EU Regulation $261/2004$ sets the minimum levels of passenger compensation for denied

boarding due to overbooking.

EA is a small, short$-$range airline with headquarters in a European capital. It has a fleet of

small planes, each with a capacity of $80$ passengers. In planning for their financial

obligations, EA has requested a study of the chances and costs of denying boarding to

passengers because of overbooking.

EA has recorded historical $$no shows$$ of between $8\%$ and $12\%.$ Compensation has been set

at $250$ per passenger denied boarding.

Write a report for EA setting out some scenarios to indicate their possible options and the

resulting estimated costs. Consider scenarios representing different strategies for the

number of bookings taken per plane. In each case that you consider, make estimates of the

number$/$probabilities of passengers who may be denied a seat, and find the expected values

for the compensation payments that may result. In your report, you should make clear any

assumptions involved in your calculations, with appropriate commentary on any weaknesses

in these assumptions.