A Markov model for single-leg air cargo revenue management under a bid-price policy |
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Authors: | Dong Ling Han Loon Ching Tang Huei Chuen Huang |
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Affiliation: | aDepartment of Industrial and Systems Engineering, National University of Singapore, 1 Engineering Drive 2, Singapore 117576, Singapore |
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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. |
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Keywords: | OR in airlines Revenue management |
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