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6. Allegiant Airlines is considering an overbooking policy for one of its flights. The airplane has 50 seats, but Allegiant is considering accepting more reservations

6. Allegiant Airlines is considering an overbooking policy for one of its flights. The airplane has 50 seats, but Allegiant is considering accepting more reservations than seats because sometimes passengers do not show up for their flights, resulting in empty seats.

Allegiant has conducted a field experiment to gauge the demand for reservations for the current flight. During this experiment, they did not limit the number of reservations for the flight to observe the uncensored demand. The following table summarizes the result of the field experiment.

Reservation # Probability
48 0.05
49 0.05
50 0.15
51 0.3
52 0.25
53 0.1
54 0.1

Allegiant receives a marginal profit of $100 for each passenger who books a reservation (regardless of whether they show up). Allegiant incurs a rebooking cost of $300 for each passenger who books a reservation but is denied seating due to a full airplane; this cost results from rescheduling the passenger and any loss of goodwill.

To control its rebooking costs, Allegiant wants to set a limit on the number of reservations it will accept.

a. Construct a simulation model that analyzes the number of reservations demanded for Allegiant by simulating the demand 250 times. - In EXCEL

b. What is the average demand?

c. Based on the simulation results and the profit received or cost incurred by Allegiant, what would you recommend they do regarding an overbooking policy?

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