CASE STUDY

Since $2020,$ Batik Airlines operate out of three main "hub" airports in Malaysia. Recently, Air$-$X Airlines began operating flight from South, North, into Batik's Metropolis hub for RM$190.$ Batik Airlines offers a price of RM$425$ for the same route. The management of Batik is not happy about Air$-$X invading its turf. In fact, Air$-$X has driven off nearly every other competing airline from its hub, so that today $90\%$ of flights into and out of Metropolis are Air$-$X Airline flight. Air$-$X is able to offer a lower fare because its pilots are paid less, it uses older planes, and it has lower overhead costs. Air$-$X has been in business for only $6$ months, and it services only two other cities. It expects the Metropolis route to be its most profitable.

Batik estimates that it would have to charge RM$210$ just to break even on this flight. It estimates that Air$-$X can break even at a price of RM$160.$ Within one day of AirX's entry into the market, Batik dropped its price to RM$140,$ when upon Air$-$X matched its price. They both maintained this fare for a period of $9$ months, until AirX went out of business. As soon as Air$-$X went out of business, Batik raised its fares back to RM$425.$

Questions $1-$ Elaborate your answer based on the following questions:

a$)$ Who are the stakeholders in this case?

b$)$ What are some of the reasons why Air$-$X$\text{'}$s break$-$even point is lower than that of Batik?

c$)$ What are the likely reasons why Batik was able to offer this price for this period of time, while Air$-$X couldn't?

d$)$ What are some of the possible courses of action available to Air$-x$ in this situation?

e$)$ Do you think that this kind of pricing activity is ethical? What are the implications for the stakeholders in this situation?

$(25$ marks$)$