Dynamic and flexible capacity management for flight compartments and beyond

Abstract

It is a common practice that business and economy compartments share the seating capacity of a short or medium-haul European flight, with the middle seats in the business compartment kept vacant to enhance comfort and privacy for business passengers. The two compartments are separated by a movable curtain whose position determines the capacity allocated to each compartment. By postponing the decision on curtain position until departure, airlines gain extra flexibility in their capacity allocation. We formulate an airline’s problem of dynamically determining the curtain position and the subset of fare products to offer in each compartment to maximize the combined revenue from business and economy passengers. We show that the airline should offer a business (resp., economy) fare product if and only if its fare exceeds a business (resp., economy) threshold or bid price. We then establish monotonicity properties which are useful in expediting the computation of the optimal policy. An extended model where the airline has the option to offer a free upgrade (from economy to business class) to a new arriving economy passenger is presented, and a necessary condition on when to offer upgrades is provided. Using a large-scale and real-life case study based on a proprietary dataset, we demonstrate significant revenue improvements from postponing the decision on curtain position, compared to the current practice of fixing it at the beginning of the booking horizon. Furthermore, we provide guidance for the implementation of our policy, taking into account passengers’ seat selection and substitution towards lower fare classes. We also discuss the implications of our work in practice.