Air Canada Brown offers daily service from Ottawa to Paris. The fixed cost of a flight,...

 

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Air Canada Brown offers daily service from Ottawa to Paris. The fixed cost of a flight, irrespective of the number of passengers on board, is $70,000. The aircraft has 310 seats, each selling for $525, and each completely refundable if the ticket is not used. Although Air Canada Brown usually sells all seats for each flight, there are also no- shows, i.e. customers who purchased a ticket but do not show up for the flight. The number of no-shows for one flight follows a uniform distribution between 1 and 20 inclusive. This means that for a given flight the probability of one no-show equals the probability of two no-shows equals the probability of three no-shows and so on until 20. The probability of 21 or more no-shows is zero. To mitigate this risk, Air Canada Brown overbooks this flight (i.e. sells more than 310 tickets for it). However, at the time of the flight, any passenger with a ticket that is not allowed to board because the plane is full is provided transportation on another carrier at Air Canada Brown's expense (which costs them roughly the same amount as the selling price of the ticket). Moreover, they also provide a compensation in the amount $220 to the over-booked passenger. Use the Newsvendor model to estimate how many overbooked tickets Air Canada Brown should sell for one Ottawa-Paris flight. Round your final answer to zero decimals. Air Canada Brown offers daily service from Ottawa to Paris. The fixed cost of a flight, irrespective of the number of passengers on board, is $70,000. The aircraft has 310 seats, each selling for $525, and each completely refundable if the ticket is not used. Although Air Canada Brown usually sells all seats for each flight, there are also no- shows, i.e. customers who purchased a ticket but do not show up for the flight. The number of no-shows for one flight follows a uniform distribution between 1 and 20 inclusive. This means that for a given flight the probability of one no-show equals the probability of two no-shows equals the probability of three no-shows and so on until 20. The probability of 21 or more no-shows is zero. To mitigate this risk, Air Canada Brown overbooks this flight (i.e. sells more than 310 tickets for it). However, at the time of the flight, any passenger with a ticket that is not allowed to board because the plane is full is provided transportation on another carrier at Air Canada Brown's expense (which costs them roughly the same amount as the selling price of the ticket). Moreover, they also provide a compensation in the amount $220 to the over-booked passenger. Use the Newsvendor model to estimate how many overbooked tickets Air Canada Brown should sell for one Ottawa-Paris flight. Round your final answer to zero decimals.

Answer rating: 100% (QA)

Applying the Newsvendor model Step 1 Define variables and parameters Demand DNumber of passengers wh... View the full answer