A matheuristic approach to the air-cargo recovery problem under demand disruption

Air cargo transport is subject to unpredictable changes in expected demand, necessitating adjustments to itinerary planning to recover from such disruptions. We study a flight rescheduling problem to react to cargo demand disruptions in the short run. To increase flexibility, we consider two different cargo assignment policies. We propose a matheuristic approach to solve the problem that provides high-quality solutions in a short computational time, based on column generation in which each subproblem is solved using an ad-hoc heuristic. The approach is tested on demand disruption instances containing up to 75 air cargo orders with different penalty levels. The results show that the proposed method improves profit by 54% over the solution generated by a commercial MIP solver within a 1-h time limit, and by 15% over the solution with the routes fixed as in the original flight planning that only allows cargo to be re-routed. We also show that there exist incremental benefits in the range of 3–5% by allowing cargo for a given order to be transported by various aircraft.     

Air cargo alliances and competition in passenger markets

This paper develops an oligopoly model to investigate the effect of an air cargo alliance on competition in passenger markets. We consider a model in which the partners, while continuing to offer their respective passenger services, jointly offer a new integrated cargo service by utilizing their passenger aircraft and routes. We find that such an alliance will likely increase the partners’ own outputs, while simultaneously decreasing its rivals’ outputs, in not only the cargo market but also the secondary passenger market. Furthermore, the alliance is likely to reduce passenger prices and increase total surplus.     

The underlying drivers and future development of air cargo

Air cargo plays a crucial role in the air transport chain and in the globalized economy. As for other modes of transport, the demand for air cargo is a derived demand. Previous studies showed that the main determinants of air cargo demand are merchandise trade and the share of manufactures in merchandise trade. This paper aims to fill a gap in the existing literature by additionally taking the influence of air freight yields and oil prices into account when modelling the global air cargo development. Furthermore, it provides an insight into the future development of air cargo. Forecasts until 2023 are made based on a number of scenarios for the main determinants of air cargo demand. Moreover, an insight is provided into the current air cargo market, including traffic levels and different types of actors and traffic flows. The results are useful not only for academics but also for industry stakeholders for which air cargo is an important contributor to profit and/or cash levels.     

A maritime container repositioning yield-based optimization model with uncertain upsurge demand

The role of container repositioning has become more important under the severe cargo shipping environment, affected by world trade growth, trade imbalance, slow steaming strategy and high container manufacturing cost. Low cost, better routing, and supplying equipment to higher yield cargo become the top criteria. A yield-based container repositioning framework is developed, followed by a constrained linear programming optimizing the container repositioning from surplus to deficit locations. The model incorporated change of destinations of empty containers and adjustment factors handling upsurge demand. The model is applied to optimize daily container repositioning operations with a better route, costs and equipment supply.     

Route churn: an analysis of low-cost carrier route continuity in Europe

Discontinuity of air routes is a subject that has been analysed in various ways. For example, the complex network approach focuses on network robustness and resilience due to route interruptions during a relatively short period. Also seasonal interruptions of air routes are a well-documented phenomenon in the context of demand variability. However, only recently discussions emerge on the more permanent cessation of air routes, the route churn. Today, European low-cost carriers frequently apply route churn in their networks. To enable early route churn detection in these networks, a regression model is developed in which route characteristics explain the churning likelihood of individual routes. The results of the econometric analysis show that churn rates are higher during an economic downturn, within the Eastern European market, between the Eastern and the Mediterranean market and between primary airports. In addition, we find that distance and the number of seats offered have a significant negative effect on the churn likelihood. The results also show significant effects of market share, seasonality and route age on the chance of cessation. To conclude, the paper demonstrates substantial differences in churn behaviour amongst specific low-cost carriers.     

Contract optimization with front-end fare discounts for airline corporate deals

This paper develops a non-linear programming model to design optimal corporate contracts for airlines stipulating front-end discounts for all nets, which are defined by combination of routes, cabin types, and fare classes. The airline’s profit is modeled using a multinomial logit function that captures the client’s choice behavior in a competitive market. Alternative formulations are employed to investigate the impact of price elasticity, demand, and competition on optimal discounting policies. A case study involving a major carrier is presented to demonstrate the model. The results indicate that airlines can increase revenues significantly by optimizing corporate contracts using the suggested model.     

Mutual influence across routes using a common airport: The case of the domestic market in Japan

This paper empirically investigates the mutual influence of traffic volumes across routes serving the same airport. Regression analysis using the data on Japan's domestic air transport market reveals that an increase in passengers on a given route has a positive effect on the number of passengers on other routes that share an endpoint airport with the given route. This result implies that a change in policy for an airport is likely to influence routes that do not serve that airport as well as the routes that do.     

