IDEAS home Printed from https://ideas.repec.org/a/inm/oropre/v60y2012i2p351-365.html
   My bibliography  Save this article

Cargo Capacity Management with Allotments and Spot Market Demand

Author

Listed:
  • Yuri Levin

    (School of Business, Queen's University, Kingston, Ontario, K7L 3N6, Canada)

  • Mikhail Nediak

    (School of Business, Queen's University, Kingston, Ontario, K7L 3N6, Canada)

  • Huseyin Topaloglu

    (School of Operations Research and Information Engineering, Cornell University, Ithaca, New York 14853)

Abstract

We consider a problem faced by an airline that operates a number of parallel flights to transport cargo between a particular origin to destination pair. The airline can sell its cargo capacity either through allotment contracts or on the spot market, where customers exhibit choice behavior between different flights. The goal is to simultaneously select allotment contracts among available bids and find a booking control policy for the spot market to maximize the sum of the profit from the allotments and the total expected profit from the spot market. We formulate the booking control problem on the spot market as a dynamic program and construct approximations to its value functions, which can be used to estimate the total expected profit from the spot market. We show that our value function approximations provide upper bounds on the optimal total expected profit from the spot market, and they allow us to solve the allotment selection problem through a sequence of linear mixed-integer programs with a special structure. Furthermore, the value function approximations are useful for constructing a booking control policy for the spot market with desirable monotonic properties. Computational experiments show that the proposed approach can be scaled to realistic problems and provides well-performing allotment allocation and booking control decisions.

