Bluesky Airlines Network Revenue Management Case Series

Topics: Airline, Marginal cost, Costs Pages: 4 (1173 words) Published: May 12, 2013
Vol. 9, No. 3, May 2009, pp. 145–147 issn 1532-0545 09 0903 0145



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I N F O R M S Transactions on Education

doi 10.1287/ited.1090.0033cs2 © 2009 INFORMS

Case Series

BlueSky Airlines: Network Revenue Management
Tuck School of Business, Dartmouth College, Hanover, New Hampshire 03755,

Robert A. Shumsky

BlueSky flies three airplanes between Houston and three cities, Chicago, Miami, and Phoenix. These three cities are the spokes connected by the Houston hub. A few times each day the three airplanes fly from the spoke cities to Houston. They arrive simultaneously at Houston; connecting passengers change aircraft during a 45-minute layover, and the three airplanes depart for the spokes. One set of six flights (three inbound to Houston and three outbound) is called a bank. Each bank can serve passengers flying on 12 different routes: three inbound direct routes (Chicago-Houston or C-H, Miami-Houston or M-H, and Phoenix-Houston or P-H), three outbound direct routes (H-C, H-M, and H-P), and six routes requiring two flights each (C-M, C-P, M-C, M-P, P-C, and P-M). BlueSky charges a single fee for a one-way coachclass ticket on each passenger route. Table 1 shows the prices charged by BlueSky. The marginal cost of flying a passenger on each route is virtually zero. Each of the three airplanes currently has 240 coach seats. Table 2 shows demand for the routes in a bank; assume in this case that demand is known, with no uncertainty. From Table 2 we can see that passenger demand exceeds airplane capacity on every flight. Table 1 Price for Each Passenger Route Destination Origin Houston Chicago Miami Phoenix Houston ($) — 190 108 110 Chicago ($) 197 — 292 192 Miami ($) 110 282 — 230 Phoenix ($) 125 195 238 — 145

Case A

Table 2

Demand During One Bank Destination Total demand for...
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