The joint task force is working on a revenue management model that, unlike models that minimize the statistical error in the estimates, will maximize the expected economic value realized from the pricing strategy based on the estimates it produces. Once the estimating procedure has been developed and embodied in the software, the output will be fed to an optimization routine that establishes prices based on the current inventory of airline seats. The team will also develop the optimization routine.
M.Eng team member Kevin Wald said, “We have spent a lot of time trying to understand the data given to us, and formalize a process to capture the probabilities that a customer will purchase at a certain fare, so we are excited to have finalized that phase and begin to look at how to build an optimization model”.
