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BlueSky Single-Leg (B2) Solt

BlueSky Airlines is analyzing different protection level strategies for high-fare tickets on a 146-seat plane with only economy class seats. The document provides historical data on low-fare and high-fare demand distributions and a 30% probability customers will buy-up from a low-fare to high-fare ticket. Simulation results show revenue is maximized with a protection level around 105 seats, up from the original 80 without considering buy-ups, since more customers buying up increases expected high-fare ticket sales.

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Nathan Chigamba
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1K views2 pages

BlueSky Single-Leg (B2) Solt

BlueSky Airlines is analyzing different protection level strategies for high-fare tickets on a 146-seat plane with only economy class seats. The document provides historical data on low-fare and high-fare demand distributions and a 30% probability customers will buy-up from a low-fare to high-fare ticket. Simulation results show revenue is maximized with a protection level around 105 seats, up from the original 80 without considering buy-ups, since more customers buying up increases expected high-fare ticket sales.

Uploaded by

Nathan Chigamba
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as XLS, PDF, TXT or read online on Scribd
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BlueSky Airlines: Single-Leg Revenue Management (B) part 2, buy-up model RAS March 26, 2009 comments Data

Capacity of airplane 146 all seats are economy-class (no business or 1st-class) low-fare revenue high-fare revenue mean low-fare demand sd of low-fare demand mean high-fare demand sd of high-fare demand probability of buying up $ $ 114 174 80 25 92 30 0.3

Decision

protection level for high-fare tickets

80 Goal: maximize the expected revenue by adjusting the protection level

Revenue

revenue from all ticket sales

#NAME?

Calculations

low-fare demand high-fare demand booking limit for low-fare tickets # low-fare tickets sold # low-fare customers shut out # low-fare customers buying up total high-fare demand # high-fare tickets sold

#NAME? #NAME?

Both demands are Normally distributed, censored at 0, and rounded to nearest integer

66 = Capacity - protection level #NAME? #NAME? #NAME? #NAME? #NAME? Can't sell more low-fare tickets than either the low-fare demand or the booking limit =low-fare demand - # low-fare tickets sold binomially distributed with two parameters, (i) prob buying up and (ii) # low-fare customers shut out); check for 0 customers before generating random variable. =original high-fare demand + buy-ups Can't sell more high-fare tickets than either the high-fare demand or the # seats remaining after low-fare tickets are sold

From the sensitivity analysis below, we see that the optimal protection level is approximately 105 (note that the function may not be unimodal - it may have more than one 'mountain' - and because this is a simulation, the graph is not perfectly smooth). Note also that the optimal protection level has risen from 80 in the base case (without buy ups) to 105 here. This makes sense: with buy-ups, BlueSky expects a larger number of full-fare ticket sales and therefore reserves more room for those sales. protection level for high-fare tickets revenue from all ticket sales buy-up: Mean 85 20,452.6 86 20,470.5 87 20,486.5 20,700.0 88 20,498.6 89 20,519.9 90 20,529.8 91 20,545.0 20,650.0 92 20,557.0 93 20,567.6 94 20,578.8 95 20,583.8 96 20,590.3 20,600.0 97 20,605.1 98 20,606.0 99 20,610.8 100 20,615.1 20,550.0 101 20,620.1 102 20,625.0 103 20,623.7 104 20,624.1 20,500.0 105 20,625.7 106 20,620.7 107 20,616.1 108 20,607.7 20,450.0 109 20,600.4 110 20,595.8 111 20,589.2 112 20,577.1 20,400.0 113 20,562.3 85 90 95 100 105 110 115 114 20,554.9 115 20,537.4

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