Case 7.2

Skyhigh Airlines

Skyhigh Airlines flight 708 from New York to Los Angeles is apopular flight that is

usually sold out. Unfortunately, some ticketed passengers changetheir plans at the last

minute and cancel or re-book on another flight. Subsequently,the airline loses the $450

for every empty seat that the plane flies.

To limit their losses from no-shows, the airline routinelyoverbooks flight 708, and hopes

that the number of no-shows will equal the number of seatsoversold. However, things

seldom work out that well. Sometimes flight 708 has empty seats,and other times there

are more passengers than the airplane has seats. When the latterhappens, the airline must

“bump” pre-ticketed passengers; they estimate that this willcost them $275 in later

accommodations to bumped passengers.

Fortunately for the airline, hopeful passengers usually show upat flight time without

tickets and want to get on the flight. The airline classifiesthese passengers as standbys

while it waits to determine how many seats, if any will beavailable. Standby passengers

can help offset the loss associated with flying an empty seat,but the airline suffers no

penalty when a standby passenger is not able to receive aseat.

Airline records indicate that the number of No-shows andStandbys will vary according

to the probability tables below: (see bottom of page)

Simulate 25 flights with each of several different overbookingdecisions (assume that the

best overbooking number will be between 1 and 6) to determinethe optimal number of

seats to overbook this flight, to minimize the airline’s losses.Tabulate your results and

use them to justify your recommendations. You should report, foreach scenario, the

average loss per flight, and the percentage of flights thatsuffer a loss.

No. of No Show	Relative Frequency
0	.04
1	.08
2	.14
3	.25
4	.30
5	.13
6	.06

No. Of Standy-Byes	Relative Frequency
0	.26
1	.34
2	.24
3	.11
4	.05