Once prices and restrictions have been determined for a specific flight, it is revenue management’s responsibility to determine the number of seats available in each fare category.

An aircraft seat for a particular flight is a highly perishable commodity; once the plane takes off, the unsold product is lost forever. The challenge in yield management is to optimize the trade-off between the cost of an empty seat (the lost discount fare) and the cost of turning away a full-fare passenger (the difference between full and discount fare). As an example, consider the following problem. An aircraft has 100 seats, and there are 2 types of fares: full ($500) and discount

($320). While there is unlimited demand for discount fares, demand for full fares is equally likely anywhere between 10 and 30.

a. How many seats should be protected for full-fare passengers (what is the “booking” limit—

the maximum number of discount tickets to be sold)?

b. Resolve the problem with demand for full fare seats being Normally distributed with an average of 20 seats and a standard deviation of 5 seats.

c. How would you solve this problem if you had historical data?