CHAPTER ONE INTRODUCTION 1.

0 Introduction This chapter presents the background of the study, the statement of the study, the research objectives, the research questions, and significance of the study. Also discussed in this chapter is theoretical framework. 1.1 Background of the tud! Air-cargo operations are a significant source of revenue for passenger airlines, which currently carry a bulk of worldwide air cargo either in the belly of passenger planes or on freight-only planes. Airlines have begun to take a much more structured approach toward cargo revenue management ( !" during the past five years. Air #mirates, for e$ample, is currently training sales personnel in anticipation of a %anuary rollout of an ! system developed in-house. &hipping cargo is more complicated than moving passengers, with many more variables' (irst-come, first-served) will not give carriers an acceptable return on belly-hold space' *ynamic management can increase revenues by up to +, percent. This tool basically boils down to effective space allocation, accurate calculation of noshow cargo, clear rules on whether to accept or reject incoming bookings, and better communication between the mainstream commercial cargo and small package-mail sales teams. Air cargo is increasingly becoming an important source of revenue for airlines across the world. .n an average, the revenue from cargo is /01 of the total air traffic revenue, and up to 2,1 for some airlines. ecogni3ing the revenue generating potential of an efficient cargo department, e$perienced airlines have transformed this sideline operation into a vital component of their business strategy. 4argo is no longer considered as a cost center at many carriers. !ore and more carriers are making 4argo as a profit and loss unit and several carriers treat them as subsidiaries' in many large carriers, 4argo is a separate company. This is putting the pressure on 4argo business units to capture as much of a market share as possible and carry the right type of cargo within the constraints of the network in order to
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increase revenue and ma$imi3e profitability. The success of an air cargo operation can be impacted by a number of factors lengthy unproductive processes, untimely flight schedule updates, inaccurate data availability, and uninformed and inconsistent decision making. Airlines require automated decision support tools to help manage cargo operations at an optimal level, thereby increasing revenue while ma$imi3ing profit and improving customer relationships. 5n the early /67,s, revenue management techniques were first applied in the airline industry as a method to increase revenues resulting from passenger sales. 8ith the success of revenue management to improve passenger revenues, these techniques were applied to other business areas, such as hotel, railroad, car rental, and cargo. 8orld9s first revenue management ( !" system for cargo was developed and installed in early /66,s. Today, there are about twenty carriers in the world that use a cargo revenue management system and there are about three major vendors that provide full-fledged cargo revenue management software. Airlines use a 4argo ! solution in one or more of the following ways to generate additional revenue and profitability. :nowing the capacity available for sale accurately at the very beginning of the booking period is very important so that demand is not spilled or turned away which in turn increases revenue. ;enchmarking and post-implementation measurement of benefits from capacity planning shows revenue improvement of up to <1. =ow much space should be allocated to a station or customer based on revenue, cost, usage, type of cargo, etc.> Allocating space to the right station or customer and considering the possibilities of satisfying allocations among multiple routes considering network effects helps to increase revenue from allotment sales by up to 21. *etermining minimum acceptable prices (or hurdle prices" to sell cargo based on flight capacity, demand, and rate and density of cargo. 4arrying the right freight mi$ in terms of rate and density ma$imi3es the revenue and contribution from the 0dimensional cargo capacity. ;enchmarking measurement of revenue benefits from using hurdle pricing is up to +1. 5t is hoped that the drive to profit ma$imi3ation is the revenue management in the air cargo operations. A revenue management system can increase revenue. The e$tent of revenue benefits from using a ! solution depends on a number of key factors such as the level of sophistication
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of current revenue management method, business process alignment with revenue management, data quality and availability, product acceptance at all levels within the cargo organi3ation, and users believing and using the system. 5n addition to the financial benefits from using a availability of data, consistency in decision making, and improved response time. The air-cargo business, a 2,bn dollar industry worldwide, is increasingly a significant source of revenue for passenger airlines that carry nearly two-thirds of the worldwide airfreight either on passenger flights or on freight-only flights. This industry is forecasted to grow at an average annual rate of +.2 per cent over the ne$t two decades (;oeing, ?,,<". (actors such as increasing international trade, leaner operations, and time-to-market based competition are driving rapid e$pansion of the air-cargo business (*ahl, ?,,<' 8est, ?,,<". The air-cargo service chain consists of shippers, consolidators. evenue management has become more and more popular among industries of all sorts' traditionally applied to the airline industry, it e$tended to all business niches where the product offered is perishable, limited and price differentiable. .ne relatively new area, which became more and more important in the recent years, is the air cargo transportation. The product offered in this case, the cargo capacity, has all the features for revenue management techniques to be successful@ it is lost after the plane takes off, it is limited, and it can be offered at different rates depending on the service offered for e$ample, critical and specialty cargo, e$pedited, standard, etc. =owever, the transportation of freight by air was considered a premium transportation service by most companies. .nly recently, due to globali3ation of trade, the rise of the ecommerce and increasing used of advanced logistics techniques, the air transportation of freight has become more affordable, and hence the airlines have started to show interest in managing their cargo capacity such that their e$pected revenue is ma$imi3ed. The system, which has been under development for more than a year, combines demand forecasting and capacity-management tools with a pricing engine. &ales teams will have to work on a minimum-bid price basis, as no shipment falling below this threshold can generate a confirmation. This will influence sales technique and behavior, and represent a huge cultural
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solution, airlines have reali3ed additional benefits such as increase in productivity, up-to-date

shift for our people in the field. They will have to e$plain it, in turn, to their customers. #mirates allocates up to +, percent of available hold space on passenger aircraft to customers with hardblock space agreements (;&As" or soft-block permanent bookings (A;s". (orwarders on these agreements usually indicate their capacity requirements ?2 to 0, days ahead. The balance is offered for free sale, though this capacity may be restricted at first on some sectors to try to encourage a higher rate. ! has been Bmore of a philosophy) than a scientific discipline in the past. Air cargo service has become more attractive to shippers as aircraft capacity, frequency of lifts, handling facilities and the number of locations serviced has been increased. Air cargo losses can be controlled with the shipper as the key figure in effective loss control. ecognition of the ha3ards involved, packing cargo to survive the toughest leg of the journey and prudent selection of transportation services will assist the shipper in reali3ing successful loss-free delivery of his or her goods. 5nadequate packing and improper marking of cargo are the leading causes of air cargo losses. 5t is in these areas where the shipper can effectively influence the sound arrival of goods. 8hile seat inventory control is a standard technique in passenger revenue management ( !" to steer availability and thus prices of passenger seats, far less attention has been paid to dynamically managing cargo bookings. Two technical challenges of cargo ! that drive this contrast are the multi-dimensional nature of cargo shipments and request si3es featuring multiple capacity units. ;ecause of these characteristics, the e$act decision problem is computationally intractable. This article proposes a heuristic for solving the air cargo capacity control problem efficiently while obtaining near-optimal solutions. A significant reduction of computational load is achieved through e$ploiting the structure of monotone switching curves. 1." tate#ent of the Pro$%e# .n average, the revenue from cargo is /01 of the total air traffic revenue, and up to 2,1 for some airlines. According to the ;oeing 8orld Air 4argo (orecast (?,,2" for the period of ?,,??,?/, world air cargo growth will e$pand at an average annual rate of +.21. 5n the historical period from /6C2 to ?,,/ the average annual increase of <-C1 in air cargo volume had translated to an annual cargo yields decline of ?-01. The trend for scheduled freight yields has been
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declining 0.21 per year from /67< to /666, after adjusting for inflation. After /666 the freight yields stabili3ed and slightly increased by the end of ?,,/. 4omplicated .rigin and *estination (.D*" network means that the legs of the cargo network are either by air or by ground' the multiple leg routes present@ different flight and truck capacities, different loading requirements and multiple handling costs at each connection. The air cargo shipments are one way only, unlike the usual return trips for passenger faces uneven distribution of cargo demand. Thus, proposed study will investigates wider effects on many related industries. :ey questions addressed by this research are@ Eiven that a rational consolidator will choose to reserve capacity to ma$imi3e its individual profit, which combinations of capacity and price should the airline offer for sale to the consolidators> =ow should the airline control access to cargo capacity by direct-ship customers> &ome direct-ship customers may be willing to pay more for speedy delivery of their cargo. The study deals with the critical issue of overbooking in cargo revenue management. 5t e$plicitly treats the two dimensions of the problem with one-period models, each of which is solved on a different reading day to update the overbooking limits. The long term business relationships between an airline and the shippers have limited the application of aggressive pricing to air cargo industry. 1.& O$'ecti(e) of the tud! The general objective of this proposal will be to investigate the effects of 4apacity 4ontrol on Air 4argo evenue !anagement. The specific objectives will be@ i" ii" iii" iv" v" To investigate the effect of 4apacity (orecasting on profit ma$imi3ation To e$plore the benefits of *emand (orecasting on air cargo revenue management To establish the effects of &chedule Allotment 4reation on revenue management in the air cargo To determine the effects of (light 4apacity .ptimi3ation on revenue creation and ma$imi3ation To establish the benefits of *ynamic Allotment !anagement on booking process

