1 Air Cargo Pickup and Delivery Problem with Alternative Access Airports Farshid Azadian, Alper Murat, Ratna Babu Chinnam Department of Industrial and System Engineering, Wayne State University, 4815 Fourth Street, Detroit, MI, 48201, f_azadian@wayne.edu, amurat@wayne.edu, r_chinnam@wayne.edu Abstract Continuous growth in air cargo deliveries and increasing competition is necessitating freight forwarders to develop innovative solutions to improve performance and reduce costs. This study considers a freight forwarder's operational implementation of alternative access airport policy in a multi-airport region for air cargo transportation. Given a set of heterogeneous air cargo customers, the forwarder's problem is to simultaneously select air cargo flight itineraries and schedule the pickup and delivery of customer loads to the airport(s). This problem is formulated as a novel pickup and delivery problem, where the delivery cost is both destination and time dependent. An efficient solution method based on Lagrangian decomposition and variable target method with backtracking is developed. Results of computational experiments and a practical case study in the Southern California demonstrate the merits of the model and show that the proposed algorithm is very efficient and obtains near-optimal solutions. Key words: air cargo, pickup and delivery problem, vehicle routing, Lagrangian decomposition, multi-airport region; 1. Introduction This paper considers a freight forwarder's problem of selecting air cargo flight itineraries to a given set of heterogeneous customers and, simultaneously, planning the pickup and airport delivery schedule of customer loads. The air cargo flight itinerary options for each customer consist of a set of flights departing from the origin airport(s) and arriving to the destination at different times. For each customer, the forwarder selects an itinerary considering flight and delivery service level related costs, such as tardiness penalties. Given the air cargo itinerary assignments, the forwarder performs the customer pickup and airport deliveries via a fleet of trucks originating from a depot. In this paper, we formulate and develop an efficient solution approach for freight forwarders to concurrently plan the air cargo flight itinerary selection and pickup and delivery scheduling of multiple customer loads to minimize the total cost of air and road transportation and service. Over the past decade, there has been consistent growth in demand for air cargo deliveries. According to the Bureau of Transportation Statistics (BTS), in 2007, the value of air cargo shipment goods in the US is over $1.8 trillion, a 31% increase in just five years (Margreta et al., 2009). Annual forecast reports by both Airbus (2010) and Boeing (2010) predict a 5.9% annual growth rate for global air cargo tonnage over the next 20 years. In response to this growth, the air transportation network has been steadily expanding its capacity over the past two decades. However, this capacity expansion through new airports, offering more flights options, and investing in road connectivity cause the service zones of airports to expand and overlap. This has resulted in the creation of Multi-Airport Regions (MARs) where several airports accessible in