Abstract
While seat inventory control is a standard technique in passenger revenue management (RM) to steer availability and thus prices of passenger seats, far less attention has been paid to dynamically managing cargo bookings. Two technical challenges of cargo RM that drive this contrast are the multi-dimensional nature of cargo shipments and request sizes featuring multiple capacity units. Because of these characteristics, the exact decision problem is computationally intractable. This article proposes a heuristic for solving the air cargo capacity control problem efficiently while obtaining near-optimal solutions. A significant reduction of computational load is achieved through exploiting the structure of monotone switching curves.
Similar content being viewed by others
References
Amaruchkul, K., Cooper, W.L. and Gupta, D. (2007) Single-leg air-cargo revenue management. Transportation Science 41 (4): 457–469.
Becker, B. and Dill, N. (2007) Managing the complexity of air cargo revenue management. Journal of Revenue & Pricing Management 6 (3): 175–187.
Becker, B. and Wald, A. (2010) Challenges and success factors of air cargo revenue management. Journal of Revenue & Pricing Management 9 (1/2): 171–184.
Billings, J.S., Diener, A.G. and Yuen, B.B. (2003) Cargo revenue optimisation. Journal of Revenue & Pricing Management 2 (1): 69–79.
Boeing. (2010) World air cargo forecast 2010–2011, http://www.boeing.com/commercial/car-go/wacf.pdf, accessed 19 December 2011.
Boeing. (2011) Commercial airplanes – 757–200 freighter technical specifications, http://www.boeing.com/commercial/757family/pf/pf_200f_tech.html, accessed 4 October 2011.
Brumelle, S. and Walczak, D. (2003) Dynamic airline revenue management with multiple semi-Markov demand. Operations Research 51 (1): 137–148.
Deb, R.K. and Serfozo, R.F. (1973) Optimal control of batch service queues. Advances in Applied Probability 5 (2): 340–361.
Han, D.L., Tang, L.C. and Huang, H.C. (2010) A Markov model for single-leg air cargo revenue management under a bid-price policy. European Journal of Operational Research 200 (3): 800–811.
Huang, K. and Chang, K.-c. (2010) An approximate algorithm for the two-dimensional air cargo revenue management problem. Transportation Research Part E: Logistics and Transportation Review 46 (3): 426–435.
Huang, K. and Hsu, W. (2005) Revenue management for air cargo space with supply uncertainty. In: K. Satoh, (ed.) Proceedings of the Eastern Asia Society for Transportation Studies; 21–24 September, Tokyo: Eastern Asia Society for Transportation Studies, pp. 570–580.
Karaesmen, I.Z. (2001) Three essays on revenue management. Doctoral dissertation, Columbia University, New York, USA.
Kasilingam, R. (1997) Air cargo revenue management: Characteristics and complexities. European Journal of Operational Research 96 (1): 36–44.
Kasilingam, R. (2011) Revenue management and air cargo. In: I. Yeoman and U. McMahon-Beattie (eds.) Revenue Management: A Practical Pricing Perspective. Basingstoke, UK: Palgrave Macmillan, pp. 166–179.
Kleywegt, A.J. and Papastavrou, J.D. (2001) The dynamic and stochastic knapsack problem with random sized items. Operations Research 49 (1): 26–41.
Lee, T.C. and Hersh, M. (1993) A model for dynamic airline seat inventory control with multiple seat bookings. Transportation Science 27 (3): 252–265.
Levina, T., Levin, Y., McGill, J. and Nediak, M. (2011) Network cargo capacity management. Operations Research 59 (4): 1008–1023.
Lewis, M.E. (2001) Average optimal policies in a controlled queueing system with dual admission control. Journal of Applied Probability 38 (2): 369–385.
Luo, L. and Shi, X. (2006) The stochastic model of multi-leg capacity allocation for air cargo revenue management. In: Proceedings of the International Conference on Service Systems and Service Management; 25–27 October, Piscataway: Institute of Electrical and Electronics Engineering (IEEE), pp. 917–921.
Maddah, B., Moussawi-Haidar, L., El-Taha, M. and Rida, H. (2010) Dynamic cruise ship revenue management. European Journal of Operational Research 207 (1): 445–455.
Pak, K. and Dekker, R. (2004) Cargo Revenue Management: Bid-Prices for a 0–1 Multi Knapsack Problem. Rotterdam: Erasmus Research Institute of Management, Erasmus University. ERIM Report Series Reference No. ERS-2004-055-LIS.
Papastavrou, J.D., Rajagopalan, S. and Kleywegt, A.J. (1996) The dynamic and stochastic knapsack problem with deadlines. Management Science 42 (12): 1706–1718.
Slager, B. and Kapteijns, L. (2004) Implementation of cargo revenue management at KLM. Journal of Revenue & Pricing Management 3 (1): 80–90.
Stidham, S. (1978) Socially and individually optimal control of arrivals to a GI/M/1 queue. Management Science 24 (15): 1598–1610.
Walczak, D. (2006) Modeling high demand variance in dynamic programming. Journal of Revenue and Pricing Management 5 (2): 94–101.
Weiss, H.J. (1979) The computation of optimal control limits for a queue with batch services. Management Science 25 (4): 320–328.
Xiao, B. and Yang, W. (2010) A revenue management model for products with two capacity dimensions. European Journal of Operational Research 205 (2): 412–421.
Zhuang, W., Gümüs, M. and Zhang, D. (2010) Revenue Management with Random Resource Consumptions. The Chinese University of Hong Kong & McGill University, Canada. Working Paper.
Author information
Authors and Affiliations
Corresponding author
Rights and permissions
About this article
Cite this article
Hoffmann, R. Dynamic capacity control in cargo revenue management – A new heuristic for solving the single-leg problem efficiently. J Revenue Pricing Manag 12, 46–59 (2013). https://doi.org/10.1057/rpm.2012.28
Received:
Revised:
Published:
Issue Date:
DOI: https://doi.org/10.1057/rpm.2012.28