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Alternative mathematical models for revenue management problems

Terciyanlı, Erman
In this study, the seat inventory control problem is considered for airline networks from the perspective of a risk-averse decision maker. In the revenue management literature, it is generally assumed that the decision makers are risk-neutral. Therefore, the expected revenue is maximized without taking the variability or any other risk factor into account. On the other hand, risk-sensitive approach provides us with more information about the behavior of the revenue. The risk measure we consider in this study is the probability that revenue is less than a predetermined threshold level. In the risk-neutral cases, while the expected revenue is maximized, the probability of revenue being less than such a predetermined level might be high. We propose three mathematical models to incorporate the risk measure under consideration. The optimal allocations obtained by these models are numerically evaluated in simulation studies for example problems. Expected revenue, coefficient of variation, load factor and probability of the poor performance are the performance measures in the simulation studies. According to the results of these simulations, it shown that the proposed models can decrease the variability of the revenue considerably. In other words, the probability of revenue being less than the threshold level is decreased. Moreover, expected revenue can be increased in some scenarios by using the proposed models. The approach considered in this thesis is especially proposed for small scale airlines because risk of obtaining revenue less than the threshold level is more for this type of airlines as compared to large scale airlines.