JetAirways flight from Philadelphia to Boston has 350 seats. The high fare on the flight is...

JetAirways flight from Philadelphia to Boston has 350 seats. The high fare on the flight is $1000 and the restricted/low fare is $500. There is ample demand for the low fare class but high fare demand is uncertain. Demand for the high fare is normally distributed with mean 150 and standard deviation of 45. Further, the customers buy low fare tickets well in advance of high fare customers.

1. What is the expected revenue (in thousands) from high fare passengers when a booking limit of 200 is selected for the low fare tickets?

2. The JetAirways Customers’ Bill of rights states that “Customers who are involuntarily denied boarding shall receive $750 in addition to a ticket refund.” The RM department notices that the number of no-shows is normally distributed with a mean of 7.5 and standard deviation of 3. What is the maximum number of reservations in excess of plane capacity that the airline should accept?

**Please show work

Expert Solution

Total no of seats	350
High fare		1000	$
Low fare		500	$

Demand for high fare
	Mean	150
	SD	45

1. Expected revenue (in thousands) of high fare customers when a booking limit of 200 is selected for low fare tickets

So we have 150 seats available for high fare customers
So expected no of passengers for high demand fare = mean = 150
So revenue = 150 X 1000 = 150,000$
So expected revenue inn 1000s is $150

2. Customers who are involuntarily denied boarding receive $750 in addition to ticket refund

	No of no shows
		Mean	7.5
		SD	3
The extreme values for a normal distribution are expected to fall +3 and -3 SD from the mean
So maximum no of no shows can be taken as mean + 3 times SD
			= 7.5 + 3X3 = 16.5

So to round off, the maximum no of reservations in excess of plane capacity that should be given are 17

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keosha answered 6 months ago

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