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A Markov model for single-leg air cargo revenue management under a bid-price policy

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  • Han, Dong Ling
  • Tang, Loon Ching
  • Huang, Huei Chuen

Abstract

In this paper, we consider the capacity allocation problem in single-leg air cargo revenue management. We assume that each cargo booking request is endowed with a random weight, volume and profit rate and propose a Markovian model for the booking request/acceptance/rejection process. The decision on whether to accept the booking request or to reserve the capacity for future bookings follows a bid-price control policy. In particular, a cargo will be accepted only when the revenue from accepting it exceeds the opportunity cost, which is calculated based on bid prices. Optimal solutions are derived by maximizing a reward function of a Markov chain. Numerical comparisons between the proposed approach and two existing static single-leg air cargo capacity allocation policies are presented.

Suggested Citation

  • Han, Dong Ling & Tang, Loon Ching & Huang, Huei Chuen, 2010. "A Markov model for single-leg air cargo revenue management under a bid-price policy," European Journal of Operational Research, Elsevier, vol. 200(3), pages 800-811, February.
    • Handle: RePEc:eee:ejores:v:200:y:2010:i:3:p:800-811
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    1. Moussawi-Haidar, Lama & Nasr, Walid & Jalloul, Maya, 2021. "Standardized cargo network revenue management with dual channels under stochastic and time-dependent demand," European Journal of Operational Research, Elsevier, vol. 295(1), pages 275-291.
    2. Delgado, Felipe & Trincado, Ricardo & Pagnoncelli, Bernardo K., 2019. "A multistage stochastic programming model for the network air cargo allocation under capacity uncertainty," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 131(C), pages 292-307.
    3. Bo Feng & Jixin Zhao & Zheyu Jiang, 2022. "Robust pricing for airlines with partial information," Annals of Operations Research, Springer, vol. 310(1), pages 49-87, March.
    4. Ching-Cheng Chao & Taih-Cherng Lirn & Kuo-Chung Shang, 2013. "Market segmentation of airline cargo transport," The Service Industries Journal, Taylor & Francis Journals, vol. 33(15-16), pages 1672-1685, December.
    5. Zhe Yuan & Haoxuan Xu & Yeming (Yale) Gong & Chengbin Chu & Jinlong Zhang, 2017. "Designing public storage warehouses with high demand for revenue maximisation," International Journal of Production Research, Taylor & Francis Journals, vol. 55(13), pages 3686-3700, July.
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    7. Bayliss, Christopher & Currie, Christine S.M. & Bennell, Julia A. & Martinez-Sykora, Antonio, 2019. "Dynamic pricing for vehicle ferries: Using packing and simulation to optimize revenues," European Journal of Operational Research, Elsevier, vol. 273(1), pages 288-304.
    8. Feng, Bo & Li, Yanzhi & Shen, Huaxiao, 2015. "Tying mechanism for airlines’ air cargo capacity allocation," European Journal of Operational Research, Elsevier, vol. 244(1), pages 322-330.
    9. Klein, Robert & Koch, Sebastian & Steinhardt, Claudius & Strauss, Arne K., 2020. "A review of revenue management: Recent generalizations and advances in industry applications," European Journal of Operational Research, Elsevier, vol. 284(2), pages 397-412.
    10. Chao, Ching-Cheng & Li, Ru-Guo, 2017. "Effects of cargo types and load efficiency on airline cargo revenues," Journal of Air Transport Management, Elsevier, vol. 61(C), pages 26-33.
    11. Ødegaard, Fredrik & Wilson, John G., 2016. "Dynamic pricing of primary products and ancillary services," European Journal of Operational Research, Elsevier, vol. 251(2), pages 586-599.
    12. Dimitrov, Nedialko B. & Dimitrov, Stanko & Chukova, Stefanka, 2014. "Robust decomposable Markov decision processes motivated by allocating school budgets," European Journal of Operational Research, Elsevier, vol. 239(1), pages 199-213.
    13. Lin, Danping & Lee, Carman Ka Man & Yang, Jilin, 2017. "Air cargo revenue management under buy-back policy," Journal of Air Transport Management, Elsevier, vol. 61(C), pages 53-63.
    14. Syed Asif Raza & Rafi Ashrafi & Ali Akgunduz, 2020. "A bibliometric analysis of revenue management in airline industry," Journal of Revenue and Pricing Management, Palgrave Macmillan, vol. 19(6), pages 436-465, December.
    15. Moussawi-Haidar, Lama, 2014. "Optimal solution for a cargo revenue management problem with allotment and spot arrivals," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 72(C), pages 173-191.

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