The management of quality airlines

Reference no: EM131105200

The management of Quality Airlines has decided to base its overbooking policy on the stochastic single-period model for perishable products, since this will maximize expected profit. This policy now needs to be applied to a new flight from Seattle to Atlanta. The airplane has 125 seats available for a fare of $250. However, since there commonly are a few no-shows, the airline should accept a few more than 125 reservations. On those occasions when more than 125 people arrive to take the flight, the airline will find volunteers who are willing to be put on a later flight in return for being given a certificate worth $150 toward any future travel on this airline. Based on previous experience with similar flights, it is estimated that the relative frequency of the number of no-shows will be as shown below.

(a) When interpreting this problem as an inventory problem, what are the units of a perishable product being placed into inventory?

(b) Identify the unit cost of underordering and the unit cost of overordering.

(d) Draw a graph of the CDF of demand to show the application of the model graphically.

Reference no: EM131105200

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