I cannot believe that I have been in this field of air cargo revenue management for over three decades now, and it still feels like yesterday. I still love what I do. Yes, I was fortunate to be one of the very first to work on air cargo revenue management. It was in May 1991 when I had an opportunity to work with a team that was pioneering the art and science of air cargo revenue management. I remember the challenges we faced while persuading the air cargo executives to take the very basic and first step toward revenue management – getting a grip on the available capacity.
Airline Passenger Revenue Management Then
Initially, airline passenger revenue management was relatively mature but not as advanced as it is today. The basic idea of passenger revenue management was to offer a certain number of seats at a certain price to maximize total flight revenue. This was accomplished by determining the capacity available for sale, forecasting demand for various demand groups, and then optimally allocating available capacity for sale among various demand groups. Capacity available for sale is essentially actual physical capacity plus additional seats to compensate for customers that may cancel their bookings or just not show up at the gate.
My First Experience with Air Cargo Revenue Management
The very first implementation of cargo revenue management focused on the key input for determining capacity available for sale – physical capacity. In the air cargo world, this information needs to be predicted as it depends on everything that gets on the flight before cargo is loaded. This means it is imperative to forecast passenger and bag weight, mail, and anything else that has a higher boarding priority than cargo. In addition, cargo capacity is at a minimum 2-dimensional and in some cases 3-dimensional depending on whether the aircraft is narrow or wide body. American Airlines who pioneered the concept of passenger revenue management, known as yield management, was also the first airline to embark on the implementation of the foundational module of cargo revenue management – forecasting physical cargo capacity in three dimensions.
The folks that managed cargo operations at that time were convinced that they knew what they were doing. They claimed that they knew their flights and airports and a bunch of Operations Research Analysts would have no clue about it. It took us a great deal of effort to prove to them using real data that several flights departed with less cargo than capacity and in some cases, cargo must be brought back to the terminal due to lack of capacity. The bottom line is that we could have avoided these situations if we had more accurate knowledge of cargo capacity. It is worth noting that we also had to take a few bullets from many stakeholders along the way.
Air cargo executives in the early 90s also didn’t believe in scientifically calculating overbooking. The general practice was to use a hopper model – fill the hopper with freight bookings and let them go on the next flight and flight after if they can’t go on their booked flight. I was personally involved in incorporating the booking behavior of cargo using simple statistical models to determine capacity available for sale. Business rules were then used to allocate capacity to a very few limited products.
Early Adoption of Air Cargo Revenue Management
The next milestone in air cargo revenue management was the development and implementation of a network-level allotment optimization system at Cathay Pacific Airways.
In fact, this was the first known origin-destination (O&D) based revenue management system for the airline industry, almost more than a decade before the airline passenger business even ventured into O&D optimization.
The third major implementation of air cargo revenue management was at Continental Airlines which included all the key modules of a revenue management solution except for allotment management/optimization.
All three of the above-mentioned milestones occurred over a period of six years. Then the ball started rolling very slowly but steadily over the past couple of decades in terms of the adoption of air cargo revenue management concepts.
The Evolution that Never Stopped
Over the last two decades, the basic concepts of air cargo revenue management have remained largely the same but the focus shifted from maximizing revenue to maximizing profit or margin. In addition, the data used, the assumptions made on underlying distributions of the data and network (leg vs. segment. O&D), and the methods used for forecasting and optimization have evolved to more accurately capture the nature of the problem.
The solution also incorporated some of the operational and commercial constraints along with user interfaces that closely represent and support optimal user experience through the better look and feel and streamlined process flow.
Innovation in scientific methods and advances in technological platforms enabled the solution to go to the next level. Some of us at RTS have been quite fortunate to be part of the entire journey of air cargo revenue management right from the start to till now.
Our experiences with several carriers in this area have helped us to understand the barriers to realizing the benefits of implementing air cargo revenue management. And has enabled us to identify key success factors for implementing the right revenue management solution.
The air cargo industry still has a long way to go when it comes to capturing the additional revenue potential from using a revenue management solution. Some carriers do not even have a revenue management solution, some do not implement the right solution, and others are not utilizing their system to its fullest potential. But the good news is that we have started seeing significant changes in the right direction due to thought leadership at many carriers and changing air cargo corporate culture. The availability of more and better quality data, advances in forecasting and optimization models such as AI/ML, and technological advances in terms of storage and speed are certainly helping to speed up adoption in this area.
I only hope that revenue management concepts in air cargo will be as prevalent as they are in the airline passenger business before the end of my time. After all, which business doesn’t want to make more money?
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