The example model depicts a hypothetical airline flight from San Francisco to Seattle.  The flight has 100 seats, and tickets are $200 per seat.  Some passengers who purchase tickets are “no-shows” whose seats will be empty; in this example we assume that such passengers receive a refund of 50% of their purchase price.

To utilize their ‘perishable inventory’ of seats, the airline would like to sell more than 100 tickets for each flight.  But we assume that Federal regulations require that any ticketed passenger who is unable to board the flight due to overbooking is entitled to compensation of 125% of the ticket price.

The airline would like to know how much revenue it will generate from each flight, less refunds for no-shows and compensation for ‘bumped’ passengers.