1.* Re)earch +ue)tion) The following will be the research questions to help achieve the objectives of the study. They include@ i" ii" iii" iv" v" =ow the capacity forecasting does affect the profit of air cargo operations> 5n what ways do demand forecasting affects booking management> 8hat are the effects of scheduled allotment creation on revenue collection 8hy would airlines manage flight capacity optimi3ation> =ow is dynamic allotment management beneficial>

1., ignificance of the tud! The reason why this study is significant can be e$plained from three aspects. (irst, this study investigates the effects of 4apacity control on air cargo revenue management towards the profit ma$imi3ation in the air cargo operations. 4onsequently, this research might offer some empirical messages for air cargo operators in :enya about conducting a passenger or air cargo businesses. &econd, the results of the proposed study will provide value added academic literature that will improve their professional operating understanding of air cargo revenue management for profit ma$imi3ation this will provide appropriate stimulations to airline operators. Third, it is hoped that this study may help air line operators and the industry at large for providing the information of how they can improve their revenue management through air cargo capacity control. 1.- co.e and /i#itation) of the tud! 1.-.1 co.e of the tud! These studies, as well as other studies that will be undertaken to provide household-level information about the relationship between 4apacity 4ontrol in Air 4argo evenue !anagement in the Airline 5ndustry, is intended to address two sets of questions. (irst, why the airline operate revenue management in the first place> *o Air 4argo 4apacity 4ontrol influene revenue management for profit ma$imi3ation> &everal approaches will be used to address these questions. This study summari3es some of the descriptive information, as well as information from the historical record, in an attempt to describe the issues related to 4apacity 4ontrol in Air 4argo
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evenue !anagement in the Airline 5ndustry and their impacts on revenue ma$imi3ation. !ost of this work will be carried out in the #ldoret airport with few airlines operating air cargo services as well as air passenger services in the aviation industry. 1.-." /i#itation) of the tud! Three limitations of the study are generali3ed as follows. (irst, the sample si3e of this study is small. The subjects in this study will be 2, personnel from the four airlines operating both the air cargo and passenger services in :enya. The sample for this study will be restricted to the urban area participants since there are no rural offices for these airlines. 4onsequently, it is hard to generali3e the study findings to all the entire population of the airline cargo or passenger operators in :enya. &econd, it is unpredictable whether the subjects respond to the questionnaires honestly. The subject responses to the questionnaires may be out of researcher9s control. Third, owing to the limited time for answering the questionnaires, the format of the questionnaires consists of only few questions that may not be inclusive to the objectives of the topic. Therefore, the study may be not able to comprise all the questions in terms of the 4apacity 4ontrol in Air 4argo evenue !anagement in the Airline 5ndustry. 1.0 Conce.tua% 1ra#e2ork 4argo capacity is a perishable commodity as it cannot be stored. This notion of time inherently represents value in a market where many segments depend on service level agreements as part of a larger supply-chain propelled by global trade. Also, owing to relatively low variable costs, yield enhancements generated from improved pricing and capacity control almost solely ends up in bottom-line profits. The overall systems objective is to control reservations and sales through traffic-flow or network control, as well as overbooking. The success of ! in air cargo centers on systemic process re-engineering in marketing and

sales, rate establishment and capacity control. .nly by achieving a clear understanding of the demand for air cargo products or services at a micro-market level can a carrier ma$imi3e its revenue by optimi3ing price and availability of the product. 5t thus represents an area in which
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marketing and technology, supported by mathematics is closely tied together. The need for systems and technology arises as the amount of information that is available and needs to be processed increases over time. The amount of data would be impossible to process manually. =istorical Aerformance eview allows revenue analysts to conduct a full analysis of past

economic performance at a very detailed level. This would include past network and leg capacity utili3ation (weight, volume", booking cycles and average yield information per origin-destination (.*", product category, commodity, customer, etc. ate-demand curves further allow users to obtain valuable inputs into rate elasticity that aids pricing analysts to optimi3e rate lines. 1.0.1 Ca.acit! 1oreca)ting 4argo capacity forecasting is based on passenger load forecasts, baggage and mail load estimations, fuel requirements, as well as crew, catering and other configurable loads. Aassenger final load forecasts could be obtained from the passenger revenue management system, while baggage and mail loads could be estimated using historical data obtained from departure control systems for each flight number and calendar date-day. (uel requirements and updated cargo capacity in terms of weight can be calculated dynamically as per the cargo demand forecaster, since fuel requirements depend on total take-off weight and sector length. #vidently, capacity forecasting is sensitive to aircraft type and mission flown and could be adjusted for contingency factors such as the propensity for ad-hoc passenger requirements (probabilistic forecasting of misconnections per season, among others". 1.0." De#and 1oreca)ting Fsing a variety of forecasting methods, demand for air cargo space would be forecast from the ground up, that is, per category, commodity, product, customer-point of sale, &44, all based on historical data. A future feature could be to obtain rate-elasticity based demand forecasts. 8eighting factors could be applied to the data of multiple previous years, while demand forecast updates during the booking cycle of a flight could also be configured in terms of the weight of historical versus current booking data. .verbooking levels could be set based on userconfigurable risk-averse levels related to historically-observed no-show rates as well as cancellations, under- and over-tendering behaviour for each station. 5n addition, the probability
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of shipment acceptance without booking is also forecast and included in the final demand forecast. Fsers would be able to review historical rate performance using price-demand curves and use what-if analyses to simulate the potential impact of new rate lines on overall revenue performance. *ifferent than today9s industry practice of using commodity rates with weight brackets for date ranges, cargo carriers would be able to implement calendar day-date-based pricing (at the individual flight level". This represents a significant revenue enhancement and could only be performed using automated business technology. Fsing information obtained from the optimi3er, which sets hurdle or dynamic bid prices, the system would also determine whether rates established by users satisfy the hurdle rate criterion. 1.0.& chedu%e A%%ot#ent Creation &chedule allotments are created based on the historical economic performance as well as yieldbased demand forecast of each customer-station for each category and commodity. Allotments are assigned subject to a number of conditions such as the regularity of supply from the station for the category and commodity, the observed show-up rate as well as under- and over-tendering, minimum yield requirements, as well as overall system contribution (network optimi3ation". (or differentiated products (time-sensitive, live animals, among others", a yield-class based approach is suggested and as such, allotments are allocated as such. 1.0.* Re(enue P%anning This function would allow users to perform a full revenue plan based on an optimi3ed mi$ of allotments vs. spot capacity for each category and commodity across the cargo network. 5nherently, sales targets could be derived from the revenue plan based on the minimum yield levels that have been established by the demand forecaster and optimi3er, although they could be adjusted manually. Arior to being released as the active version, revenue plans can be prepared and adjusted for macro-economic factors such as e$change rate fluctuations, commodity price indices, competitive reaction, as well as anticipated E*A and market growth.

