Question

I just need to understand Question 1 and 2. I just wanted to make sure I did the revenue management right.

Freedom Airlines recently started operations in the Southwest. The airline owns two airplanes, one based in Phoenix and the other in Denver. Each airplane has a coach section with 140 seats available. Each afternoon, the Phoenix based airplane flies to San Francisco with stopovers in Las Vegas and in San Diego. The Denver-based airplane also flies to San Francisco with stopovers in Las Vegas and in San Diego. Each airplane returns to its home-base with no stopovers.

Freedom Airlines uses two coach-fare classes: A discount fare (A) and a full fare (B). Discount fares are available with a 21-day advance purchase. Full fares applied at any time, up to the time of the flight.

Below is the daily fare and demand data for 16 selected Freedom Airline itineraries. Itineraries 1 through 6 apply to the Phoenix based airplane (leg 1); itineraries 7 through 12 apply to the Denver based airplane (leg 2); itineraries 13 and 14 apply to the Phoenix based airplane (leg 3); itineraries 15 and 16 apply to the Denver based airplane (leg 4):

1	Phoenix	Las Vegas	A	$ 180.00	50
2	Phoenix	San Diego	A	$ 270.00	40
3	Phoenix	San Francisco	A	$ 230.00	35
4	Phoenix	Las Vegas	B	$ 380.00	15
5	Phoenix	San Diego	B	$ 460.00	10
6	Phoenix	San Francisco	B	$ 560.00	15
7	Denver	Las Vegas	A	$ 200.00	50
8	Denver	San Diego	A	$ 250.00	45
9	Denver	San Francisco	A	$ 350.00	40
10	Denver	Las Vegas	B	$ 385.00	15
11	Denver	San Diego	B	$ 445.00	10
12	Denver	San Francisco	B	$ 580.00	10
13	San Francisco	Phoenix	A	$ 250.00	70
14	San Francisco	Phoenix	B	$ 600.00	10
15	San Francisco	Denver	A	$ 325.00	50
16	San Francisco	Denver	B	$ 585.00	10

1. Develop a revenue management (maximizing) model based on the information given in the scenario.
2. How many seats should be allocated to each of the 16 itineraries to maximize revenue?

Answer 1

Revenue Model based on the information provided

				Rate per seat	Demand	Revenue
1	Phoenix	Las Vegas	A	180	50	9000
2	Phoenix	San Diego	A	270	40	10800
3	Phoenix	San Francisco	A	230	35	8050
4	Phoenix	Las Vegas	B	380	15	5700
5	Phoenix	San Diego	B	460	10	4600
6	Phoenix	San Francisco	B	560	15	8400
7	Denver	Las Vegas	A	200	50	10000
8	Denver	San Diego	A	250	45	11250
9	Denver	San Francisco	A	350	40	14000
10	Denver	Las Vegas	B	385	15	5775
11	Denver	San Diego	B	445	10	4450
12	Denver	San Francisco	B	580	10	5800
13	San Francisco	Phoenix	A	250	70	17500
14	San Francisco	Phoenix	B	600	10	6000
15	San Francisco	Denver	A	325	50	16250
16	San Francisco	Denver	B	585	10	5850
			Total		475	143425

# In order to maximize the revenues the only available option to the airline (with the provided information) is to increase its demands to the maximum.

# The max seats in an aircraft = 140

The Revenue maximization model is as follows:-

From	To	Average Rate per seat		Current Demand	Max Demand	Revenue
Phoenix	San Francisco	226.67		125	140	31733.33
Phoenix	San Francisco	466.67		40	140	65333.33
Denver	San Francisco	266.67		135	140	37333.33
Denver	San Francisco	470		35	140	65800
San Francisco	Phoenix	250		70	140	35000
San Francisco	Phoenix	600		10	140	84000
San Francisco	Denver	325		50	140	45500
San Francisco	Denver	585		10	140	81900
						446600

Conclusion: the max revenue that could be achieved by Freedom Airlines = $446,600 on daily basis which more than $303,175 from current daily revenue of $143,425