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You are a business analyst for Saba Global Airlines (SGA). You are asked to make a recommendation on how many reservations the company should accept
You are a business analyst for Saba 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 Wilmington International Airport to Dallas Fort Worth Airport. The airplane used for Flight 123 is a small twin-engine turbo-prop with 19 passenger seats available. The historical record indicates that the ticket price is normally distributed with a mean of $150. According to your analysis, the demand for the flight is characterized by the following probability distribution. 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 for 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. Your task is to give recommendations to the management by using the what-if analysis technique. Hint: this problem is similar to the one we did in class (newsvendor problem) except there is no salvage but there is a cost for overbooking and underbooking. What is the expected profit for SGA when they sell 20 seats?? Show your work on the excel file. p 150 325 Selling price per unit Salvage value per unit 5 = Order Quantity (0) -
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