1.0., 1%ight Ca.acit! O.ti#i3ation This module would be part of revenue and booking analysts9 day-to-day work list. 5t allows the analysis, acceptance or rejection of all shipment requests that have been received in an automated as well as manual fashion through spot rate requests that require user intervention. The suggested optimi3ation approach is based on the concept of each request9s Bshipment value), which is a weighted-average value based on shipment yield, revenue, and customer importance. (urthermore, automated acceptance would be based on a validation of the shipment value against the yield-performance profile of each flight, while respecting the service level agreements. The over-arching objective of flight capacity optimi3ation is to ensure that low-value shipments are assigned to lower-demand flights and that capacity on high-demand flights is protected for higher-value shipments. equests for which the spot rate does not satisfy the minimum yield requirement are queued for user follow-up with supported alert functions (priority list, based on departure date, customer, or any other configurable parameter". 1.0.- D!na#ic A%%ot#ent 4anage#ent ;ooking behavior of allocated allotments that concern non-contracted space could be monitored for potential release and redistribution to other stations based on updated forecasts and reoptimi3ed network space allocation. This would occur on the basis of initial allotment versus current and projected booking levels relative to forecast threshold values, allowing the estimation of unutili3ed capacity at flight departure. The system would identify flights for which the shipment value matches the economic value of the flight while still respecting (contracted or requested" service level agreements. (urthermore, alerts can be generated by the system so as to signal users that the flight (booking" performance is such that it merits attention (Bwarning)" or immediate action (Bcritical)". Alerts would go hand in hand with rule-based controls that users could set up with regards to capacity control and dynamic pricing.

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CHAPTER T5O /ITERATURE RE6IE5 ".0 Introduction This chapter involves systematic identification, location and analysis of the previous studies related to the matter of investigation. 5t is useful chapter that entails analysis of casual observations and opinions related to this proposed study. 4hapter two, through the literature review, will help the researcher to get a thorough understanding and insight into past works and trends records concerning the proposed study. The literature review will enable the researcher to identify key areas that have thoroughly been researched on the strength of weaknesses of past researchers, and identify the gaps to be filled from these studies. ".1 Air%ine indu)tr! Air transport plays an important role in modern society. Airplanes, an invention of ?,th century, have developed e$tensively during the past half-century. Go other form of transportation still has as much potential for further development in this century. 5t is a big industry, becoming the key element in the world9s largest industry, travel and tourism, which generates H02,, billion a year in revenue, accounts for appro$imately /, percent of world E*A, takes almost // percent of consumer spending, and employs over ?,, million people, or roughly one in every nine people in the global labor force. .ver the last <, years the airline industry has consistently grown at a very fast rate, well above the growth rate in world E*A (=anlon, /66+". Gowadays the influence of airline industry permeates every corner of the world. !illions of passengers travel by air each day. Aassengers can be divided into tourist or business travel. 8ith the difference of traveling purposes in mind, airlines charge different prices to different customers at different time points along booking process. ;ehind this popularity of passenger traveling in airline industry, air industry also provides transportation for cargo. Though the revenue from cargo transport accounts for only a fraction of total airline revenue, more attention is being paid on air cargo in recent years in view of its steady growth. Gowadays manufacturers usually prefer air transport to ship finished products to customers so as to minimi3e inventory cost. 5f you want to send out letters or parcels quickly, airmail service is readily available at any post office. Alternatively, e$press mail service is
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another way to increase the speed of delivery, such as (ed#$, FA& and .4& to name a few. The above gives some e$amples of applications of airline industry familiar to readers. ".1.1 Air Cargo Re(enue 4anage#ent evenue management focuses on ma$imi3ing profits from a limited capacity of a product by selling it to the right customer for the right price at the right time. The fundamental decision in revenue management is whether to sell capacity when a request comes in, or to save it for a potential later sale at a higher price. (or e$ample, a seat on an airplane can be sold at different prices, depending on the capacity already sold and the time remaining until the departure of the aircraft. 8hile revenue management practices have been widely used in the passenger segment of the airline industry, they received increased attention only recently in the cargo segment. *ue to the globali3ation of trade and increased volumes of e-commerce, the worldwide demand for air cargo has been growing at a faster pace than passenger demand. 5ndustry forecasts predict a massive growth in cargo demand@ world air cargo traffic will e$pand at an average annual rate of +.?1 for the ne$t two decades, tripling over current traffic levels. =ence, many airlines now recogni3e the revenue potential from cargo, and aim to make it a Ivital component of their business rather than a sideline operation. #ven in a growing market, success does not come easy in the air freight industry. !ost airlines in the Fnited &tates and #urope have shown poor returns on the investment for their shareholders. &everal major carriers in the Fnited &tates have been in bankruptcy proceedings at least once in the past several years. (ormermarket leaders, such as Aan Am and #astern Airlines, have gone out of business. ising

fuel e$penses and the cost of meeting new security requirements have placed increased pressures on air cargo operators. At the same time, an abundance of capacity and strengthening buying power fueled by consolidation in the forwarder markets have put pressure on the revenue side. Airline e$ecutives need skills in a variety of business disciplines in order to achieve positive results for their shareholders. 5n view of the history of the development of revenue management, most references were devoted to passenger yield management. esearch in air passenger problem has been far more advanced
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than that in air cargo sector. The reason behind this is partly because the profit portion of cargo in an airline is comparatively smaller than that of passenger sector, partly because passengers have higher priority than cargo and partly because the characteristics ofcargo revenue management are more difficult to handle. &trictly speaking research in air cargo yield management is still in its infancy. (ew works can be collected in air cargo yield management. !ore efforts need to be devoted in this area. =endricks and :asilingam (/660" showed that three dimensional cargo capacity was difficult to forecast and affected by many factors@ fuel weight, passenger weight, mail weight, belly volume, stacking loss, mail volume to name a few. 5n order to do a good forecasting, all factors must be considered together. A simple forecast model was presented in the paper. :asilingam (/66+" pointed out uncertain capacity added to the comple$ity of the cargo yield management in comparing with passenger yield management. Any approaches to cargo yield management problem depended on the precision of forecasting. ao, 5vanov and &mith (/666" presented a forecasting model, which was shown to have gained an accuracy improvement in the range of ?<1-+,1 over the e$ponential smoothing based model. =endricks and :asilingam (/660" provided a brief discussion on the idea behind cargooverbooking model that optimal solution was to ma$imi3e e$pected net revenue subjected to desired service constraints. :asilingam (/66C" presented two formulations of the air cargooverbooking problem under discrete and continuous probability distribution for capacity respectively, and formulations were applicable for computing overbooking levels for any reading day. 5rrgang (/666" presented a general idea on how to optimi3e fuel, cargo, and passenger payload on long haul flights. :asilingam (/66+" analy3ed characteristics of cargo revenue management. 4argo revenue management differed from passenger revenue management in several respects due to the specific characteristics of cargo inventory, cargo business and cargo booking behaviour. A cargooverbooking model was proposed by the paper. According to this model, the probability distributions of capacity and final show-up rate were assumed known and the overage cost and spoilage cost were assumed known. The e$pected underage cost and overage cost could be
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determined by comparing show-up with flight capacity. The e$pected total cost was the summation of the two. The optimal overbooking level could be determined by differentiating the e$pected total cost with respect to overbooking level and setting it equal to 3ero. :araesmen (?,,/" considered a simplified air cargo problem with one arrival requesting one item only with weight and volume two attributes. 5t showed that a linear programming based approach proposed for airline seat inventory control can be used for air cargo as well. !ariana (?,,2" presented ten challenges in air cargo revenue management as networking, routing, clients, allotments, services, capacity, dimension, lumpiness, booking and 5T business. Garayanan (?,,2" discussed the challenges in cargo systems with respect to forecasting and optimi3ation and introduced archetypal science technique that would address challenges. Gielsen (?,,2" presented the advantages and disadvantages of applying &ebra software at Jergin Atlantic cargo and suggested some changes to the software. 4ou3y (?,,2" introduced the current cargo revenue management situation at :K! cargo. (roehlich (?,,2" summari3ed several key factors to the success of revenue management at Kufthansa cargo. ".1." Re%ation)hi. to 1oreca)ting 5n practice, forecasting consumes major resources of development, maintenance, and implementation time of an !&. =ence, most researchers are mainly interested in the comparison between the e$isting forecasting methodologies. *uring the early development stage of revenue management, there was lack of research on the theoretical side of demand forecasting in ! systems due to its comple$ity. !cEill and van y3in (?,,C" list the factors contributing to these difficulties. #ach of these factors presents a challenge of its own. 5n addition, depending on the type of industry, there are many issues associated with forecasting. !anagers must address them before choosing an appropriate forecasting method. .bserved booking data need to be unconstrained before being used in !&. *emand

