An Introduction to Management Science 13th Edition by David Anderson,Dennis Sweeney ,Thomas Williams ,Jeffrey Camm, Kipp Martin

Exercise 8

South Central Airlines operates a commuter flight between Atlanta and Charlotte. The plane holds 30 passengers, and the airline makes a $100 profit on each passenger on the flight. When South central takes 30 reservations for the flight experience has shown that on average two passengers do not show up. As a result, with 30 reservations, South Central is averaging 28 passengers with a profit of 28(100) = $2800 per flight. The airline operations office has asked for an evaluation of an overbooking strategy where they would accept 32 reservations even though the airplane holds only 30 passengers. The probability distribution for the number of passengers showing up when 32 reservations are accepted is as follows.
The airline will receive a profit of $100 for each passenger on the flight up to the capacity of 30 passengers. The airline will incur a cost for any passenger denied seating on the flight. This cost covers added expenses of rescheduling the passenger as well as loss of goodwill, estimated to be 150 per passenger. Develop a worksheet model that will simulate the performance of the overbooking system. Simulate the number of passenger showing up for each of 500 flights by using the VLOOKUP function. Use the result to compute the profit for each flight.
a. Does your simulation recommend the overbooking strategy? What is the mean profit per flight if overbooking is implemented?
b. Explain how your simulation model could be used to evaluate other overbooking levels such as 31, 33, or 34 and for recommending a best overbooking strategy.