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Single-Leg Air-Cargo Revenue Management

Author

Listed:
  • Kannapha Amaruchkul

    (Graduate Program in Industrial and Systems Engineering, Department of Mechanical Engineering, University of Minnesota)

  • William L. Cooper

    (Graduate Program in Industrial and Systems Engineering, Department of Mechanical Engineering, University of Minnesota)

  • Diwakar Gupta

    (Graduate Program in Industrial and Systems Engineering, Department of Mechanical Engineering, University of Minnesota)

Abstract

We consider a cargo booking problem on a single-leg flight with the goal of maximizing expected contribution. Each piece of cargo is endowed with a random volume and a random weight whose precise values are not known until just before the flight's departure. We formulate the problem as a Markov decision process (MDP). Exact solution of the formulation is impractical, because of its high-dimensional state space; therefore, we develop six heuristics. The first four heuristics are based on different value-function approximations derived from two computationally tractable MDPs, each with a one-dimensional state space. The remaining two heuristics are obtained from solving related methematical programming problems. We also compare the heuristics with the first-come, first-served (FCFS) policy. Simulation experiments suggest that the value function approximation derived from separate “volume” and “weight” problems offers the best approach. Comparisons of the expected contribution under the heuristic to an upper bound show that the heuristic is typically close to optimal.

Suggested Citation

  • Kannapha Amaruchkul & William L. Cooper & Diwakar Gupta, 2007. "Single-Leg Air-Cargo Revenue Management," Transportation Science, INFORMS, vol. 41(4), pages 457-469, November.
    • Handle: RePEc:inm:ortrsc:v:41:y:2007:i:4:p:457-469
    DOI: 10.1287/trsc.1060.0177
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    References listed on IDEAS

    as
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    Keywords

    air-cargo operations; revenue management;

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