unconstraining can fill the gap between what is needed' unconstrained data and what can be observed censored data. 5ts function is to provide true demand information for forecasting models. 5t usually contains two steps. (irst, through e$amining similar historical bookings that have not been censored, one derives unconstrained demand parameters. These parameters then
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are applied to estimate unconstrained historical demand. This process is viewed as a preforecasting step. 8eatherford (?,,0" describes the steps that a complete forecasting system should perform in !&. Among them, the choice of unconstraining methods and the unconstraining of censored observations are both essential in the forecasting process. ".1.& Cargo7On%! Carrier) 4argo-only carriers often fly freighters, which are passenger aircraft that have been altered for cargo operations. (reighters have no seats or windows in the main cabin. They have larger doors than aircraft configured for passenger service and reinforced floors. !any are fitted with rollers to facilitate theloading of heavy items. !anymodern freighters alsohave hinged tails or noses that allow for straight-in loading of large items. 4argo-only carriers generally operate widebody airplanes from one major airport to another. Appro$imately /,1 to /<1 of world air cargo traffic is moved by cargo-only carriers, primarily on long-haul international or transcontinental routes. ".1.* Co#$ination Carrier) *omestic F& carries focus primarily on passenger transportation, but they use the spare space in the hold (belly" of their planes to transport cargo' hence, they are called combination carriers. The industry estimates that more than <,1 of international air cargo is moved in the bellies of passenger aircraft, whereas only /,1 to 0,1 of F& domestic air cargo is carried on passenger planes. !any of the domestic combination carriers use a traditional airline business model, where the airline e$tends its operations with side services, such as engineering, cargo, or in-flight catering. &uch airlines usually treat the cargo business as a byproduct of their main operation and thus management may pay only scant attention to it. 5n contrast to F& carriers, for the past 0, years, #uropean carriers have concentrated significantly on incorporating air freight into their overall business models. They have established elaborate hubs and have seriously e$amined balancing the needs for passenger and cargo services. As national carriers, Kufthansa, ;ritish Airways, Air (rance,and :K! have greatly contributed to the growth of their national economies by providing air cargo services. To that end, they built logistics centers at their major airporthubs (rankfurt, Kondon =eathrow, Aaris 4harles de Eaulle,
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and Amsterdam &chiphol. 4onsequently, cargo accounts for a significantly larger share of operating revenues for #uropean carriers compared with F& carriers. ".1., Integrator) As mentioned earlier, airlines typically market their freight transportation services the airportto-airport link to freight forwarders. 5ntegrators, in contrast, market their logistics solutions directly to shippers, offering an integrated transportation chain with door-to-door service. 5ntegrators thus act both as forwarders and as carriers. They often have their own trucking and aircraft fleet and provide all the handling services themselves. There are four major air freight integrators in the world today (ed#$, FA&, TGT, and *=K. The integrators speciali3e in carrying e$press freight. *uring the past few years, integrators have moved towards carrying heavier freight as well. The four big integrators dominate the carriage of e$press freight by land, as well as the international air e$press market TGT and other smaller e$press operators, who mainly use the worldwide cargo capacity available from other carriers". 5ntegrators carry the majority of the market share of F& freight, with *=K, (ed#$, and FA& accounting for +?1 ofenplaned revenue-tons of freight. (ed#$, one of the four major integrators, is undoubtedly the largest cargo carrier in the world. =owever, although each cargo business model has its own strengths and weaknesses, it is apparent that cargo-only carriers, integrators, and combination carriers all hold a significant portion of the market share. "." Ana%!)i) of Contro% Po%ic! To further evaluate the impact of supply uncertainty and penalty for denied boarding, the optimal control policies with respect to the test problems are recorded. 8ith the e$ample of booking si3e of <, factors affect the accept-deny decision for the booking requests of different classes. ;ased on the control policies airlines should be reserve the space for high-fare classes if the number of spaces left is small and-or it is far from the time of take-off, that is, toward the lower-right corner in the charts. .n the other hand, airlines should try their best to sell the spaces if the number of spaces left is plenty and-or the time of take-off is close, that is, toward the upper-left corner in the charts.

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8hen compared to the base case with light penalty and small supply uncertainty substantially increasing the penalty to /, times as does not change the optimal policy much. =owever, if supply uncertainty is increased significantly to 7 times as the optimal control policy is considerably modified, though the penalty remains to be low. This result is once again consistent with the argument made in the previous section that supply uncertainty is more influential than penalty level for denied boarding. (inally, as for the situation of highly uncertain supply and heavy penalty level, airlines have to be very conservative while selling the cargo space. !any spaces have to be reserved or be sold only to higher fare classes for many occasions to counter the effect of denied boarding, which is very likely to happen. Fntil recently, the air-cargo industry grew +1LC1 annually, and forecasts suggest that it will continue to e$pand at an average annual rate of +.21 over the ne$t two decades (;oeing 4ompany ?,,<b". Although most airlines have implemented highly sophisticated revenue management ( !" systems for controlling prices and availability of passenger tickets to ma$imi3e revenue, related methodologies for managing cargo bookings are relatively less sophisticated. There are several key differences between cargo e$plain why passenger ! and passenger !, which ! techniques cannot be easily transported to the cargo environment.

4argo consumes multidimensional capacity@ 8eight and volume are two such dimensions. 5n addition, customers often do not know the true volume and weight of a shipment at the time of advance booking. 5nstead, the volume and weight are learned only shortly before the cargo shipment is to be loaded onto the plane. !oreover, if the volume or weight requirements of booked shipments e$ceed available capacity, then some cargo needs to be offloaded' determining what to off-load is a computationally hard problem. Met another difference, which we do not model in this paper, is that there may be many different routes cargo can take between its origin and destination, and it is largely up to the carrier to choose a route (inally, air-cargo space can be sold either as an allotment or on a free-sale basis (&lager and :apteijns ?,,2". A pre-negotiated amount of capacity on a specific flight or weekday is reserved for major shippers and forwarders through the allotment, whereas there are no capacity

17

guarantees in the free-sale mode. 8e focus in this article on managing bookings against free sale capacity. evenue !anagement is an airline revenue management system that combines innovative demand forecasting techniques and perfect integration to ensure the ma$imum revenue return over your full network. 5t enables the optimisation of network through a combination of traditional airline revenue management techniques, plus demand forecasting for a customers Nwillingness to pay9 in markets where fare fences have been removed. This allows you to directly reverse the Nspiral down9 effect increasingly affecting markets across the globe. 5t is hoped to bring immediate value with its advanced decision support tools. 5n practice, forecasting consumes major resources of development, maintenance, and implementation time of an !& (Talluri and y3in, ?,,2". =ence, most researchers are mainly interested in the comparison between the e$isting forecasting methodologies. *uring the early development stage of revenue management, there was lack of research on the theoretical side of demand forecasting in ! systems due to its comple$ity (4leophas, (rank, and :liewer, ?,,6". !cEill and van y3in (/666" list the factors contributing to these difficulties. #ach of these factors presents a challenge of its own. 5n addition, depending on the type of industry, there are many issues, associated with forecasting (8eatherford, :imes, and &cott, ?,,/' ?,,0". !anagers must address them before choosing an appropriate forecasting method. ".".1 Pa))enger !ie%d #anage#ent (orecasting is a particularly critical component in airline revenue management because of the direct impact on booking limits. ;eckmann (/6<7 a D b" used Eamma distributions to model the components of show-ups and developed an appro$imate optimality condition for the overbooking level. ;alobaba (/676" dealt with uncertain demand by assuming normal distribution for total demand for a flight. 8eatherford, ;odily and Afeifer (/660" constructed a mathematical model by using non homogeneous Aoisson process (G=AA" to model the timing of potential customer arrivals for each class.

