Tactical revenue management Calculates and periodically updates the booking limits Resources – Units of capacity (flight departure, hotel room night, rental car day) Products – Customers are seeking to purchase those (a seat on Flight 130 from St. Louis to Cleveland on Monday, June 30 – single resource; A two-night stay at the Sheraton Cleveland, arriving on March 19 and departing on March 21 – two resources) Fare classes – A combination of a price and a set of restrictions on who can purchase and when (e.g. group and regional pricing)

The fact that RM operates fare classes, does not change much from customers view – he still sees only the lowest available fare Since airlines still respond to the offers made by the competition, RM supplements rather than replaces pricing

Tactical revenue management Capacity allocation Network management Overbooking

Capacity allocation How many seats (hotel rooms, rental cars) to allow low-fare customers to book – given the possible future high-fare demand Two-class problem – Discount customers – Full-fare customers BASIC MODEL – all discount bookings happen before full-fare bookings We maximize expected revenue – incremental costs and ancillary contribution are zero In reality companies should maximize expected total contribution

Determine the discount booking limit Tradeoff between setting it too high or too low (spoilage vs. dilution)

B=60->61 PlaneC=100 – *Dd=50 – *Df=45 – *86% – **Dd=65 – **Df=30 – **14%..*6.5% – ***Dd=65 – ***Df=45 – ***14%..*93.5% =86%*0+14%*6.5%*190+14%*93.5%*( ) =14%*(6.5%* %*( ))=>6.5%* %*( ) =190—93.5%*200=> Pd—93.5%*Pf>0=>Pd/Pf>93.5%;190/200=95% 86%*0+14%*5=0.7 50%* %*20000=?