This paper discusses risk management approaches in the air cargo industry. It gives a concise overview of developments, business practices and complexities of the air cargo industry and draws cross-references to comparable industries. It introduces supply contracts for capacity and the inherent risks in the shipping process. Based on that, approaches to mitigate risk are studied. The work elaborates on the historically grown research field of revenue management and puts emphasis on the discipline of overbooking in the air cargo sector. Capacity options and financial intermediation are presented as more innovative approaches for capacity risk management. The application of these various risk management methods is evaluated in an expert study among air cargo industry professionals from different market perspectives. With that, obstacles to the successful implementation are identified and potential solutions are named.

Chapter 3.1, Revenue Management: In times of substantially low passenger yields and relatively saturated passenger traffic, airlines hold the possibility to achieve additional revenues from the cargo segment. With worldwide increasing cargo volumes and slightly decreasing margins, managing the available cargo space becomes more and more important. Thus, with the industry maturing, air cargo carriers are putting more emphasis on RM. The ACI faces a severe dilemma. Huge investments require the air cargo carriers to fill their capital-intensive capacity as optimal and as early as possible. Because most of the airlines' short-term costs are fixed and their variable costs per item shipped are rather small, sales policies largely determine their overall profitability. 3.1.1, Revenue Management in the Air Cargo Industry: Kasilingam uses the terms revenue and yield management and defines them as the integrated management of price and inventory to maximize profitability. Accordingly, McGill and Van Ryzin interpret it as the profit maximizing allocation of resources. Even though the parallel term yield management exists, today's scientists prefer the term of RM, as it not only accounts for price but also for quantity. The early approaches of Air Cargo Revenue Management (ACRM) originate from the passenger business and imply the dynamic and simultaneous management of price and available capacity. The basic motivation was to sell the right seat, to the right customer at the right time. For major airlines like Lufthansa or AirFrance-KLM which are active in the passenger as well as in the cargo business, this requires integrated management of passenger fares and seats together with cargo rates and available belly capacity. Having this in mind, Kasilingam identifies three general steps of RM. They include forecasting of available capacity, overbooking of forecasted capacity to account for no-shows and cancellations as well as allocation of overbooked capacity. The overbooked capacity can be allocated to different markets or products to minimize associated expenses. Despite of sophisticated approaches which have been developed in the tourist, car rental and passenger transportation industry, research and practical application have not been pursued with the same intensity in the air cargo business. As passenger-focused airlines used to evaluate the profit contribution of cargo business as neglectable, RM in the cargo segment was of rather small importance. The characteristics of the cargo business make an effective RM more complex than in the passenger transport. Shorter booking cycles, multi-dimensional nature of freight shipments, uncertainty of cargo capacity on passenger rights and the use of negotiated contracts in combination with a spot market for capacity exemplify the difference to standardized passenger transport. We would like to explain these special characteristics and complexities later but will focus on the ACRM process and its tasks first.

• Risk Management

• Air Cargo Industry

• Revenue Management

• Capacity Options

• Financial Intermediation

Paul Hertwig, born in 1987 in Zwickau, Germany, studied business administration and holds a Bachelor of Science degree of WHU - Otto Beisheim School of Management, Vallendar, Germany. During his exchange semester at Washington University at St.Louis he was rewarded with the Honor Student Recognition for excellent academic achievement. In course of his studies he especially focused on the topics of finance and supply chain management and gained practical insides during several internships in the consulting business. As the topic of risk management in the air cargo industry is situated in the overlap of finance and supply chain management, this field of research looked appealing to him. Philipp Rau, born in 1986 in Stühlingen, Germany, studied business administration and holds a Bachelor of Science degree of WHU - Otto Beisheim School of Management, Vallendar, Germany. In his Bachelor Studies, he focused on finance and accounting and gained important industry insights in banking internships. Philipp Rau currently pursues a Master’s degree at WHU - Otto Beisheim School of Management, Vallendar, Germany, with a focus on finance and production management. He engaged in the risk management topic as there is a large overlap with finance and he planned to focus more on risk and operations management.