Value of Information in Air-Cargo Revenue Management

Air-cargo capacity is random and affected by the number of passengers carried, because both cargo shipments and passenger bags are carried in a belly of a plane. The fewer the passengers carried, the higher the cargo capacity. Current seats sold usually provide some information on the passengers carried, and consequently the cargo capacity. Records of the passengers carried and the seats sold are readily available in a passenger revenue management system. We propose mathematical models to evaluate monetary benefits, if different levels of information in the passenger revenue management system are shared by the cargo revenue management system. At a minimum level, an airline constructs a prior distribution of random cargo capacity from a historical record of passengers carried. At a higher level, the airline updates the distribution of cargo capacity based on the number of seats sold. A numerical example that illustrates the proposed methodology is also provided.