American Airlines (AA) has ordered a new fleet of airplanes. At this stage of the contract,...

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American Airlines (AA) has ordered a new fleet of airplanes. At this stage of the contract, AA's operations manager must specify the seating configuration on the airplane that will be used on the Charlotte - Miami - New York City - Charlotte circuit. AA flies this circuit once per day. The configuration decision involves specifying how many rows will be allocated for business- class seats and how many for coach seats. Each business-class row contains 4 seats and each coach row contains 6 seats. If the aircraft were configured entirely of coach rows, there would be 40 rows. Business-class seats are wider and afford more legroom, so that, in order to make room for one business-class row, two coach rows must be removed. Thus, conversion from coach to business-class seating involves the loss of some seats, but this loss might be compensated from the higher prices paid by the business-class passengers. The revenues rates for business-class and coach seats are given below. Table 1: Revenue per Seat Charlotte - Miami Miami - New York City New York City - Charlotte Business-class $550 $400 $450 Table 2: Distribution of Total Demand for Seats Minimum 160 140 150 Charlotte - Miami Miami - New York City New York City - Charlotte A perfect match between the configuration and the demand for seats is seldom possible. Historical data suggests a probability of demand for seats on each leg (as detailed below). Table 3: Distribution of Fraction Business Class Fraction of Business-Class 5% 12% 15% Coach $300 Most Likely 180 200 200 175 $200 There is another distribution for the fraction of demand that corresponds to business-class seats (given below). While demand seems to vary on each leg of the circuit, this distribution of fraction applies on all legs. It is assumed that if a passenger cannot book a seat in the seating category he/she intends to book, then he/she will simply buy a seat from AA's competitors. Maximum 220 240 225 Probability 0.2 0.5 0.3 The fixed cost of operating the airplane is $125,000 per day for the full circuit. AA is seeking a profit-maximizing configuration. American Airlines (AA) has ordered a new fleet of airplanes. At this stage of the contract, AA's operations manager must specify the seating configuration on the airplane that will be used on the Charlotte - Miami - New York City - Charlotte circuit. AA flies this circuit once per day. The configuration decision involves specifying how many rows will be allocated for business- class seats and how many for coach seats. Each business-class row contains 4 seats and each coach row contains 6 seats. If the aircraft were configured entirely of coach rows, there would be 40 rows. Business-class seats are wider and afford more legroom, so that, in order to make room for one business-class row, two coach rows must be removed. Thus, conversion from coach to business-class seating involves the loss of some seats, but this loss might be compensated from the higher prices paid by the business-class passengers. The revenues rates for business-class and coach seats are given below. Table 1: Revenue per Seat Charlotte - Miami Miami - New York City New York City - Charlotte Business-class $550 $400 $450 Table 2: Distribution of Total Demand for Seats Minimum 160 140 150 Charlotte - Miami Miami - New York City New York City - Charlotte A perfect match between the configuration and the demand for seats is seldom possible. Historical data suggests a probability of demand for seats on each leg (as detailed below). Table 3: Distribution of Fraction Business Class Fraction of Business-Class 5% 12% 15% Coach $300 Most Likely 180 200 200 175 $200 There is another distribution for the fraction of demand that corresponds to business-class seats (given below). While demand seems to vary on each leg of the circuit, this distribution of fraction applies on all legs. It is assumed that if a passenger cannot book a seat in the seating category he/she intends to book, then he/she will simply buy a seat from AA's competitors. Maximum 220 240 225 Probability 0.2 0.5 0.3 The fixed cost of operating the airplane is $125,000 per day for the full circuit. AA is seeking a profit-maximizing configuration.

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Answer To create a spreadsheet model for this problem we will first need to set up the data for the different variables that are mentioned in the question This will include the revenue rates for each ... View the full answer