Joint overbooking and seat allocation for fare families

Revenue Management Systems (RMS) traditionally solve the seat allocation problem separately from the overbooking problem. Overbooking is managed by inflating the authorization levels obtained from seat allocation by various heuristics. This approach although suboptimal, is necessitated because of the complexity and dimensionality of the Dynamic Program (DP), which prohibits computation for realistic size problems.
We review several DP models developed for seat-allocation and overbooking over a time span of 40 years, reflecting changed business environments. In this report we link these models together by means of two transformations: The marginal revenue transformation of Fiig et al. [2010] and the equivalence charging scheme of Subramanian et al. [1999]. These transformations enable us to transform the joint seat allocation and overbooking problem for fare family fare structures into an equivalent independent demand model, which is readily solved. The resulting availability control can easily by implemented in existing RMS