Suggested Citation

  • Yuri Levin & Mikhail Nediak & Huseyin Topaloglu, 2012. "Cargo Capacity Management with Allotments and Spot Market Demand," Operations Research, INFORMS, vol. 60(2), pages 351-365, April.
    • Handle: RePEc:inm:oropre:v:60:y:2012:i:2:p:351-365
    DOI: 10.1287/opre.1110.1023
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.1287/opre.1110.1023
    Download Restriction: no
    File URL: https://libkey.io/10.1287/opre.1110.1023?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Huseyin Topaloglu, 2009. "Using Lagrangian Relaxation to Compute Capacity-Dependent Bid Prices in Network Revenue Management," Operations Research, INFORMS, vol. 57(3), pages 637-649, June.
    2. Gérard P. Cachon, 2004. "The Allocation of Inventory Risk in a Supply Chain: Push, Pull, and Advance-Purchase Discount Contracts," Management Science, INFORMS, vol. 50(2), pages 222-238, February.
    3. Kalyan Talluri & Garrett van Ryzin, 1999. "A Randomized Linear Programming Method for Computing Network Bid Prices," Transportation Science, INFORMS, vol. 33(2), pages 207-216, May.
    4. Kalyan Talluri & Garrett van Ryzin, 2004. "Revenue Management Under a General Discrete Choice Model of Consumer Behavior," Management Science, INFORMS, vol. 50(1), pages 15-33, January.
    5. Kalyan Talluri & Garrett van Ryzin, 1998. "An Analysis of Bid-Price Controls for Network Revenue Management," Management Science, INFORMS, vol. 44(11-Part-1), pages 1577-1593, November.
    6. Luo, Sirong & Çakany?ld?r?m, Metin & Kasilingam, Raja G., 2009. "Two-dimensional cargo overbooking models," European Journal of Operational Research, Elsevier, vol. 197(3), pages 862-883, September.
    7. Daniel Adelman, 2007. "Dynamic Bid Prices in Revenue Management," Operations Research, INFORMS, vol. 55(4), pages 647-661, August.
    8. Wei-yu Kevin Chiang & Dilip Chhajed & James D. Hess, 2003. "Direct Marketing, Indirect Profits: A Strategic Analysis of Dual-Channel Supply-Chain Design," Management Science, INFORMS, vol. 49(1), pages 1-20, January.
    9. Kannapha Amaruchkul & William L. Cooper & Diwakar Gupta, 2007. "Single-Leg Air-Cargo Revenue Management," Transportation Science, INFORMS, vol. 41(4), pages 457-469, November.
    10. Dimitris Bertsimas & Ioana Popescu, 2003. "Revenue Management in a Dynamic Network Environment," Transportation Science, INFORMS, vol. 37(3), pages 257-277, August.
    11. Blomeyer, J., 2006. "Air Cargo Revenue Management," Other publications TiSEM e63bf3d6-e8b8-4d32-94f6-4, Tilburg University, School of Economics and Management.
    12. Xiao, Baichun & Yang, Wei, 2010. "A revenue management model for products with two capacity dimensions," European Journal of Operational Research, Elsevier, vol. 205(2), pages 412-421, September.
    13. Jinhong Xie & Steven M. Shugan, 2001. "Electronic Tickets, Smart Cards, and Online Prepayments: When and How to Advance Sell," Marketing Science, INFORMS, vol. 20(3), pages 219-243, June.
    14. Rivi Sandhu & Diego Klabjan, 2006. "Fleeting with Passenger and Cargo Origin-Destination Booking Control," Transportation Science, INFORMS, vol. 40(4), pages 517-528, November.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Shaban, Ibrahim Abdelfadeel & Chan, F.T.S. & Chung, S.H., 2021. "A novel model to manage air cargo disruptions caused by global catastrophes such as Covid-19," Journal of Air Transport Management, Elsevier, vol. 95(C).
    2. 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.
    3. Rossana Cavagnini & Valentina Morandi, 2021. "Implementing Horizontal Cooperation in Public Transport and Parcel Deliveries: The Cooperative Share-A-Ride Problem," Sustainability, MDPI, vol. 13(8), pages 1-20, April.
    4. 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.
    5. 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.
    6. 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.
    7. Long Gao & Jim (Junmin) Shi & Michael F. Gorman & Ting Luo, 2020. "Business Analytics for Intermodal Capacity Management," Manufacturing & Service Operations Management, INFORMS, vol. 22(2), pages 310-329, March.
    8. Wang, Tingsong & Meng, Qiang & Wang, Shuaian & Qu, Xiaobo, 2021. "A two-stage stochastic nonlinear integer-programming model for slot allocation of a liner container shipping service," Transportation Research Part B: Methodological, Elsevier, vol. 150(C), pages 143-160.
    9. Majid Taghavi & Kai Huang, 2020. "A Lagrangian relaxation approach for stochastic network capacity expansion with budget constraints," Annals of Operations Research, Springer, vol. 284(2), pages 605-621, January.
    10. Wen, Xiaoqin & Xu, Chen & Hu, Qiying, 2016. "Dynamic capacity management with uncertain demand and dynamic price," International Journal of Production Economics, Elsevier, vol. 175(C), pages 121-131.
    11. Arim Park & Min Kyung Lee & Hyosoo (Kevin) Park & Ji-Hung (Ryan) Choi & Ju Myung Song, 2023. "The impact of security oversight on air cargo price and demand," Journal of Transportation Security, Springer, vol. 16(1), pages 1-22, December.
    12. 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.
