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Overbooking policy of the airline

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Next week, Super Saver Discount Airlines has a flight from JFK to LAX that is expected to be booked to capacity. The airline knows from past history that an average of 25 customers (with a standard deviation of 15, assume normal distribution) cancel their reservation or do not show for the flight. Revenue from a ticket on the flight is $125. If the flight is overbooked, the airline has a policy of getting the customer on the next available flight and giving the person a free round-trip ticket on a future flight. The cost of this free round-trip ticket averages $250. Super Discount considers the cost of flying the plane from JFK to LAX a sunk cost. We would like to get insights for the overbooking policy of the airline. whats cost of overstocking?

Reference no: EM131109100

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