A strategic analysis of incorporating CSR into managerial incentive design

A strategic analysis is conducted to incorporate corporate social responsibility (CSR) considerations into managerial incentive design in a duopoly where each firm comprises an owner and a manager. Consumer surplus is adopted to represent the firms’ CSR concerns and a CSR-related incentive is introduced to accommodate both profit and consumer surplus. Bertrand and Cournot competition modes are discussed with the firms’ products being complementary, independent, or substitutable. We first examine the equilibrium of CSR-related incentive design and, then, analyze how CSR-related incentives affect the firms’ profitability and CSR performance, measured by consumer surplus and social welfare.     

Analyzing air cargo flows of international routes: an empirical study of Taiwan Taoyuan International Airport

Air cargo demand is an important aspect of the operation and planning of private and public agencies responsible for airports. While most existing studies in this field include only geo-economic characteristics of airports and their hinterlands as explanatory variables, this study develops a gravity model of air cargo flows by trying to incorporate more factors that might influence international air cargo flows of an airport. The model is developed based on the panel data of air cargo services on scheduled routes at Taiwan Taoyuan International Airport during the years 2004-2007. The results indicate that population, air freight rate and three dummy variables, including the regional economic bloc of the “Chinese Circle”(an informal partnership between Hong Kong, Macao, Taiwan and mainland China), the Open Sky Agreements and long established colonial links, are key determinants of international air cargo flows from/to Taiwan. These results suggest a wider array of factors needs to be considered in policy.     

Responses of air cargo carriers to industrial changes

This study examines how product characteristics, values, inventory cost, shipping charges, shipping distance, and time affect an international firm's choice of air carrier. An individual choice model is constructed by assuming that the shipper in a specific industry chooses the optimal air cargo carrier with the minimal logistics cost. The study further aggregates air cargo demands on different routes for the carriers by considering the spatial distribution of the origin-destination pattern and any temporal changes in the industrial structure. A case study is used to illustrate the application of the proposed model using data from Taiwan Taoyuan International Airport and the industrial economics database in Taiwan. The results show that shippers with high product value and short delivery distance focus on the shipping charge and prefer choosing the air cargo carrier that offers more flights. Further a carrier may achieve a larger market share if its supply attributes match the industrial structure and the product characteristics of the market on the route. Finally, because dynamic changes in the industrial structure and product value have been captured, the results are more accurate than that from the Grey model.     

Transportation disruption risk management: business interruption insurance and backup transportation

Business interruption (BI) insurance and backup transportation have been widely used in distribution centers’ daily risk management. If disruption occurs, a firm (distribution center) can exert efforts to resume its transportation, although its unit transportation cost during the recovery process is uncertain. This paper studies how ex ante BI insurance can affect the ex post transportation recovery, and compares BI insurance with the ex post action—backup transportation. We investigate four strategies: basic strategy, BI insurance strategy, backup transportation strategy, and mixed strategy (integration of the last two). The distribution center that seeks the least profit loss prefers the mixed strategy to other three strategies. However, the mixed strategy might in turn require longer transportation recovery time than the BI insurance strategy. The BI insurance and transportation recovery are complementary, but the BI insurance and backup transportation are substitutable, the backup transportation and the transportation recovery are also substitutable. We also find that the choice of BI insurance strategy and the backup transportation strategy depends on transportation market, insurance market and distribution center’s operational environments.     

Quantity price discrimination in the air transport industry: The easyJet case

This paper extends the literature on low-cost carriers' pricing strategies by investigating the presence of quantity price discrimination implemented through a two-part tariff in offered fares. By analysing Internet fares for all easyJet flights departing from the Amsterdam Schiphol airport between March and April 2015, we search for price differentials based on the number of seats booked by a single consumer. We find that the lowest average unit price is associated with a single consumer reserving 5 seats. On average, the per-seat discount for a single consumer reserving 5 seats is €9.48, which is 14% of the single-seat fare. Additionally, a multivariate analysis shows that quantity discounts are greater for flights with a larger fraction of available seats at the time of booking, the seats are booked longer in advance, and the destination's gross domestic product per capita is greater. Conversely, quantity discounts are lower for longer routes, larger destination airports, and routes for which easyJet's market share is higher.     

Low-cost carriers versus full service carriers in ASEAN: The impact of liberalization policy on competition

This study analyses the ASEAN Single Aviation Market (ASAM) policy to be introduced by the end of 2015. We conduct a scenario study to estimate the impact of low-cost carrier (LCC) network expansion under liberalized air transport policies in the ASEAN region. Establishing joint ventures is a possible way for foreign carriers to expand the network in this region, even after starting ASAM. This is unique as joint ventures are not only subsidiaries of the full-service carriers, as is the case in the United States and Europe. We also apply a quantitative air transport market model to estimate the policy impact of the entry of new LCCs on routes from three ASEAN hub airports to Manila airport, which covers the impact on the whole network. The model produces several significant results, including that the entry of one LCC on one route may affect the fare, frequency, and profitability of related competitive routes for the entire network.     

