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The application of inventory transshipment modeling to air cargo revenue management

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  • Zou, Li
  • Yu, Chunyan
  • Dresner, Martin

Abstract

This paper applies an inventory transshipment modeling approach to investigate the air cargo revenue management problem for an airline operating in a two-segment network. Building upon an extension of the classic two-location inventory transshipment model, we develop a framework to optimize an airline’s cargo overbooking decisions in a two-segment network setting. We find consistent evidence indicating that network-based global optimization always leads to greater expected profits than does local (i.e., market by market) optimization. Further, the magnitude of profit improvement is found to be most significant when local shipments have a relatively higher freight yield compared to flow-through shipments. Finally, our results indicate that global optimization contributes to greater profit improvement as offloading penalty costs become higher.

Suggested Citation

  • Zou, Li & Yu, Chunyan & Dresner, Martin, 2013. "The application of inventory transshipment modeling to air cargo revenue management," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 57(C), pages 27-44.
    • Handle: RePEc:eee:transe:v:57:y:2013:i:c:p:27-44
    DOI: 10.1016/j.tre.2013.01.004
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    References listed on IDEAS

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    1. Lawrence W. Robinson, 1990. "Optimal and Approximate Policies in Multiperiod, Multilocation Inventory Models with Transshipments," Operations Research, INFORMS, vol. 38(2), pages 278-295, April.
    2. Wai Hung Wong & Anming Zhang & Yer Van Hui & Lawrence C. Leung, 2009. "Optimal Baggage-Limit Policy: Airline Passenger and Cargo Allocation," Transportation Science, INFORMS, vol. 43(3), pages 355-369, August.
    3. Nils Rudi & Sandeep Kapur & David F. Pyke, 2001. "A Two-Location Inventory Model with Transshipment and Local Decision Making," Management Science, INFORMS, vol. 47(12), pages 1668-1680, December.
    4. Andreea Popescu & Pinar Keskinocak & Ellis Johnson & Mariana LaDue & Raja Kasilingam, 2006. "Estimating Air-Cargo Overbooking Based on a Discrete Show-Up-Rate Distribution," Interfaces, INFORMS, vol. 36(3), pages 248-258, June.
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    Cited by:

    1. 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.
    2. Masato Wada & Felipe Delgado & Bernardo K. Pagnoncelli, 2017. "A risk averse approach to the capacity allocation problem in the airline cargo industry," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 68(6), pages 643-651, June.
    3. Wang, Shuaian & Wang, Hua & Meng, Qiang, 2015. "Itinerary provision and pricing in container liner shipping revenue management," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 77(C), pages 135-146.
    4. Zhang, Canrong & Xie, Fanrui & Huang, Kun & Wu, Tao & Liang, Zhe, 2017. "MIP models and a hybrid method for the capacitated air-cargo network planning and scheduling problems," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 103(C), pages 158-173.
    5. Wang, Xiaojia & Fung, Richard Y.K., 2014. "An option-based hedging mechanism for managing the risk of overbooking in parallel airline alliances," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 70(C), pages 146-162.
    6. 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.
    7. Yu, Shunan & Yang, Zhongzhen & Zhang, Wei, 2019. "Differential pricing strategies of air freight transport carriers in the spot market," Journal of Air Transport Management, Elsevier, vol. 75(C), pages 9-15.

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