Airlines extra-baggage pricing policy using newsvendor price based model

I. A. Shaban, Tung Sun Chan, S. H. Chung

Research output: Chapter in book / Conference proceedingConference article published in proceeding or bookAcademic researchpeer-review

Abstract

Combination airlines transport both passengers and cargo. In most cases, the airlines use wide-body aircraft with passengers in the upper deck and their bags and cargo in the aircraft belly-hold. Typically, airlines put limits for passenger's regular bags, either two pieces with 23 kilograms each, or only one with 30 kilograms and they also offer a very limited amount for any excessive weight with high prices. Moreover, most of the previous studies have been executed to determine the limits of bag weights or quantities. In this regard, we propose a newsvendor price based model to change the airline's approach from constraining the amount of extra-baggage to use it as a profitable tool. This model is concerned with the extra-luggage as new a special cargo which means that the limit of booking extra-baggage is the belly hold capacity, not anything else. A simulation analysis has been performed to calculate the expected profit in three different scenarios with different prices and quantities. These scenarios are represented in different cases related to the aircraft capacity and the existing cargo and extra-luggage together. For the first scenario, the booked space is less than the belly-hold space. For the second scenario, the existing amounts exceed the capacity. For the third scenario, the aircraft belly-hold is fully utilized. The simulation results showed that for these three scenarios, the maximum profit can be obtained if the airline offers prices for extra-baggage that are the same as regular cargo. This proposed model opens up a new era to airlines in offering a new service with a new market share and higher profits.
Original languageEnglish
Title of host publicationProceedings - 47th International Conference on Computers and Industrial Engineering
Subtitle of host publicationHow Digital Platforms and Industrial Engineering are Transforming Industry and Services, CIE 2017
PublisherCurran Associates Inc.
ISBN (Electronic)9780000000002
Publication statusPublished - 1 Jan 2017
Event47th International Conference on Computers and Industrial Engineering: How Digital Platforms and Industrial Engineering are Transforming Industry and Services, CIE 2017 - Universidade Nova de Lisboa, Lisbon, Portugal
Duration: 11 Oct 201713 Oct 2017

Conference

Conference47th International Conference on Computers and Industrial Engineering: How Digital Platforms and Industrial Engineering are Transforming Industry and Services, CIE 2017
CountryPortugal
CityLisbon
Period11/10/1713/10/17

Keywords

  • Air cargo
  • Airlines
  • Newsvendor model
  • Pricing

ASJC Scopus subject areas

  • Computer Science(all)
  • Control and Systems Engineering
  • Electrical and Electronic Engineering
  • Industrial and Manufacturing Engineering
  • Safety, Risk, Reliability and Quality

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