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4arpenter and =anssens (/662" measured the inference of pricing strategy in airline. Aroussaloglou and :oppelman (/66<" developed a conceptual framework for analy3ing carrier demand in a competitive. 4urry (/662 a D b" pointed out that revenue management would more reply on the prediction of consumer behaviour. 8eatherford and Afeifer (/662" analy3ed the economic value of advance booking. ;elobaba and (arkas (/666" incorporated yield management booking limits into the methodology used to estimate the number of spilled passengers. Oaki (?,,,b" analy3ed the importance of forecasts in airline industry. "."." O(er$ooking .verbooking has the longest research history of any of the components of the revenue management problem. The objective of most of the early technical research on airline overbooking was to control the probability of denied boarding within limits set by airline management. .verbooking generates a large portion of the revenue management benefits. .ne simple model is to assume the number of no-shows is a deterministic fraction of the number of bookings. ;eckmann (/6<7a" proposed a non-dynamic optimi3ation model for overbooking by assuming that the probability distributions of cancellations and no-shows were known. Thompson (/6+/" analy3ed the risk associated with static overbooking problem and studied revenue losses behind overbooking practice. (alkson (/6+7" e$pressed his viewpoints on airline overbooking problem@ advantages and disadvantages. othstein (/6C/" classified the motivations of implementing overbooking in airline industry, which was not stated clearly in (alkson (/6+6". Jickrey (/6C?" discussed some problems related to overbooking. othstein (/6C<" attempted to set the problem of overbooking in proper perspective. Kiberman and Mechiali (/6C7" studied an overbooking problem in hotel industry with stochastic cancellations, in which only single-day stay and one type of room were studied. uppenthal and Toh (/670" analy3ed effects of airline deregulation on the booking policy (overbooking" to overcome no-shows. Almost all modern models are probabilistic models. othstein (/67<" gave a survey of the

application of operations research to airline overbooking. This article analy3ed the motivation of overbooking, discussed the relevant practices of the air carriers, and described significant contributions and implementations of operations research. Kau and Kau (/677" considered an
19

e$tension of the classical newsboy problem where a stochastic price-demand relationship e$isted for the product. Alstrup (/67+" presented an overbooking model for a single-leg flight with two types of passengers. ;odily and Afeifer (/66?" discussed the effect of overbooking decision rules under different assumption of passenger show-up behaviour. 4urry (/660a" considered common ideas behind overbooking models and discussed the effect of different factors to overbooking calculation. 4hatwin (/667" considered a multi-period airline overbooking problem that related to a single-leg flight and a single service class. 5n another paper of 4hatwin (/666", he analy3ed a model of airline overbooking in which customer cancellations and no-shows were e$plicitly considered. 4oughlan (/666" used multi-dimensional search routines to find optimal overbooking level. ".".& eat in(entor! contro% The problem of seat inventory control across multiple fare classes have been studied by many researchers since /6C?. There has been significant progress from Kittlewood9s rule for two fare classes, to #!& (e$pected marginal seat revenue" control, to optimal booking limits for singleleg flight, to segment control and, more recently, to origin-destination control. The simplest approach to controlling seat inventories is to deal with each flight leg independently, rather than trying to solve the whole network. ".".* eg#ent and origin7de)tination contro% The inventory control problem becomes even more complicated with the development of huband spoke route network by most large airlines. #ver since the /67,s, network effects in revenue management have become significant because the number of passengers taking more than one flight leg increased dramatically. As early as /6CC, Kadany and ;edi developed a decision model to determine an operating policy for allocation of seats to passengers flying full and partial spans. *ror, Trudeau and Kadany (/677" proposed a deterministic network minimum cost flow formulation that allowed for cancellations on arcs in the network. .ther works on single fare network problem can be found in 4urry (/66,", Ahillips (/662", ;oyd and Erossman (/66/" and 8ong, :oppelman and *askin (/660".

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&oumis and Gagurney (/660" developed a stochastic, multi-class network equilibrium model of airline passenger transportation with an application to the national Air 4anada airline. 5n recent years, the most successful approaches to solving the airline yield management problem are bid pricing.Talluri and y3in (/666" proposed a randomi3ed version of the deterministic linear programming (*KA" method for computing network bid price. Jictoria 4hen, *irk and %ohnson (/666 a D b" addressed bid-price policy in detail on how to determine bid prices for single-leg, two-leg and star network problems atdifferent reading time period. .ther papers dealing with biding pricing can be found in Euenther (/667", ;oyd (?,,,", (eng and Piao (?,,/", ;ertsimas and Aopescu (?,,?", ;ertsimas and Aopescu (?,,,", 4hen, Eunther and %ohnson (?,,0", ;rumelle and 8alc3ak (?,,0" and ;ertsimas and de ;oer (?,,2". "."., Pricing The e$istence of different prices for airline seats is the starting point for revenue management. 4urry (/660b" emphasi3ed that revenue management of the future must consider both pricing and inventory control simultaneously. (eng and Eallego (/66<" addressed the problem of deciding the optimal timing of a single price change from a given initial price to either a given lower or higher second price. Treatments of single leg revenue management as a dynamic pricing problem can be found in Kadany and Arbel (/66/", Eallego and y3in (/662,/66C", (eng and Eallego (/66<, ?,,,", Mou (/666", Ohao and Oheng (?,,," and (eng and Piao (?,,,a". 8eatherford (/66C" addressed optimal pricing problem of up to three-fare classes with diversion. .ther related papers canbe found in Ki (?,,/", %ung and 8eber (?,,/", 8eatherford (?,,/", 4hatwin (?,,," and 4hun (?,,0". ".".- T!.e) of air.%ane ca.acit! 4arriers have two different types of capacity available. ;oth cargo capacity on passenger flights and full freighter services are provided, which both have their own pros and cons. ;elly capacity on passenger aircraft is sometimes preferred by customers as these services are subject to the passengerQs schedule, thus these flights are less likely to be cancelled. =owever not all shipments can be carried on passenger aircraft, due to si3e or safety restrictions. These cargo aircraft only (4A." goods have to be carried on full freighter airplanes. There is a difference in available capacity between wide- and narrow-body aircraft. Garrow-body aircraft are smaller aircraft
21

which are mostly used for short flights. 5n these aircraft cargo is carried in containers or loose. As almost all air freight shipments are intercontinental, wide body aircraft are mostly used. These larger aircraft have more available capacity, divided over a fi$ed amount of available FK* (Fnit Koad *evice" positions. &hipments are carried either in lower-deck containers, or on main or lower deck pallets. An FK* pallet is ?22cm-0/7cm. A lower deck pallet may not be higher than /+,cm, while a main deck pallet can be as tall as ?<,cm. !ain deck FK*s are only available on freighter or QcombiQ aircraft. The latter aircraft carries passengers in the front on the main deck, and the rear end of the aircraft is available for cargo. The distribution of the amount of capacity over freighter and passenger aircraft varies between different airlines. &ome dedicated cargo carriers do not have a passenger network, so all their capacity is on freighter aircraft. .thers mainly use their passenger network for airfreight services. ".& Theoretica% 1ra#e2ork The development of ! theories and techniques has been undertaken for a long time. Aarticularly, after the implementation at American Airlines (;arry et al., /66?" aiming to cope with the new business environment in the post-deregulation era, revenue management has become a common practice in the airline industry. !oreover, the application of revenue management has been e$tended to several other industries, such as rail, car rental, hotel, and many other areas of manufacturing and service industries. =owever, how to reali3e the basic concept of revenue management, selling the right seat to the right customer at the right price, remains to be a challenge. ".& Re(ie2 of /iterature The air cargo supply chain is composed of three main players@ the shippers, the freight forwarders, and the airlines. The freight forwarders are responsible for acquiring cargo space from airlines in order to satisfy the demand from shippers. The process of acquiring capacity from the airlines goes over two phases@ si$ to twelve months before the actual departure, freight forwarders bid for cargo space the airlines have to offer' the cargo capacity committed during the auction process is called allotted capacity' a few days before the actual take off, the freight
22

forwarders have to confirm the allotted space, either returning unwanted space or confirming the need of the whole allotted capacity. The remaining capacity available for free sale, which we refer to as cargo capacity throughout this thesis, is the object of the revenue management techniques developed in this proposed study. The air transportation supply chain poses several challenges@ the freight forwarders and the airline should be coordinated and respect each othersQ needs@ the airline should be able to honor its allotted capacity, and the freight forwarder should know appro$imately how much capacity it will actually need and release unwanted space in a timely matter for the airline, such that the latter is able to add the e$tra space to the pool of capacity available for free sale. Fnfortunately, this is not the case. 5t is said that due to the lack of coordination between the airlines and the freight forwarders the traditional airline-freight forwarder team needs two to three times more time than an integrator (like for e$ample, (ede$" to move an international shipment. The objective of this thesis is to develop methods to improve both the freight forwardersQ and the airlinesQ actions when dealing with air cargo. The challenge is faced of problem categories@ air cargo revenue management - which refers to the airlinesQ problem to manage the capacity available for free sale to generate more revenue. The proposal shows that applying revenue methods blindly from the passengers business to the cargo sector is not suitable, and we develop solutions for two problems in the area@ air cargo bid prices and ;id prices are threshold values used to assist in the process of accepting-rejecting incoming bookings. 5f the incoming booking has a rate lower than the sum of the bid prices along the requested itinerary then the booking is rejected, otherwise it is accepted. 5t is argued that the unsuitability of the passengers9 techniques to determine bid prices for the cargo sector, and we tackle the problem of demand lumpiness e$istent in the air cargo industry. 8hereas for passengers there is a clear matching between the request and the supply, which is e$actly one seat, the demand for air cargo can vary from ,.,,/ kilograms to /,,,,,, kilograms. This disproportion introduces a new factor of difficulty besides two-or more dimensions of demand (weight, volume, container position", uncertainty of capacity available for free sale
23

