Stochastic Model for Airline Revenue Management

The total demand for a particular flight even at a given time of day fluctuates by day of week and season of the year. In addition to these more predictable or cyclical fluctuations in demand, there are also less predictable or stochastic variations in demand around the mean or expected value for a flight. This paper will show that, the company should find the optimal customer mix if it wants to achieve the highest revenue possible. They have to decide how many seats to sell to discount passengers, and how many to save for future passengers, who are willing to pay the full fare. The main problem of quantity based revenue management is to find an optimal allocation of our resource among the different fare classes.