Suzuki Global Airlines
You are a business analyst for Suzuki Global Airlines (SGA). You are asked to make a recommendation on how many reservations the company should accept for Flight 123, a daily flight from Des Moines International Airport to Chicago Midway Airport. The airplane used for Flight 123 is a small twin-engine turbo-prop with 19 passenger seats available.
SGA sells only non-refundable tickets. The ticket price varies from day to day depending on such factors as the day of week, day of month, and peak/off-peak season. Thus, you may consider the ticket price as a random variable. The historical record indicates that the ticket price is normally distributed with the mean of $150 and the standard deviation of $10. According to your analysis, the demand for the flight is characterized by the following probability distribution.
Industry statistics show that for every ticket sold, there is a 10% chance that the ticket holder do not show up for flight without giving a prior notice to the airline (no-shows). Thus, if SGA sells 19 tickets for Flight 123, there is a good chance that one or more seats on the plane will be empty during the actual flight. SGA can sell more than 19 tickets for Flight 123 to minimize the empty seats during the actual flight (overbooking) so that the unit (flight) revenue can be improved, but in this case some passengers with confirmed reservations who show up for the flight may have to be bumped (denied seats).
To compensate the inconvenience of being bumped, SGA provides bumped passengers the vouchers for a free meal, a free flight at a later date, and sometimes pays them to stay overnight in a hotel near the airport. The cost of bumping a passenger for SGA is normally $325.
You must determine whether SGA should practice overbooking for Flight 123 to enhance revenues, and if so how many reservations should be accepted for each flight. The management mandates that, if practicing overbooking, the probability of bumping one or more passengers per flight must be less than 10% (i.e., there must be no bumped passengers at least 90% of the time). Your task is to give recommendation to the management by using the simulation technique. Use 1,000 replications for each simulation that you perform.
Sensitivity analysis
Perform the same simulation experiments as above by assuming that the average no-show probability is 20%, rather than 10%. What is your new recommendation?