(depending on allotment utili3ation", and routing fle$ibility (cargo has to make its destination on time, no matter which route it takes", recorded in most of the air cargo papers. To solve this problem, we split the cargo loads into two categories, small and large, based empirically on the demand features. The demand for small cargo shows similarities with the passenger demand, with a relatively high number of bookings during a quite wide booking window' on the contrary, the demand for large cargo comes from a relatively low number of customers, and it is booked during the last few days before the aircraft departure. Air cargo capacity management which refers to the freight forwarders9 problem to confirm capacity with airlines a few days before the flight takes off such that the demand from shippers is satisfied at minimum cost. The freight forwardersQ problem is modeled as a perishable inventory problem, where the perishable commodity is the capacity confirmed which is lost after the flight departure and cannot be used for subsequent shipments. There is a lead time between the time the capacity confirmation is placed and the time the flight departs, which is usually three days. *uring these days, new demand materiali3es, and the freight forwarder has to backlog e$cess demand at e$tra cost if the capacity ordered cannot accommodate all demand. 5n the current air cargo industry the airlines do not penali3e the freight forwarders for not using confirmed capacity' that is, the perishing cost of capacity is the same as the ordering cost. As mentioned earlier, most carriers already use sophisticated passenger a survey". =owever, air-cargo ! systems.

4ommensurately, there is a vast literature on passenger ! (see Talluri and van y3in ?,,2 for ! methodologies are less sophisticated, and there is little published work on this topic aside from some papers that provide overviews of air-cargo operations. #$amples include :asilingam (/66+" and ;illings, *iener, and Muen (?,,0", which describe the characteristics and comple$ities of aircargo !' ;odendorf and einheimer (/667", which presents a decision support system for a 8eb-based air-cargo market, and &lager and :apteijns (?,,2", which describes the implementation of cargo yield management processes at :K! oyal *utch Airlines. *eKain and .9!eara (?,,2" outline techniques for evaluating costs and benefits from cargo ! implementation. These papers, however, do not focus on mathematical models. Aak and *ekker
24

(?,,2" formulate the short-term booking control problem as a multidimensional dynamic knapsack problem. They assume that the actual weight and volume of a shipment do not differ from the booked quantities, whereas we assume random volume and weight, which are reali3ed shortly prior to the flight departure. !oussawi and Rakanyildirim (?,,<" and Kuo and Rakanyildirim (?,,<" develop two-dimensional overbooking models, but do not consider a dynamic booking control problem as we do. !athematical models for network routing optimi3ation can be found in Arior, &lavens, and Trimarco (?,,2" and ;artod3iej and *erigs (?,,2". These papers focus on optimi3ing aircraft scheduling and routing in the network, given a set of fi$ed accepted requests. This work also differs from ours, because we focus on deciding whether or not to accept booking requests for a single-leg flight. Air-cargo ! problems bear some similarities to passenger ! problems with multiple seat bookings. 8hen booking a shipment, the carrier cannot accept a partial request, just as a typical passenger group cannot be split. Kee and =ersh (/660" study a single-leg passenger ! problem that incorporates batch arrivals. Jan &lyke and Moung (?,,," consider a single-leg passenger ! problem with group reservations as a special case of the finite-hori3on stochastic knapsack problem, and propose a general algorithm to solve the problem. =owever, their algorithm is computationally impractical for solving large air-cargo problems. :leywegt and Aapastavrou (?,,/" study a variation of the stochastic knapsack problem, and provide sufficient conditions for mono-tonicity and conve$ity properties of the optimal value function. 8ith the e$ception of Jan &lyke and Moung (?,,,", these models do not allow arrivals to have multidimensional resource requirements. 5n contrast, our model assumes that each cargo booking request has two dimensions@ a volume and a weight. 5n passenger ! problems, a passenger can cancel or upgrade a reservation' analogously, in aircargo ! problems, a shipment9s si3e may differ from that stated in the original reservation. ! problem that incorporates overbooking, cancellations, and no-shows. Ohao &ubramanian, &tidham, and Kautenbacher (/666" provide a discrete time !*A model of a singleleg passenger and Oheng (?,,/" study a two-class dynamic seat allocation model, which includes both cancellations and passenger diversion. :araesmen and van y3in (?,,2" consider a problem that includes multiple substitutable reservation classes. These passenger
25

! papers assume that

should a booked passenger show up for the flight(s", the amount of resource (s"he will consume (one seat" is the amount specified in the original booking. .ur model also includes the possibility of overbooking' however, the volume of a shipment that shows up is random. As described in S2, we can easily incorporate no-shows in our model as well. 4argo management is becoming increasingly important because it generates substantial revenues for airlines given the saturated and currently declining passenger traffic. The industry forecasts predict a significant growth in cargo demand. =owever, the research in cargo overbooking management is still limited e$cept for the following. &lager and :apteijns (?,,0" describe the implementation of cargo yield management processes at oyal *utch Aviation 4ompany (:K!". Aopescu et al. (?,,C" compare the normal and binomial show up rate distributions in the cargo conte$t. They minimi3e the sum the offload and spoilage costs. Aak and *ekker (?,,+" formulate the cargo booking control problem as a multi-dimensional dynamic knapsack problem without modelling no-shows. Air 4argo evenue !anagement (4 !" is concerned with the integrated management of the

available belly space and payload, and cargo rates after accommodating passengers and their bags. ;artod3iej and *erigs (?,,6" provide a mathematical program to decide on what cargos to accept but their deterministic formulation focuses on route construction rather than overbooking. Amaruchkul et al. (?,,C" use a !arkov decision process to study a single leg and multiperiod booking problem. They consider both cargo weight and cargo volume' however, they do not analy3e the overbooking aspect. They develop a booking heuristic which outperforms the firstcome first-booked policy. ".* Critica% Re(ie2 of /iterature and 8no2%edge 9a.) 5n view of the revenue benefit, one can see that air cargo revenue management deserves attention from both researchers and practitioners. (orecasting based on unconstrained data can overcome the limitation of truncated demand due to the booking limits, better reflect true demand, and improve the accuracy of forecasting. 5n addition, air cargo revenue management is also helpful to the allocation of fleet capacity. As these studies show, despite the importance of revenue management, the research front has received less attention compared to the work on other
26

components, and revenue management methods adopted by ! vendors are largely ineffective. Although some research papers, partially review the revenue management methods, their primary intent is not to provide comprehensive surveys on details of the technique. .ver the last decade, there has been e$tensive research on air cargo revenue management. *espite significant development in the area, more research seems needed compared to the advancement in other components of !. The objective of this paper, thus, is to review most recent development of capacity control and air cargo revenue management that has appeared in the literature and offer a broad overview of the technique in various industries. The paper cites numerous published journal articles, technical reports, working papers, and conference proceedings. 5t also e$amines important areas for future research. evenue !anagement is much more difficult to implement in the air cargo industry due to its special characteristics. The main difference between the common ! industries airlines, hotel and car rental industry. #very booking is different, whereas an airline ticket is specified for one seat, and a hotel room booking is always a room for a certain number of nights. Air cargo capacity cannot be easily divided in such separable units.

