A machine learning approach to itinerary-level booking prediction in competitive airline markets
This work addresses revenue optimization for airlines by improving booking predictions, though it appears incremental as it builds on existing machine learning methods with new data sources.
The paper tackled the problem of demand forecasting in airline revenue management by incorporating competitor pricing and other external data to predict itinerary-level bookings, showing through simulation that their model yields higher revenue than traditional time series forecasts.
Demand forecasting is extremely important in revenue management. After all, it is one of the inputs to an optimisation method which aim is to maximize revenue. Most, if not all, forecasting methods use historical data to forecast the future, disregarding the "why". In this paper, we combine data from multiple sources, including competitor data, pricing, social media, safety and airline reviews. Next, we study five competitor pricing movements that, we hypothesize, affect customer behavior when presented a set of itineraries. Using real airline data for ten different OD-pairs and by means of Extreme Gradient Boosting, we show that customer behavior can be categorized into price-sensitive, schedule-sensitive and comfort ODs. Through a simulation study, we show that this model produces forecasts that result in higher revenue than traditional, time series forecasts.