Dynamic simulation model of air cargo demand forecast and terminal capacity planning Erma Suryani a,b , Shuo-Yan Chou b,⇑ , Chih-Hsien Chen c a Department of Information Systems, Institut Teknologi Sepuluh Nopember, Jl. Raya ITS, Surabaya 60111, Indonesia b Department of Industrial Management, National Taiwan University of Science and Technology, 43 Keelung Road, Section 4, Taipei 106, Taiwan c Department of Management, Fo-Guang University, 160 Linwei Road, Jiaosi Shiang, Yilan County 26247, Taiwan article info Article history: Received 10 September 2011 Received in revised form 31 March 2012 Accepted 31 May 2012 Available online 25 July 2012 Keywords: Air cargo Demand forecast Terminal capacity expansion System dynamics Scenario analysis abstract This paper establishes an approach to forecast air cargo demand related to terminal capacity expansion. To balance capacity and demand, it is required to forecast the future demand based on optimistic and pessimistic projections to decide when and how much, the airport should expand the capacity. System dynamics simulation model can provide reliable forecast and generate scenarios to test alternative assumptions and decisions. It was found that GDP and FDI play an important role in fostering the demand. Terminal expansion would be required in 2018 based on the optimistic projection; meanwhile, based on pessimistic projection, the capacity can meet demand in 2030, which means no need to increase the capacity. Ó 2012 Elsevier B.V. All rights reserved. 1. Introduction In line with world trade liberalization and global logistics operation, air cargo industry has been booming for the past decade. Transport by air cargo has become increasingly important, in consequence of the development of a leading global manufacturer. Manufacturing, especially in the high technology industries has a major contribution to air cargo volume. By value, 40% of global trade transactions are delivered by using aircraft [5]. Air freight is required for time-sensitive (high-value) commodities such as computers and cell phones which have a short marketing life and perishable products (fresh flowers, fruit, and live animals) because it offers speed, security and reliability. Growth in the use of just-in-time (JIT), where particular parts must arrive for assembly at specific times resulting manufacturers depend on air freight services for efficient just-in-time inventory management and to ensure their availability for final assembly. Air freighters enable the most economical sourcing of components and assemblies. Products that have high inventory carrying costs such as medical devices and jet engines are delivered via air freight to avoid critical time in transit [28]. Air cargo, trade, and GDP have a direct relationship and interdependent [26]. Gross domestic product (GDP) is the total market value of all final goods and services produced in a country in a given year, equal to total consumer, investment and government spending, plus the value of export, minus the value of imports. The demand of air cargo will increase as the trade volume and economic activity in- crease. The development of e-commerce will affect the growth in online retail sales that is also one of the key drivers that stimulate the air cargo growth. Air freight is required to deliver high value density goods such as microchips to other country to make sure that it would be competitive and viable for international business. Porter [22] has documented the correlation between air cargo and GDP growth. According to Porter and international business academicians, outward foreign direct 1569-190X/$ - see front matter Ó 2012 Elsevier B.V. All rights reserved. http://dx.doi.org/10.1016/j.simpat.2012.05.012 ⇑ Corresponding author. Tel.: +886 2 2737 6327; fax: +886 2 2737 6344. E-mail addresses: sychou@mail.ntust.edu.tw, sychou2@me.com (S.-Y. Chou). Simulation Modelling Practice and Theory 28 (2012) 27–41 Contents lists available at SciVerse ScienceDirect Simulation Modelling Practice and Theory journal homepage: www.elsevier.com/locate/simpat