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CHATER THREE RE EARCH DE I9N AND 4ETHODO/O9: &.0 Introduction This chapter covers the methodology and procedures that will be followed in carrying out the field work for the purpose of collecting data. The various methods that will be used in data collection include participatory observation, interview schedule, and questionnaire. The chapter also gives the data sampling procedures, where both qualitative and quantitative methods will be used. &.1 The Re)earch De)ign The proposed esearch design of this study will be qualitative survey design. This provides the study type, research question, hypotheses, variables, and data collection methods. The design includes participant observation, interviews, and content analysis. Tualitative design aims to gather an in-depth understanding of behavioural characteristics of the participants and the reasons that govern such behaviour. The qualitative method investigates the why and how of decision making, not just what, where, and when. =ence, smaller but focused samples are more often needed than large samples. This is why this proposed study will only use as small as 2, the sample si3e of the target population. Tualitative design is proposed in this study to develop a deeper understanding of a particular phenomenon on the capacity control and air cargo revenue management. They also often deliberately give up on quantity, which is necessary for statistical analysis, in order to reach a greater depth in analysis of this phenomenon proposed for study. The design enables the proposed study to employ observation, interviews, focus groups, content analysis, and historical comparison in data collection. (inally the design is associated with interpretive framework, which is more descriptive or narrative in its findings. &." The tud! Area The study will be carried out from selected airlines operating passenger and cargo businesses at the #ldoret 5nternational Airport just at the outskirts of #ldoret Town. The airport is referred to by the 5nternational Air Transport Association (5ATA" using the airport code #*K. The
28

5nternational 4ivil Aviation .rgani3ation (54A." uses =:#K when referring to #ldoret 5nternational Airport. The airport is located some /+ kilometers south from #ldoret Town on the #ldoret-:isumu road. #ldoret Airport, (5ATA@ #*K, 54A.@ =:#K", is located in the city of #ldoret, in Fasin Eishu *istrict, ift Jalley Arovince, in the southwestern part of :enya, close to the 5nternational border with Fganda. 5ts location is appro$imately /C kilometres (// mi", by road, south of the central business district of #ldoret. This location lies appro$imately ?+6 kilometres (/+C mi", by air, northwest of %omo :enyatta 5nternational Airport, the largest civilian and military airport in the country. The airport is open from !onday to &unday from ,00,hours to /C0,hours E!T, but the hours can be e$tended on request. 4urrently the airport has three scheduled international cargo flights and several ad hoc freighters per week. #ldoret 5nternational Airport was built with the vision of achieving accelerated economic growth, through integration and opening up of the 8estern region to local and international markets. The airport is also e$pected to promote the e$ploitation of the rich tourism circuit of 8estern :enya, which is largely une$ploited. #ldoret 5nternational Airport is a large airport that serves the city of #ldoret and the surrounding communities. &ituated at ?,/<, metres (C,,<, ft" above sea level, the airport has a single asphalt runway that measures 0,2C< metres (//,2,/ ft" in length. The airport was established in /66<. 5t is administered by the :enya Airports Authority. #ldoret 5nternational Airport, located in (or close to" #ldoret has / runway, which is //270 feet (0<,, metres" long. The geographic coordinates of this airport are , degrees, ?2 minutes, /+ seconds north (,.2,22<7" and 0< degrees, /2 minutes, ?, seconds east (0<.?076?7". #ldoret 5nternational Airport is +C6C feet (?,C? m" above sea level. #ldoret 5nternational Airport, near #ldoret, :enya, is in is in the time 3one FT4U0. The local time there now is therefore /?@,,. 4urrently the airport has three scheduled 5nternational cargo flights and several ad hoc freighters per week. The (ly<2, and :enya Airways operate passenger services enroute mainly to Gairobi %omo :enyatta 5nternational Airport as well as seasonal services to :isumu and Kodwar provided by (ly<2, airlines. 4argo airlines services are provided by #mirates &ky4argo to *ubai and #tihad 4rystal 4argo destined to Abu *habi, and Gairobi.
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The airport is managed by the :enya Airports Authority (:AA", which is the owner and operator of nine civilian airports and airstrips in :enya. :enya Airports Authority was established by an act of Aarliament in /66?, by the ruling :enya African Gational Fnion government. The :AA Act, 4ap 06<, provides for the powers and functions of the Authority. 5ts head office is on the property of %omo :enyatta 5nternational Airport in #mbakasi, Gairobi. The Airports available in :enya include@ %omo :enyatta 5nternational Airport, !oi 5nternational Airport in !ombasa, #ldoret 5nternational Airport in #ldoret, 8ilson Airport in Gairobi and :isumu 5nternational Airport in :isumu. At the same time the airstrips in the country include@ Kokichoggio Airport in Kokichoggio, !alindi Airport, !anda Airport in !anda and Fkunda Airport in *iani ;each. &.& Target Po.u%ation The study targets all the employees of the two airlines especially those in the departments of capacity control and revenue management within the two companies selected that is the :enya Airways, (ly<2,, #mirates &ky4argo, and the #tihad 4argo. There are +, personnel in these companies whom are all targeted for this proposed study. &.* a#.%e i3e and a#.%ing Techni;ue) The researcher will purposefully select /, participants in each company making a sample si3e of 2, participants selected from the target population' this will make up a +C1 sample si3e. The composition of the population will include departmental heads, the supervisors, accountants and the ticketing officers. This population will be involved in the study because it is directly involved in the process of ticketing, booking and revenue management as well as capacity control. &., Data Co%%ection Procedure The researcher will personally administer questionnaires to the participants, arrange for face to face interviews, and directly participate in the observations and document analysis. The information sought will be in line with the proposed study objectives. &.- Data Co%%ection In)tru#ent) The data collection instruments are tools used to collect information from the intended target population (sample si3e". The most commonly used tools include questionnaires, interview
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schedules, observational forms, and documents analysis. The study used the following research instruments in data collection. They include questionnaire, participatory observation, interview schedule, and document analysis. These are discussed below@ &.-.1 +ue)tionnaire This is a collection of items to which a respondent is e$pected to react in writing' designed questions in form format were distributed to the respondents. This method collects a lot of information over a short period of time. The method is suitable when the information needed can be easily described in writing and if time is limited. 5n this study, the respondents will be given enough time to complete the questionnaires before returning them back for analysis of the collected data. The questionnaires will include both structured and semi structured questions. This allowed the respondents to give their opinions where necessary. espondents will be assured confidentiality that their identities will be secure and collects information from the point of view of the respondents. &econdary data collection methods (annual reports of the airline operations, sales weekly report, ticketing and booking reports in the offices"@ The researcher will use this method so as to critically e$amine recorded information related to the issue under investigation .This method is will enable the researcher to obtain unobtrusive information at the pleasure of the researcher and without interruption. This method will also enable the researcher to obtain the language and words of the informants and access data at his convenient time. 5t also enables the researcher to obtain data that are thoughtful in that the informants have given attention to compiling them' and save time -e$pense in transcribing. &.-." Inter(ie2 chedu%e This study will also employ the use of interviews as part of the data collection process. This method will be used specifically to collect information from the top management of the participants. &tructured and semi-structured interview questions will be designed for this e$ercise. &tructured interviews will be used on the selected respondents where respondents failed to have satisfactory interviews.

