CARGO REVENUE MANAGEMENT: BID-PRICES FOR A 0-1 MULTI KNAPSACK PROBLEM

Kevin Pak · Rommert Dekker

33 citations0/0 files storedRePEc: Research Papers in Economics

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Supply Chain and Inventory Management Vehicle Routing Optimization Methods Optimization and Packing Problems

Abstract

Revenue management is the practice of selecting those customers that generate the maximum revenue from a fixed and perishable capacity. Cargo revenue management differs from the well-known passenger revenue management problem by the fact that its capacity constraint is 2-dimensional, i.e. weight and volume, and that the weight, volume and profit of each booking request are random and continuous variables. This leads to a multi-dimensional on-line knapsack problem. We show that a bid-price acceptance policy is asymptotically optimal if demand and capacity increase proportionally and the bid-prices are set correctly. We provide a heuristic to set the bid-prices based on a greedy algorithm for the multi-knapsack problem proposed by Rinnooy Kan et al. (1993). A test case shows that these bid-prices perform better than the traditional LP-based bid-prices that do not perform well at all for this problem.

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References

1998An Analysis of Bid-Price Controls for Network Revenue Management 1993A Model for Dynamic Airline Seat Inventory Control with Multiple Seat Bookings 1999Airline Yield Management with Overbooking, Cancellations, and No-Shows 1999The Underlying Markov Decision Process in the Single-Leg Airline Yield-Management Problem 1997Air cargo revenue management: Characteristics and complexities 1999Solution to the Continuous Time Dynamic Yield Management Model

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2006Simulation of stochastic demand data streams for network revenue management problems 2006O&D revenue management in cargo airlines—a mathematical programming approach 2016A risk averse approach to the capacity allocation problem in the airline cargo industry 2008A stochastic model for dynamic capacity allocation of container shipping two-dimensional revenue management

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