Airline Reservations with Overbooking

Transcontinental Airlines has a daily flight from San Francisco to Chicago. There are 140 coach seats and 10 business seats available. The profit per seat sold is $300 and $1000 for coach and business seats respectively.

Demand is uniformly distributed between 2 and 18 for business seats and between 100 and 220 seats for coach seats. This is a nonrefundable fare, so no-shows forfeit the entire fare. Each customer has an 80% probability to show up for his or her flight.

If we overbook this flight and have to deny boarding to a passenger, the total cost to Transcontinental will be $500 per coach passenger and $2000 per business passenger. However, in case a coach passenger needs to be bumped, if there are available seats in business class, we can upgrade customers from coach at no cost. Note that business customers cannot be downgraded to coach.

Build a stochastic optimization problem to determine how many tickets Transcontinental should sell in each customer class. Make sure to include the managerial problem definition (including decision variables, objective, and constraints) and the math formulation in the main document.

Run at least 10,000 trials in order to report your results.

Additional instructions from the student:

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