Question

OptiJet Airlines provide daily service for commuters traveling from South to MidWest. One of the fare classes for this flight has been set at $250. The airline has set aside a capacity of 25 passengers in this fare class. Historical passenger demand for these seats in this fare class has been fit to a normal distribution with mean 27.18 and standard deviation 3.14. If demanded, the airline will typically accept more reservations than the seat capacity since only 90% of all customers who have a reservation show up for the flight. This policy is called overbooking. If the flight is overbooked, anyone who shows up but does not receive a seat on the plane receives $350 in compensation in addition to a full refund of the ticket price. The variable cost of transporting a passenger and his/her luggage on this flight is $100. The fixed cost of operating the flight is $2,500. To maximize expected profit from operating this flight, how many reservations for the flight should this airline accept? Develop a simulation model in the spreadsheet file. What would be the best strategy for the airline?

Answer 1

above table shows value of profit and number of times this is Incurred. From above table we can say that most of the times (mode) the demand is going to be around 27 and profit is 3050. Hence we should accept 27 reservations