Transatlantic Airlines

Transatlantic Airlines

1. The Transatlantic problem model.

Using the data from the case, we have built a model for the problem and calculated the total cost of 6,250 given the overbooking policy as the current 120 for economy and 420 for business.

The variables in the model are: Booking level for Economy & Business; The uncertainties are: no-show %;

The objective is: the total cost for both classes.

(see Appendix 1)

2. Improving the overbooking policy

The trial-and-error method allowed us to dramatically decrease the cost to 23 (instead of 6,250 in the base model) by increasing the overbooking policy for economy class to 421 and business class to 125.

(See Appendix 2)

3. Scenario Analysis

Using our own suggested overbooking policy (421 for economy and 125 for business class), we’ve evaluated different scenarios of % no-show (3% and 8% for economy and 15% and 30% for business). In every scenario we’ve got the total cost significantly higher than 23 (the result of our improved overbooking policy) which signals us that our chosen overbooking policy is probably optimal given that no-show % are fixed for economy and business classes and don’t change, but requires a serious revision taking into account that they may vary. There is no exactly “pessimistic” and “optimistic” scenarios; the adjusted overbooking policy for each scenario can result in better company’s performance in every case.

The trial-and-error method gave us the following suggestions to the overbooking policy for the different scenarios of no-show %:

| Economy | Business |

No-show % | 3% | 15% |

Booking Level (accepted reservations) | 413 | 120 |

Total Cost for both Classes | £962 | |

| Economy | Business |

No-show % | 8% | 30% |

Booking Level (accepted reservations) | 435 | 143 |

Total Cost for both Classes | £60 | |

4. Sensitivity Analysis

In order to examine the impact of a variation in the show-off % on the total cost, we...