The application of inventory transshipment modeling to air cargo revenue management

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.

► We analyze the optimal overbooking decisions for a cargo airline in a two-segment network setting.
► We apply a two-location inventory transshipment model to solve the network-based global optimization problem.
► We compare optimal overbooking rates in the flow-through and in the local O&D markets.
► We assess the profit impact from globalized overbooking decisions under various conditions.