Question

Snowbound Air is about to introduce a daily round-trip flight from Edmonton to Winnipeg and is determining how it should price its round-trip tickets.
The market research group at Snowbound Air segments the market into business and pleasure travellers. It provides the following information on the effects of two different prices on the number of seats expected to be sold and the variable cost per ticket, including the commission paid to travel agents:

Pleasure travellers start their travel during one week, spend at least one weekend at their destination, and return the following week or thereafter. Business travellers usually' start and complete their travel within the same work week. They do not stay over weekends.
Assume that round-trip fuel costs are fixed costs of $24,000 and that fixed costs allocated to the round-trip flight for airplane-lease costs, ground services, and flight-crew salaries total $188,000.
Required
1. If you could charge different prices to business travellers and pleasure travellers, would you? Show your computations.
2. Explain the key factor (or factors) for your answer in requirement 1.
3. How might Snowbound Air implement price discrimination? That is, what plan could the airline formulate so that business travellers and pleasure travellers each pay the price desired by the airline?


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  • CreatedJuly 31, 2015
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