Transatlantic Airlines Report

We have analyzed the existing booking polity of TransAtlantic Airlines and place potential be saving.The implementation of the suggested new booking indemnity would lead to reduction of total expected be per flight on intermediate by 8,100.Furthermore, the new policy would addition the predictability of total costs per flight. With 90% confidence new costs will be in a range 750 and 4,800 as comp ard to the current range of 1,900 to 20,300. The comparative description of the policies is presented in mesa 1.Analysis of existing policy quick fixBase case modelThe foundation of current policy is based on the analysis in table 1. We observe that the total costs for both yres are 6,250. The analysis of existing model indicates that on that point are twain controllable variables in yellow (booking level in both classes) and two uncontrollable variables in green (no-show %). skirt Foundation of existing policyThe available data indicates that current policy assumes some empty seat s on the plane. As there is no immediate justification to this assumption, overbooking of the plane should be targeted to minimize the costs.Table Quick policy fix By increasing the booking level for both classes, 0 costs can be achieved (table 2).Scenario analysisTransAtlantic does not have data retention policy in place. Hence, TransAtlantic has applied the consensus of experts for the scenario analysis. The percentage of no-shows varies between 3% and 8% in miserliness class and 15%-30% in business.Our calculations indicate that base case scenario is equal to the best case scenario. The main reason is that both cases of over- and infra booking the company incurs costs, therefore the cost minimization is only achieved when the number of passengers in each class taking the flight is equal to the interchangeable capacities (table 1).In the beat out case scenario, we assume the maximum no-show in both classes. The data in table 3 demonstrates that the cost of the missed opportuni ties (e.g. missed fare) is much high than the passenger compensation costsWe have calculated that in the worst case the company can experience the loss of revenues of 23,250 per flight.Table Worst case scenarioSensitivity analysisWe have identified that there are two independent uncontrollable variables in our model. The best way to quantify the uncertainty without the simulation is to conduct a sensitiveness analysis.One-way sensitivity analysis allows identifying the influence of each variable on the total costs.Expectedly, we observe that zero-cost for thriftiness class happens at 5% of no-show and for business class is 20%, as these levels are equal to full capacity utilization in each class.Any deviation from these levels results in the increased costs for the company. For the economy class the increase of no-shows by 1% point results in the loss of 1,800, while a reduction of 1% point results in the loss of 600. In business the corresponding figures are 1,450 and 300 (figur e 1).In relative terms, the costs of 1% increase are 3 times and 5 times higher than the costs of 1% decrease in no-shows for economy and business class correspondingly. The observation leads us to conclude that overbooking is a viable excerption for the airline. Analysis of two way sensitivity ( attachment A), helps us to identify the sweet spot of costs of no-shows (colored green).SimulationPolicy proportionIn the simulation analysis we assumed triangular probability of no-shows based on the available data (economy between 3%-8%, most people 5% business between 15%-30%, most common 20%). We have also used 5,000 iterations to calculate final results. Table 5 summarizes the results.Table Simulation output analysisAccording to our analysis the mean of the current policy equals 10,800. This value is different from 6,250 as the new estimated mean represents the expected value, which are the average costs weighted by their respective probabilities. The previous estimation indicates so lely the costs at one point.Quick look at the summary table helps us identify that the proposed quick fix is the least value destructing policy out of three policies. It has the lowest mean of total costs, the lowest probability of exceeding 10,000 as well as the narrowest range of the cost.To be more assured, we have additionally conducted probability dominance analysis (figure 2), which tells that both current and quick fix policy have deterministic dominance (always better) then no overbooking policy (green line). Whereas the quick fix (blue line) has stochastic dominance over currently employed policy (red line). The publication of current policy maybe occasionally better than our proposed solution, but in the majority of cases the quick fix policy will be better.Figure 2 fortune dominance analysisPolicy optimizationIn order to identify the optimal booking policy we have conducted simulation with 40 different booking levels for business and economy. As these two variables are independent, we have conducted consequential analysis. Results for business class level booking are in (figure 3). The detailed information about tested values is in Appendix B.Figure 3 Optimal booking policyWe have observed that the lowest expected value of total costs is achieved at 427 and 133 accepted reservations for economy and business respectively. The comparison of current policy against new policy can be found in table 6.Table Current vs new policy comparisonFurther model improvementsIt has been suggested that passengers upgraded from the economy class to business class, can additionally reduce costs.We have included this condition in the model and run the simulation with different booking levels for business and economy (see section on optimization). Expected booking levels are not affected by this change. No further adjustments to the booking levels are necessary due to overbooking in both classes,Nevertheless, in some instances, as we consider the whole spectrum of poss ibilities, we observe that there are occasions at which business class is not amply occupied. By introducing upgrade possibility we can indeed improve our overall results as seen from the following summary table 7.Table New policy with upgrade option Even though the improvement to the mean is limited to 200 and the range adjustments also non-significant, we almost eradicating the chance of incurring costs more than 10,000.This result ascribes to the partial derivative offsetting of business opportunity costs (fare of 1,450), with collected fare from economy class passengers of 450 and the omission of compensation cost of 150 to economy customers for overbooked flights. Thus, TransAtlantic airlines incurs only the cost of 850 per business passenger instead of 1,450 under the circumstance that business class passengers dont show up and leave seats to extra passengers of economy class.