Question 3 (20 pts) Turkish Airlines serves the route between Istanbul and Antalya, with a single- flight-daily 200-seat aircraft. The one-way fare for discount tickets is 150 TRY, and the one-way fare for full-fare tickets is 250 TRY. Discount tickets can be booked up until 10 days in advance, and all discount passengers book before all full-fare passengers. The demand management department estimates that full-fare demand is normally distributed, with a mean of 60 passengers and a standard deviation of 25; while discount-fare demand is normally distributed, with a mean of 180 passengers and a standard deviation of 50. a. (5 pts) What is the optimal booking limit and protection level that maximizes expected revenue? b. (5 pts) The airline has been setting a booking limit of 125 on discount demand, to preserve 75 seats for full-fare demand. What is the expected gain from setting the booking limit 126 over original booking limit of 125? What does it imply? C. (5 pts) A low-fare competitor, Pegasus Airlines, enters the market and Turkish Airlines sees its discount demand drop to 120 passengers per flight, with a standard deviation of 40. Full-fare demand is unchanged. What is the new optimal booking limit? d. (5 pts) How does the optimal booking limit change If Turkish Airlines reduces discount ticket prices to 120 TRY? Explain the reason of the change in the optimal booking limit. (Assume the discount demand is given as in the question: normally distributed with mean 180 and standard deviation of 50.) Question 3 (20 pts) Turkish Airlines serves the route between Istanbul and Antalya, with a single- flight-daily 200-seat aircraft. The one-way fare for discount tickets is 150 TRY, and the one-way fare for full-fare tickets is 250 TRY. Discount tickets can be booked up until 10 days in advance, and all discount passengers book before all full-fare passengers. The demand management department estimates that full-fare demand is normally distributed, with a mean of 60 passengers and a standard deviation of 25; while discount-fare demand is normally distributed, with a mean of 180 passengers and a standard deviation of 50. a. (5 pts) What is the optimal booking limit and protection level that maximizes expected revenue? b. (5 pts) The airline has been setting a booking limit of 125 on discount demand, to preserve 75 seats for full-fare demand. What is the expected gain from setting the booking limit 126 over original booking limit of 125? What does it imply? C. (5 pts) A low-fare competitor, Pegasus Airlines, enters the market and Turkish Airlines sees its discount demand drop to 120 passengers per flight, with a standard deviation of 40. Full-fare demand is unchanged. What is the new optimal booking limit? d. (5 pts) How does the optimal booking limit change If Turkish Airlines reduces discount ticket prices to 120 TRY? Explain the reason of the change in the optimal booking limit. (Assume the discount demand is given as in the question: normally distributed with mean 180 and standard deviation of 50.)
