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Strategies for Optimizing Overbooking Policies in Air Travel

In an uncertain environment, such as varying no-show levels for flights, airlines need to adopt dynamic overbooking strategies to maximize average profit per flight. Instead of relying on a fixed profit model based on expected no-shows, airlines should implement flexible policies that adapt to the actual no-show data and market conditions. Understanding the limitations of traditional methods and embracing data-driven decision-making can lead to more profitable outcomes in the airline industry.

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Strategies for Optimizing Overbooking Policies in Air Travel

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  1. What You Should Do: Facing Uncertainty (represented by X) For example, find the overbooking policy that maximizes your average profit per flight, as the no-show level varies from flight to flight. What is Typically (Incorrectly) Done in Today’s World: This is equivalent to finding the overbooking policy that maximizes your profit from a flight with precisely E[X] (a pre-known, specific number of) no-shows.

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