Additional information, including supplemental material and rights and permission policies, is available at http://ite.pubs.informs.org.
I N F O R M S Transactions on Education
doi 10.1287/ited.1090.0033cs2 © 2009 INFORMS
BlueSky Airlines: Network Revenue Management
Tuck School of Business, Dartmouth College, Hanover, New Hampshire 03755, email@example.com
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
Demand During One Bank Destination Total demand for...