Question
In: Finance
Freedom Airlines recently started operations in the Southwest. The airline owns two airplanes, one based in...
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 |
- Develop a revenue management (maximizing) model based on the information given in the scenario.
- How many seats should be allocated to each of the 16 itineraries to maximize revenue?
- What is the (maximum) expected revenue to be earned per day for all 16 flights?
- Assume operating costs for each of the legs is as follows:
- Leg 1 = $20,250
- Leg 2 = $19,750
- Leg 3 = $20,500
- 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?
- Develop a revenue management (maximizing) model based on the information given in the scenario.
- How many seats should be allocated to each of the 16 itineraries to maximize revenue?
- What is the (maximum) expected revenue to be earned per day for all 16 flights?
- Assume operating costs for each of the legs is as follows:
- Leg 1 = $20,250
- Leg 2 = $19,750
- Leg 3 = $20,500
- 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?
Solutions
Expert Solution
| 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
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