A commuter airline overbooks all of its flights by two passengers. The no-show e

Question

A commuter airline overbooks all of its flights by two passengers. The no-show experience for the past 20 days is as follows:

Number of No-shows

0

1

2

3

4

Frequency

6

5

4

3

2

What is the maximum implied overbooking opportunity loss if the revenue from a passenger is $250?

$204. 54

$583.33

$1,000.

None of the above

5 points   

QUESTION 10

How does the exponential smoothing technique determine a next-period forecast?

By averaging recent historical demand to generate a forecast.

By calculating a weighted average of n-period observations using varied weights.

By identifying a causal variable, which is a predictor of demand, and using linear regression to identify the forecast equation.

By using the current period’s forecast, adjusted by a weighted difference between the current period’s actual data and the forecast.

5 points   

QUESTION 11

The Hotel California found that it frequently turned down a customer in the lobby because a room was reserved for a customer who never showed up. The manager felt that the hotel’s policy of overbooking should be examined. The average room rate was $50 per night but the hotel could not collect the room rate from no-show customers. If no overbookings were allowed, each no-show would in reality cost the hotel $50. If it overbooked too much and filled up early in the night, customers with reservations who arrived later to find no rooms available would be very unhappy. About 10% of customers with reservations who arrived to find no room available did not cost the hotel any money; they merely muttered under their breath and walked out.   Another 10% were satisfied with being transferred to another hotel at no cost to the Hotel California. The remaining guests were so upset by the situation that the hotel had to repair broken lobby furniture at a cost of $150. The hotel’s no-show experience is summarized in the table below. What overbooking policy would you recommend to the Hotel California?

Number of No-shows

0

1

2

3

4

5

6

7

8

9

10

Probability of No-Show

.05

.10

.20

.15

.15

.10

.05

.05

.05

.05

.05

Overbook by one room.

Overbook by two rooms.

Overbook by four rooms.

None of the above.

Number of No-shows

0

1

2

3

4

Frequency

6

5

4

3

2

caSecure

Explanation / Answer

Create cumulative probability table

In the above table, probability is obtained by dividing the Frequency by total, for example probability for 0 no show = 6/20 = 0.3 . for 1 no show = 5/20 = 0.25 . Cumulative probability is the running sum of probability.

The airline overbooks its flights by two passengers. Therefore minimum critical fractile is 0.55 (refer the above cumulative probability table. The cumulative probability corresponding to 1 no show is > 0.55)

Therefore, Cu / (Cu + Co) >= 0.55

Substituting, Cu = 250 in the above inequality, we get,

Co <= Cu/0.55 - Cu or,

Co <= 250/0.55 - 250 = 204.54

Therefore, maximum implied overbooking opportunity loss, Co = $ 204.54

No Shows Frequency Probability Cumulative probability 0 6 0.30 0.30 1 5 0.25 0.55 2 4 0.20 0.75 3 3 0.15 0.90 4 2 0.10 1.00 Total 20

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