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

Dong Ling Han, Loon Ching Tang and Huei Chuen Huang

European Journal of Operational Research, 2010, vol. 200, issue 3, 800-811

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.

Keywords: OR; in; airlines; Revenue; management (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (15)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ejores:v:200:y:2010:i:3:p:800-811

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