    13. Ghilas, Veaceslav & Demir, Emrah & Woensel, Tom Van, 2016. "A scenario-based planning for the pickup and delivery problem with time windows, scheduled lines and stochastic demands," Transportation Research Part B: Methodological, Elsevier, vol. 91(C), pages 34-51.
    14. Bo Feng & Zheyu Jiang & Fujun Lai, 2020. "Robust approach for air cargo freight forwarder selection under disruption," Annals of Operations Research, Springer, vol. 291(1), pages 339-360, August.
    15. 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.
    16. Delgado, Felipe & Sirhan, Cristóbal & Katscher, Mathias & Larrain, Homero, 2020. "Recovering from demand disruptions on an air cargo network," Journal of Air Transport Management, Elsevier, vol. 85(C).
    17. Wu, You & Lange, Anne & Mantin, Benny, 2022. "Who benefits from air service agreements? The case of international air cargo operations," Transportation Research Part B: Methodological, Elsevier, vol. 163(C), pages 281-303.
    18. 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.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Tatsiana Levina & Yuri Levin & Jeff McGill & Mikhail Nediak, 2011. "Network Cargo Capacity Management," Operations Research, INFORMS, vol. 59(4), pages 1008-1023, August.
    2. Thomas W. M. Vossen & Dan Zhang, 2015. "Reductions of Approximate Linear Programs for Network Revenue Management," Operations Research, INFORMS, vol. 63(6), pages 1352-1371, December.
    3. Yuhang Ma & Paat Rusmevichientong & Mika Sumida & Huseyin Topaloglu, 2020. "An Approximation Algorithm for Network Revenue Management Under Nonstationary Arrivals," Operations Research, INFORMS, vol. 68(3), pages 834-855, May.
    4. Georgia Perakis & Guillaume Roels, 2010. "Robust Controls for Network Revenue Management," Manufacturing & Service Operations Management, INFORMS, vol. 12(1), pages 56-76, November.
    5. Meissner, Joern & Strauss, Arne, 2012. "Improved bid prices for choice-based network revenue management," European Journal of Operational Research, Elsevier, vol. 217(2), pages 417-427.
    6. Wang, Tingsong & Meng, Qiang & Tian, Xuecheng, 2024. "Dynamic container slot allocation for a liner shipping service," Transportation Research Part B: Methodological, Elsevier, vol. 179(C).
    7. 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.
    8. Ş. İlker Birbil & J. B. G. Frenk & Joaquim A. S. Gromicho & Shuzhong Zhang, 2014. "A Network Airline Revenue Management Framework Based on Decomposition by Origins and Destinations," Transportation Science, INFORMS, vol. 48(3), pages 313-333, August.
    9. Sumit Kunnumkal & Huseyin Topaloglu, 2010. "Computing Time-Dependent Bid Prices in Network Revenue Management Problems," Transportation Science, INFORMS, vol. 44(1), pages 38-62, February.
    10. 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.
    11. Meissner, Joern & Strauss, Arne, 2012. "Network revenue management with inventory-sensitive bid prices and customer choice," European Journal of Operational Research, Elsevier, vol. 216(2), pages 459-468.
    12. Wuyang Yuan & Lei Nie & Xin Wu & Huiling Fu, 2018. "A dynamic bid price approach for the seat inventory control problem in railway networks with consideration of passenger transfer," PLOS ONE, Public Library of Science, vol. 13(8), pages 1-23, August.
    13. L. F. Escudero & J. F. Monge & D. Romero Morales & J. Wang, 2013. "Expected Future Value Decomposition Based Bid Price Generation for Large-Scale Network Revenue Management," Transportation Science, INFORMS, vol. 47(2), pages 181-197, May.
    14. Nicolas Houy & François Le Grand, 2015. "The Monte Carlo first-come-first-served heuristic for network revenue management," Working Papers halshs-01155698, HAL.
    15. Mika Sumida & Huseyin Topaloglu, 2019. "An Approximation Algorithm for Capacity Allocation Over a Single Flight Leg with Fare-Locking," INFORMS Journal on Computing, INFORMS, vol. 31(1), pages 83-99, February.
    16. Chaoxu Tong & Huseyin Topaloglu, 2014. "On the Approximate Linear Programming Approach for Network Revenue Management Problems," INFORMS Journal on Computing, INFORMS, vol. 26(1), pages 121-134, February.
    17. Gönsch, Jochen & Koch, Sebastian & Steinhardt, Claudius, 2014. "Revenue management with flexible products: The value of flexibility and its incorporation into DLP-based approaches," International Journal of Production Economics, Elsevier, vol. 153(C), pages 280-294.
    18. Hossein Jahandideh & Julie Ward Drew & Filippo Balestrieri & Kevin McCardle, 2020. "Individualized Pricing for a Cloud Provider Hosting Interactive Applications," Service Science, INFORMS, vol. 12(4), pages 130-147, December.
    19. Huseyin Topaloglu, 2009. "Using Lagrangian Relaxation to Compute Capacity-Dependent Bid Prices in Network Revenue Management," Operations Research, INFORMS, vol. 57(3), pages 637-649, June.
    20. Dan Zhang, 2011. "An Improved Dynamic Programming Decomposition Approach for Network Revenue Management," Manufacturing & Service Operations Management, INFORMS, vol. 13(1), pages 35-52, April.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:inm:oropre:v:60:y:2012:i:2:p:351-365. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Asher (email available below). General contact details of provider: https://edirc.repec.org/data/inforea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.