A Cournot model for analysing the effects of an open skies agreement

In the last decades there has been a gradual liberalisation of international air transport markets through the implementation of open skies agreements which seek the deregulation of the air transport industry and consequently the functioning of the market in a freer way. The objective of this work is to study the effects of an open skies agreement in order to understand if the airlines and the consumers will benefit after the market deregulation. With this purpose, we develop a Cournot model to compare the initial situation (without agreement) and the situation after the implementation of the open skies agreement.Based on the model developed we conclude that after market liberalisation the prices on international market segments where competition increases should decline, thus benefiting consumers. Regarding the incumbent airlines in the market, an open skies agreement should jeopardize the airlines that fail to operate new routes, leading to decreased profits.     

Intermodal alliance and rivalry of transport chains: The air cargo market

This paper examines the effect of multimodal integration on the rivalry between two transport chains – a forwarder–airline alliance and an integrator – under the economies of traffic density. An improvement in multimodal integration by a forwarder–airline alliance would increase the alliance’s output, while reducing the integrator’s output, not only in the multimodal market but also in other markets of the cargo network. It would further increase the alliance’s profit, provided the intermodal improvement is not too costly, while reducing the integrator’s profit, and would likely improve both consumer surplus and total surplus. We also find that an alliance in general leads to greater market shares for the firms involved than outsourcing.     

Investigating the effects of economies of scope on firms’ pricing behavior: Empirical evidence from the US domestic airline industry

This study investigates to what extent cross-product (belly cargo) output affects (passenger ticket) prices in the US domestic airline industry. The empirical analysis indicates that greater cargo volumes generally result in lower air fares, presumably as a result of the airlines’ realization of economies of scope. This magnitude of this price effect, however, depends on certain firm and route market characteristics. The findings of this study add to extant research on economies of scope, multi-product yield management and airline pricing and provide important insights for policy makers and airline managers alike.     

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.     

KLM and Northwest: a survey of the impact of a passenger alliance on cargo service characteristics

This paper identifies and quantifies the impact of a major passenger alliance, between KLM and Northwest Airlines, on the cargo service characteristics of one of the partners, KLM. The hypothesis that the KLM/Northwest Airlines passenger alliance had led to a decline in the quantity and quality of cargo service connections is rejected, even though the first years of the alliance clearly indicate deteriorated cargo layover times. The number of possible connections and the inbound and total routing belly-hold capacity increased during the time-span considered for the research. Also, the cargo layover times eventually declined after an initial increase. Different samples of routes connecting through Minneapolis, Detroit, New York, and Chicago (the latter being KLM Cargo's hub where interlining with United Airlines is feasible) all demonstrate a consistent positive impact. Partner connections eventually outperformed interlining.     

An analysis of the greenhouse gas emissions profile of airlines flying the Australian international market

International commercial flights (with the exception of flights between countries in European Union including Iceland, Norway and Liechtenstein) are currently not subject to greenhouse gas emission reduction regulation. To formulate effective and efficiency policy to manage greenhouse gas emissions from air transport, policy makers need to determine the emissions profiles of all airlines currently flying into their country or region. In this paper, we use 2012 data on airlines' aircraft characteristics, passenger load and cargo load (obtained from statistics reported by Australian Government Bureau of Infrastructure, Transport and Regional Economics) to estimate the volume and carbon efficiency on each international route flying to and from Australia. This is the first study to use actual passenger and cargo load data to determine the greenhouse gas (specifically CO₂) efficiency of airlines operating in the Australian international aviation market. Airlines' CO₂ emission profile is dependent on many factors including but not limited to the aircraft used, payload, route taken, weather conditions. Our results reveal that the airlines’ CO₂ emission profile is not only dependent on the aircraft used and the number of passengers but also the amount of cargo on each flight.     

The impact of carbon emission fees on passenger demand and air fares: A game theoretic approach

The implementation of an environmental market-based measure on U.S. aviation industry is studied. Under this policy, each airline pays a carbon fee for the carbon dioxide emissions it generates. The impact on ticket prices and corresponding market shares is investigated via the joint estimation of an air travel demand model and an airlines' behavior model. In the demand model, aggregate air traffic data is used to determine the marginal effects of flight attributes that are specific to itinerary, airline and airport on market share. The airline's behavior model incorporates the carbon fee in the airline marginal cost. After the implementation of the carbon policy, the increased cost forces airlines to adjust ticket prices in order to maximize profits. The results obtained by the proposed model indicate a moderate price increase which strongly depends on the per tonne carbon price. Air travel demand falls from 2.4% to 21% depending on the carbon price level.