Optimal baggage-limit policy: Airline passenger and cargo allocation

Although air carriers derive revenue from both passengers and cargo, the majority of the literature on airline management has focused on passengers. With the rapid growth in air freight, more studies are needed to examine the growing impact of air freight on air transportation. This paper addresses the optimal baggage-limit policy for airlines. Because much of the cargo is currently transported in the residual aircraft belly space after all of the passenger baggage has been enplaned, it is important for carriers to plan passenger and cargo levels together when setting passenger baggage limits. We formulate this problem as a variant of the price-dependent multi-item newsvendor model with weight-volume capacity constraints. The effects of baggage weight, prices, and costs on the number of passengers and amount of cargo carried are studied. Based on the model and carriers' existing practice, we develop several illustrative cases. Our findings suggest that airlines may be able to increase profits with significant reductions in passenger baggage limits for large aircraft.