Porter Airlines provides daily service from Toronto City Airport to Calgary, using a Boeing 737 with business-class seating for 12 passengers and coach seating for 108 passengers. Previously, the airline offered business-class seating at a fixed price of $200 per seat, with a variable cost of a filled seat being $40. All coach seating has been offered at a price of $140 per seat for all seats, with a variable cost per filled seat of $25. An average of 70 passengers per flight have been traveling in coach, with an average of 6 business-class travelers.

The airline wishes to optimize yield and introduce a new pricing policy that it hopes will encourage earlier reservations and higher usage. Business class seats will now be offered at $180 per seat for reservations made up to 7 days prior to the flight and $230 per seat for short-notice reservations made less than 7 days prior.

Similarly, the airline will now offer coach seating at $90 per seat for bookings made 7 or more days prior to the flight, and bookings made less than 7 days prior will be offered at $170 per seat.

Variable costs for each seating type remain the same.

In the first 4 weeks of the revised service offering, the airline has determined that the average response has shown an average uptake of 55 coach seats at the early pricing and 22 last-minute bookings at the higher rate, plus 5 business-class reservations taking the early pricing and 2 per flight at the higher last-minute rate.

Problems:

What is the resulting net revenue for the average flight under this new policy?

Although the airline has introduced this new pricing structure on a trial basis, does the early response support maintaining this structure and potentially expanding the approach to other travel lanes?