An economic model for air cargo overbooking under stochastic capacity

Overbooking is the practice of intentionally selling more cargo than the available capacity in order to minimize spoilage and/or oversale. Overbooking becomes more complicated when the available capacity is not known with certainty. In this paper, a cost model is presented for optimal overbooking of air cargo under uncertain capacity. Expressions are derived for calculating overbooking levels for discrete and continuous probability distributions of capacity. The model is illustrated with numerical examples.