Case: Lufthansa Cargo Ag – Capacity Reservation and Dynamic Pricing (Whu)
Question 1 How does air cargo differ from the passenger business in terms of revenue management? Which areas are more complex, which areas can be managed more easily?
There are noted differences between air cargo and the passenger business. For example, unlike passengers, cargo shippers did not book round trips and therefore cargo flows were unpaired. Furthermore, cargo was classified according to multiple dimensions like volume and weight resulting in different pallet space requirements, while passengers were each assigned a single seat. Concerning manageability it was identified that with regard to network planning and capacity allocation, cargo carriers had more degrees of freedom and hence faced additional challenges compared to passenger airlines. However, while passengers purchased tickets for specific flights and routes, cargo airlines could transport goods flexibly with regard to time and route through their network, the only constraint being the promised time of availability at the destination. Moreover, the load could be balanced and optimized by mixing shipments with different specific weights i.e., volume-to-weight relations. In this regard, space could be sold twice, e.g. to one customer with voluminous and another with heavy-weight high-density goods.
Question 2 What is the purpose of selling long-term capacity contracts?
The purposes of selling long-term capacity contracts was to model demand and maximize the airlines yield by ensuring that a fixed amount of capacity was purchased, thus optimizing the aircraft’s cargo capacity utilization while at the same time reducing the risk of deviation from customers because of the fixed commitment and non-refundable policy. It also helped to determine how much capacity the airline maintained as a safeguard for demand for general cargo.
Question 4 Does Lufthansa Cargo effectively reach its business and risk-sharing objectives?
Lufthansa does not effectively reach its business and risk sharing
There are noted differences between air cargo and the passenger business. For example, unlike passengers, cargo shippers did not book round trips and therefore cargo flows were unpaired. Furthermore, cargo was classified according to multiple dimensions like volume and weight resulting in different pallet space requirements, while passengers were each assigned a single seat. Concerning manageability it was identified that with regard to network planning and capacity allocation, cargo carriers had more degrees of freedom and hence faced additional challenges compared to passenger airlines. However, while passengers purchased tickets for specific flights and routes, cargo airlines could transport goods flexibly with regard to time and route through their network, the only constraint being the promised time of availability at the destination. Moreover, the load could be balanced and optimized by mixing shipments with different specific weights i.e., volume-to-weight relations. In this regard, space could be sold twice, e.g. to one customer with voluminous and another with heavy-weight high-density goods.
Question 2 What is the purpose of selling long-term capacity contracts?
The purposes of selling long-term capacity contracts was to model demand and maximize the airlines yield by ensuring that a fixed amount of capacity was purchased, thus optimizing the aircraft’s cargo capacity utilization while at the same time reducing the risk of deviation from customers because of the fixed commitment and non-refundable policy. It also helped to determine how much capacity the airline maintained as a safeguard for demand for general cargo.
Question 4 Does Lufthansa Cargo effectively reach its business and risk-sharing objectives?
Lufthansa does not effectively reach its business and risk sharing