An airline serving Denver’s International Airport and Steamboat Springs, Colorado, is considering overbooking its flights to avoid flying with empty seats. For exam-ple, the ticket agent is thinking of taking seven reservations for an airplane that has only six seats. During the past month, the no- show experience has been
The operating costs associated with each flight are pilot, $ 150; first officer, $ 100; fuel, $ 30; and landing fee, $ 20. What would be your recommendation for overbooking if a one- way ticket sells for $ 80 and the cost of not honoring a reservation is a free lift ticket worth $ 50 plus a seat on the next flight? What is the expected profit per flight for your overbooking choice?
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