31

Kike questionnaires, after selecting a problem, a measuring instrument will be constructed. A valiant will be constructed to an interview schedule, that is, a series of questions to ask the respondents. The reason for use of interviews is that they are easy to administer in that questions are already prepared. They will also allow a great deal of information to be gathered in a short period of time. 5nterviews also eliminate many sources of bias common to other instrument like observations. This is because questions that will be asked will be confidential between the researcher and the respondent. Above all the data collected through interviews will be highly amenable to statistical manipulation. The arrangement of events on questions asked and answers obtained will allow easy tabulation and correlation statistically. &.-.& Docu#ent Ana%!)i) This is critical e$amination of records containing information on the prevalent effects of booking, pricing, and ticketing as well as revenue collection systems used by the airlines. The researcher will visit the offices of these airlines at the #ldoret 5nternational Airport as well as those within the town centre to be able to access the documents and reports available in these offices. These documents will be subjected to a thorough analysis and conclusions deduced and compared with the primary data. *ocument analysis will enable the researcher to review the trends in the effects of revenue management and capacity control methods employed by the airline operators. &.-.* Direct O$)er(ation) *irect observations of demand include records of bookings (requests that are met" and rejections (requests that are not met". The method may not be able to uncover true latent demand. ;ooking data censorship may be caused by availability (denials" or rate (regrets". ;ookings declined due to availability are considered latent demand. The boundary between denials and regrets is blurry. *enials occur when customers9 requests cannot be met because of capacity constraints, while regrets happen when the requests can be accommodated but customers refuse to book. 5n practice, it is often impossible to categori3e a particular call as one or the other. Therefore, it increases the difficulty in distinguishing denials from regrets. (irms invest in systems and train their managers in order to track turndowns directly and depend on these direct observations to
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unconstraint their sales data. Tueenan et al. (?,,C" point out that there are a number of issues that need to be considered@ multiple availability inquiries from the same customer, incorrect categori3ation of rejections by reservation agent, and the fact that only small portions of customer requests arrive through a channel controlled by the firm. 4onsequently, direct observations of demand are not an option for most industries because of these drawbacks. &.0 Pi%ot tud! The researcher will carry out a preliminary survey of a similar population to the target population of this study. This was done before the main study is carried out. The researcher will visit the sampled airlines in :isumu that will not actually participate in the actual survey and make preliminary observations of the target groups. The questionnaires will be administered to two members in each group. Along with questionnaires there will be interview schedules that will be conducted. &.0.1 6a%idit! and Re%ia$i%it! of In)tru#ent) :erlinger (/6<0" argue that validity of an instrument is demonstrated when that instrument performs its designed purpose. Jalidity answers the question' Nare the findings true>9 5n this study instruments was availed to selected e$perienced researchers and lecturers. The study will also use randomi3ation of sampling techniques to create equivalent representative samples that are essentially similar in all the relevant variables that could influence dependent variable. &.< Data Ana%!)i) The data will be organi3ed, presented, analy3ed and interpreted using descriptive methods of data analysis. 5t will use tables, charts, percentages, and chi square was also used in analysis the Kikert scaled data. (rom the analysis, data was used to carry out a test on the questions to determine whether the objectives can be accepted or not. The reliability of data collection instruments will be determined from the pilot study where the research design will be the most suitable in data collection. 5t will be important to note the challenges faced by the respondents in pilot study and the kind of information they will provide. 5f the information will be relevant and no questions are left because it is ambiguous then the
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instruments and the research design will be reliable. =owever, the researcher will review and adjusted the questionnaires based on the comments by the pilot respondents' this will make it more reliable.

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Reference) A48 (?,,<", Air 4argo 8orld online, www.aircargoworld, .ctober ?,,<. ;elobaba, A. (/67C", Air Travel Demand and Airline Seat Inventory Management , Ah.*. dissertation, !assachusetts 5nstitute of Technology, ;oston, F&A. 4ross, . E. (/66C", Revenue Management, ;roadway ;ooks, Gew Mork, F&A. *onaghy, :., !c!ahon-;eattie, F. and !c*owell, *. (/66C", NMield !anagement Aractices9, in Meoman, 5. and 5ngold, A. (eds", Yield Management Strategies for the Services Industries, 4asell, Kondon, pp. /70-?,/. Earvett, *. and =ilton, :. (/666", N8hat drives airline profits> A first look9, in The Handbook of Airline inance, !cEraw-=ill, Gew Mork, pp. /7/. %onker, #. (?,,+", 5nternship report, ;usiness !athematics and 5nformatics, Jrije Fniversiteit, (aculteit der #$acte 8etenschappen, Amsterdam, The Getherlands. :imes, &.#. (/676", NMield management@ a tool for capacity-constrained service firms9, !ournal of "#erations Management, 7, 2, pp. 027-0+0. :liewer, E., Erothklags, &. and 8eber, :. (?,,?", N5mproving revenue by system integration and cooperative optimi3ation9, $roceedings of the A%I "RS RYMS% Annual Meeting &''&, /+-/6 April, AE5(. &, ;erlin, Eermany. 4. 4leophas, !. (rank, and G. :liewer, B ecent developments in demand forecasting for airline revenue management,) 5nternational %ournal of evenue !anagement, vol. 0, no. 0, pp. ?<?L ?+6, ?,,6. Jiew at Aublisher V Jiew at Eoogle &cholar V Jiew at &copus %. 5. !cEill and E. %. van y3in, B evenue management@ research overview and prospects,) Transportation &cience, vol. 00, no. ?, pp. ?00L?<+, /666. Jiew at Aublisher V Jiew at Eoogle &cholar V Jiew at Oentralblatt !AT= V Jiew at &copus :. Talluri and E. %. van y3in, The Theory and Aractice of evenue !anagement, :luwer, Gorwell, !ass, F&A, ?,,2.> K. . 8eatherford, &. #. :imes, and *. A. &cott, B(orecasting for hotel revenue management testing aggregation against disaggregation,) 4ornell =otel and estaurant Administration Tuarterly, vol. 2?, no. 2, pp. <0L+2, ?,,/. Jiew at Aublisher V Jiew at Eoogle &cholar V Jiew at &copus K. . 8eatherford and &. #. :imes, BA comparison of forecasting methods for hotel revenue management,) 5nternational %ournal of (orecasting, vol. /6, no. 0, pp. 2,/L2/<, ?,,0. Jiew at Aublisher V Jiew at Eoogle &cholar V Jiew at &copus

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A..endi= I> a#.%e +ue)tionnaire This questionnaire is intended to find out useful information on effects of capacity control on air cargo revenue management. Alease fill it in as candidly as possible. The information provided in this questionnaire will be treated with e$tra care and shall remain confidential about the respondent. Mou are not required to write your name any where in this questionnaire form. Alease fill in the form and return it, once more your time set aside to fill this form is very much appreciated. PART I> PER ONA/ DATA /. 8hat is your *esignation> Accountant ( " ?. 8hat is your Eender> !ale ( " (emale ( " 0. =ow old are you> /7-?2 ?<-02 0<-22 2<-<2 <<LAbove 2. 8hat is your marital status> &ingle !arried &eparated -*ivorced 8idowed Gone of Above (" (" (" (" (" (" (" (" (" ("

Top !anager ( "' =ead of *epartment ( " &upervisor ( "

<. 8hat is your level of education> A 5!A M -&econdary (" 4ertificate (" *iploma (" ;achelors *egree (" !asters *egree (" .thers (&pecify"WWWWWWWWWWWWWWWWWW. +. =ow long have your worked for this company> ,-? Mears (" 0-< Mears (" +-/, Mears (" /, Above ("

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PART II> 9ENERA/ IN1OR4ATIO ON THE RE EARCH TOPIC C. =ow many years of e$perience do you have as an employee in this department> ,-2 (" <-6 (" /,-/2 (" /<-/6 (" ?, Mears (" 7. The evenue !anagement is important to the airline because it@ #nsures efficiency in 5nventory (" #nables Mield Eeneration (" #nsures evenue Availability (" Arovides Active Jaluation (" #nsures (ull *ynamic Availability (" &upports the analyst in the group quotation process (" *irectly tackle the Qspiral downQ effect (" 5mplement sophisticated revenue management techniques and increase your revenue (" Achieve the full potential revenue increase enabled by sophisticated airline inventory control capabilities and real time .D* calculations (" 5mprove decision making with customi3able decision support tools (" Advanced performance monitoring with global management dashboards and detailed reporting of current and departed bookings (" &ingle supplier for all your inventory and revenue management solutions (" !ore efficient 5T model (" 6. The 4argo 4apacity 4ontrol &ystem Fser 5nterface (F5" allows the users to@ Kogon to the system (" Jiew, add, delete and modify user-specific views (" &et defaults and overrides (" Jiew dashboards with drill down capabilities (" Jiew and modify outputs of the various ! components such as capacity forecasting, overbooking, and bid pricing ( " 5nteractively run ! components as needed (" Jiew critical flights and add, delete or modify criticality parameters (" Arocess booking requests (" /,. #ffects of 4apacity 4ontrol on Air cargo revenue management 5ncrease revenue (" 5ncrease in productivity (" Fp-to-date availability of data (" 4onsistency in decision making ("
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5mproved response time (" (aster response time for booking request processing 5dentification of critical flights to focus

(" ("

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