloud computing industry as described in sections 1 and 3, thus making their contributions and insights not generally applicable to the cloud computing industry and significantly different from ours.…”