# An Integrated Capacity Allocation and Dynamic Pricing Model Designed for Air Cargo Transportation
###### Abstract  
Air cargo plays a pivotal role in the global economy by facilitating international trade. Air cargo companies must meticulously plan and price their limited capacity efficiently to gain a competitive advantage and enhance their profitability. To mitigate the risk of empty aircraft, companies can sell capacity through prior agreements or offer capacity for free sales to generate additional revenue. The intricate nature of the air cargo industry, coupled with the numerous variables that influence pricing within this sector, renders the dynamic determination of prices a complex and arduous undertaking. This study aims to dynamically determine the price for the free sales capacity. The proposed model addresses three critical issues in air cargo revenue management: capacity allocation, demand forecasting, and dynamic pricing. An integrated structure has been developed in which these three distinct issues are interconnected. In this study, CVaR and ANN models are used for capacity  
Prior to the mid-1980s, studies in air cargo transportation primarily focused on descriptive analyses of the sector, operational processes, and developments. Subsequently, there was a notable shift towards the application of quantitative decision-making techniques in numerous studies on operational processes within the air cargo transportation domain. In recent years, there has been a notable increase in the number of studies on air cargo transportation [2]. The objective of air cargo companies is to maximize aircraft utilization and revenue by offering their available capacity at an optimal price and quantity. In the context of the air cargo sector, capacity can be pre-sold through the use of allocation agreements or retained for future sale in anticipation of demand (free sale). It is therefore crucial to ascertain the extent to which total capacity is committed to allocation agreements in order to guarantee optimal capacity utilization. Once the manner in which capacity will be allocated has been established, the pricing of capacity allocated for free sale represents a crucial issue with significant implications for revenue and profitability for air cargo companies. A variety of pricing strategies are put into practice in business contexts. These include cost-based pricing, value-based pricing, break-even pricing, dynamic pricing, competitive pricing, daily low pricing, target return pricing, and margin pricing [3]. Dynamic pricing is a highly flexible approach that enables an online platform to adjust the price of a product offered for sale in real time based on market conditions. The selection of an optimal pricing model serves as a pivotal strategic decision for firms. As a result of the Airline Deregulation Act of 1978 in the US and the Third Deregulation Act of 1977 in Europe, competition in the airline and air cargo industry has accelerated, and firms have been able to regulate their prices. Dynamic pricing has been used for many years. In the air cargo sector, pricing is generally in the form of list prices that are updated periodically. It is also possible to make certain discounts on these prices. The practice of dynamic price adjustment is less established in the context of air cargo than it is in the passenger sector. In the air cargo sector, it is extremely difficult to determine the price dynamically due to the uncertainty of capacity, multidimensionality of capacity, volatility in demand, high product diversity, multi-leg flights, market conditions, economic conditions, and many other variables affecting the price and the complex structure of the sector [4; 5]. It is imperative for businesses to work on pricing while managing their revenues, so revenue management comes to mind when pricing is mentioned. The primary objective of the pricing process is to identify a solution that will maximize expected revenues while taking into account the constraints imposed by the enterprise. These constraints may be physical constraints, such as limited capacity and inventory, or they may be constraints imposed by the firm [6].