Abstract

The air cargo industry substantially enhances airline revenues, which have been increasing significantly. In practice, orders requested by a shipper to a carrier are usually managed by a forwarder who reserves a portion of the carrier’s capacity in advance through a contract. If the carrier accepts reservations up to its capacity, its capacity may be underutilized due to no-shows. Hence, the carrier can employ an overbooking strategy where the total reservations of forwarders exceed the carrier’s capacity. However, optimal overbooking decisions have not been thoroughly studied in the literature yet. Therefore, in this study, we investigate optimal booking levels of the carrier and the capacity reservations of forwarders. We develop a Stackelberg game model with one carrier who faces either one forwarder or two forwarders, where priority for reservations is given to Forwarder 1 in the two-forwarder case. Our study shows that the overbooking decisions of a carrier may differ significantly by the number of forwarders. Specifically, with a single forwarder, the carrier accepts the forwarder’s optimal reservations when choosing to overbook. In contrast, with two forwarders, the carrier may accept only a portion of Forwarder 2’s reservations in addition to Forwarder 1’s reservations when overbooking. This difference suggests the carrier’s strategic flexibility in managing capacity and reservations compared to the single forwarder case.