Transair

1. The Model

Refer to TABLE 1 in the Appendix.

Base-case model

At a booking level of 420 and 120 passengers for economy class (“EC”) and business class (“BC”) passengers respectively, the total costs to TransAtlantic Airlines (“TransAtlantic”) in the most likely scenario (with a 5% and 20% no-show rate for EC and BC passengers respectively) are £6,250.

2. Improving the Overbooking Policy

Refer to the following in the Appendix: TABLE 2, CHART 1 and CHART 2.

New overbooking policy

Based on the base-case model we developed, we would advocate a new overbooking policy to TransAtlantic of 421 and 125 passengers for EC and BC respectively which results in total costs of £0, compared to £6,250 in the base case.

Conclusion

As booking levels rise above those in the base-case model, total costs decrease, and reach zero at a booking level of 421 (i.e. overbooking of 21) and 125 (i.e. overbooking of 25) passengers for EC and BC respectively.

As booking levels rise beyond 421 and 125 passengers for EC and BC respectively, total costs increase (although relatively less steeply). This is because the cost of bumping a passenger equates to only 1/3rd of the revenue lost from an empty seat for EC and approximately 1/5th for BC.

3. Scenario Analysis

Refer to the following in the Appendix: TABLE 3.

Pessimistic scenario (no-show percentages of 8% and 30% for EC and BC respectively and a booking level of 421 and 125 passengers for EC and BC respectively)

Using our suggested overbooking policy (i.e. a booking level of 421 and 125 passengers for EC and BC respectively), the total costs incurred under the pessimistic scenario are £23,250, comprising £5,850 for EC seats and £17,400 for BC seats.

Optimistic scenario (no-show percentages of 3% and 15% for EC and BC respectively and a booking level of 421 and 125 passengers for EC and BC respectively)