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Yield Management at American Airlines

by B. C. Smith, J. F. Leimkuhler, R. M. Darrow
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Abstract

Critical to an airline's operation is the effective use of its reservations inventory. American Airlines began research in the early 1960s in managing revenue from this inventory. Because of the problem's size and difficulty, American Airlines Decision Technologies has developed a series of OR models that effectively reduce the large problem to three much smaller and far more manageable subproblems: overbooking, discount allocation, and traffic management. The results of the subproblem solutions are combined to determine the final inventory levels. American Airlines estimates the quantifiable benefit at $1.4 billion over the last three years and expects an annual revenue contribution of over $500 million to continue into the future.

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