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Dynamic Booking Control for Car Rental Revenue Management: A Decomposition Approach

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JournalEuropean Journal of Operational Research
DateAccepted/In press - 20 Jun 2016
DateE-pub ahead of print - 24 Jun 2016
DatePublished (current) - 27 Sep 2016
Issue number3
Volume256
Number of pages18
Pages (from-to)850–867
Early online date24/06/16
Original languageEnglish

Abstract

This paper considers dynamic booking control for a single-station car rental revenue management problem. Different from conventional airline revenue management, car rental revenue management needs to take into account not only the existing bookings but also the lengths of the existing rentals and the capacity flexibility via fleet shuttling, which yields a high-dimensional system state space. In this paper, we formulate the dynamic booking control problem as a discrete-time stochastic dynamic program over an infinite horizon. Such a model is computationally intractable. We propose a decomposition approach and develop two heuristics. The first heuristic is an approximate dynamic program (ADP) which approximates the value function using the value functions of the decomposed problems. The second heuristic is constructed directly from the optimal booking limits computed from the decomposed problems, which is more scalable compared to the ADP heuristic. Our numerical study suggests that the performances of both heuristics are close to optimum and significantly outperform the commonly used probabilistic non-linear programming (PNLP) heuristic in most of the instances. The dominant performance of our second heuristic is evidenced in a case study using sample data from a major car rental company in the UK.

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© 2016 Elsevier B.V. All rights reserved. This is an author-produced version of the published paper. Uploaded in accordance with the publisher’s self-archiving policy. Further copying may not be permitted; contact the publisher for details. Embargo : 24 months

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