Demand and Supply Analytics

Spring 2016

HOMEWORK #2
Submit on-line
Due Monday, February 17 by the beginning of class

1. Solve exercise 2 in chapter 7 of Pricing and Revenue Optimization.

2. Solve exercise 3 in chapter 7 of Pricing and Revenue Optimization.

3. Solve exercise 1 in chapter 10 of Pricing and Revenue Optimization.

4. CU Airlines Flight 1328 operates between New York and Boston and only carries local
passengers (no connecting passengers). Tickets are sold in three fare classes: Full-fare
at $600, Discount at $340 and Deep Discount at $190. The flight departing 20 days from
now has one un-booked seat left. The probability that CU will receive a booking request
in each booking class on each day is shown in the Excel spreadsheet
Assignment2_data.xlsx. Assume that, at most, one booking request will be received per
day.
a. Build a dynamic programming model to determine which booking requests
should be accepted and which rejected on each day to maximize revenue given
that the seat is still available. Submit your model in Excel as part of your answer.

b. To maximize expected revenue, given the seat is still un-booked, which booking
classes should be open 20 days before departure? 10 days before departure? 5
days before departure?

Demand and Supply Analytics

Spring 2016

5. CU Airlines operates two flights, one from New York (NYC) to Phoenix (PHX) and a
connecting flight from Phoenix to San Francisco (SF). CU offers two fares -- a full-fare
and a discount fare for both the NYC-PHX and PHX-SF direct flights and for the NYC-SF
itinerary which uses both flight legs. The airline has assigned a 120 seat aircraft to the
NYC-PHX flight and a 100 seat aircraft for the PHX-SF flight. The fares and expected
demands for each flight are given below:
Number
1
2
3
4
5
6

Product
NYC-PHX full fare
NYC-PHX discount fare
PHX-SF full fare
PHX-SF discount fare
NYC-SF full fare
NYC-SF discount fare

Fare
$300
$200
$250
$150
$495
$300

Demand
31
68
18
48
12
35

Formulate the problem of finding the revenue-maximizing product allocations as a

deterministic network linear program using the means and solve using solver in EXCEL.
a. What are the optimal allocations to each product and resulting revenue?

b. What are the bid prices for each flight?