Alliance air is service in which customers pay flat-rate

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Reference no: EM132221908

Alliance Air is a service in which customers pay a flat-rate to Alliance Air and are guaranteed a seat on an airplane between any two locations. To offer this service, Alliance Air prepurchases daily seats between every pair of major cities. A route which has been growing in popularity is between Phoenix and Dallas and Alliance Air is seeking your advice on how many seats to prepurchase between these two cities so that they maximize their daily profit.

Whenever an Alliance Air customer flies on a prepurchased seat, Alliance Air obtains $100 in profits. However, if Alliance Air has more customers seeking a seat then they have prepurchased, Alliance Air is forced to book that passenger on a seat purchased that day. In such a situation, Alliance Air has a profit of -$170 due to the high cost of same-day flights. If not all of their prepurchased seats are taken, then Alliance Air makes a profit of -$20 by selling the seats at a discount to passengers outside of their customer base. Based on their data, Alliance Air knows that number of customers seeking a flight on any day follows a Poisson distribution with mean 40.

Using this information, complete the following tasks/questions:

Develop an Excel spreadsheet model which can calculate the daily profits for Alliance Air given a particular demand for that day. Using the given demand distribution, set-up your spreadsheet as a simulation model using daily profits as the output. Run the simulation assuming Alliance Air prepurchases 37 seats on the plane. What is the average daily profit in this scenario?

How many seats would you recommend Alliance Air to prepurchase if they wanted to maximize their average daily profit? To answer this, modify the number of prepurchased seats and observe various statistics about the expected daily profits (e.g. average, max, min, etc.) just like in Valentine's Candy example. What are the minimum and maximum daily profits if they were to purchase this quantity? What percentage of the time is Alliance Air’s daily profit above 2,250?

Reference no: EM132221908

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