A Solution of Air Cargo Capacity Allocation through an Integrated Wholesale-Option Contract

Abstract

In this research, an airline sells cargo capacity to different freight forwarders in substitutable routes. The freight forwarder purchases from some routes exceed these routes capacity, and the substitutable routes sales cannot fill half of its capacity. An integrated wholesale-option contract model, in a cooperative game form, is developed to perform a capacity allocation model and to solve the demand imbalance among these routes. The game is carried out between a single airline and multiple freight forwarders, and their payoffs are the expected profits. It is found that the demand in the underutilized routes is a self-replicating distribution.