Mudlark Airlines

Mudlark Airlines Assessment of Overbooking Strategies

Mudlark Airlines runs many routes across the country using their fleet of 15-seat jets. Years of data has shown them that 8% of all passengers do not show up for their flights. They sell tickets for all of their flights for $200 each.

Rather than selling 15 tickets for each flight they are considering selling 17 tickets for each flight to raise revenue. This scenario runs the risk of having too many passengers show up for a flight. If a ticketed passenger shows up for a flight but does not get a seat, Mudlark is responsible for giving that passenger a seat on another flight and giving them a $250 travel voucher.

Examples:

If they sell 17 tickets and 15 or fewer show up, then they have a revenue of $3400 with no penalties. That is a $400 improvement over selling just 15 tickets.

If they sell 17 tickets and everyone shows up, then they have a revenue of $3400, but must pay for two tickets and two vouchers (-$900) so the net revenue is only $2500, which a $500 worse than if they had sold 15 tickets.

Create and carry out a simulation of this overbooking strategy. Determine (based on the results of the simulation) if the strategy is going to make money for the company.

Your report should include:

 The first paragraph should be an executive summary. It should include a brief introduction, methodology and summary of the results.  A detailed explanation of how you simulated the situation.  The results of your simulation (at least one table or graph of the results…)  An analysis of the simulation (what it means financially)  A conclusion written to the company  For full or extra credit also determine whether other overbooking strategies would be better.

You may work alone or with a partner on this project. GRADING RUBRIC (40 points total)

Executive Summary (5 points)  Introduction of scenario  Brief discussion of methodology  Summarizes results

The Simulation (15 points)  Defines what constitutes a component of the simulation. (How random elements are generated and what they represent.)  Defines what constitutes a trial of the simulation. (How many components are needed and what is the variable of interest.)  A demonstration of at least one trial.

The results and analysis (15 points)  Either a table or graphical display of the results of the simulation.  A calculation of the financial impact of selling 17 tickets instead of 15 tickets (based on the simulation results.)  A calculation of the financial impact of selling some amount other than 17 tickets instead of 15 tickets. (You should show a table or display or the results of this second simulation, but do not need to demonstrate the process again.)

Conclusion (5 points)  A small paragraph that makes a recommendation to the company (whether or not they should implement an overbooking plan) based on the results and financial analysis of the simulation(s).