Question

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?
3. What is the (maximum) expected revenue to be earned per day for all 16 flights?
4. Assume operating costs for each of the legs is as follows:
   1. Leg 1 = $20,250
   2. Leg 2 = $19,750
   3. Leg 3 = $20,500
   4. Leg 4 = $19,500

What is the expected operating income for each of the legs? And in total for Freedom Airlines, given these 16 itineraries?

How do I find the optimal seat allocation?

Answer 1

Sol:

Leg 1
1	Phoenix	Las Vegas	A	$180.00	50	9000
2	Phoenix	San Diego	A	$270.00	40	10800
3	Phoenix	San Francisco	A	$230.00	35	8050
4	Phoenix	Las Vegas	B	$380.00	15	5700
5	Phoenix	San Diego	B	$460.00	10	4600
6	Phoenix	San Francisco	B	$560.00	15	8400
			Max Revenue			46550
			Operating Cost =			20250
			Operating Profit			26300
Leg 2
7	Denver	Las Vegas	A	$200.00	50	10000
8	Denver	San Diego	A	$250.00	45	11250
9	Denver	San Francisco	A	$350.00	40	14000
10	Denver	Las Vegas	B	$385.00	15	5775
11	Denver	San Diego	B	$445.00	10	4450
12	Denver	San Francisco	B	$580.00	10	5800
			Max Revenue			51275
			Operating Cost =			19750
			Operating Profit			31525
Leg 3
13	San Francisco	Phoenix	A	$250.00	70	17500
14	San Francisco	Phoenix	B	$600.00	10	6000
			Max Revenue			23500
			Operating Cost =			20500
			Operating Profit			3000
Leg 4
15	San Francisco	Denver	A	$325.00	50	16250
16	San Francisco	Denver	B	$585.00	10	5850
			Max Revenue =			22100
			Operating Cost =			19500
			Operating Profit			2600

Total Operating Profit for freedom airlines = summation of operating profits of all 4 legs:

=26300 + 31525 +3000 + 2600

= $63425