The management of NT Airways is thinking about introducing a daily return-flight from Darwin to Singapore. You are the management accountant at NT Airways and are working with the marketing manager to recommend the price for a return ticket. In researching the market, you and the marketing manager: 

(1) establish potential demand for the planned flight. The airline market for the Darwin to Singapore route is highly competitive; 

(2) distinguish between business and pleasure travellers (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, i.e. they do not stay over weekends), pleasure (economy) travellers get minimal seat sizes, no meals and limited baggage allowance whilst business travellers get a wider seat with a greater pitch, larger TV screens, better food (this could be a larger selection, complimentary drinks, etc.), and a greater baggage allowance and a dedicated amenity kit: 

(3) estimate 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 (see table below); 

(4) estimate from the records of similar flights that the fuel costs are likely to amount to $18,500; and (5) allocate a total of $150,000 to the return flight in respect of aircraft-lease costs, ground services and flight-crew salaries.

You present the following information to the management team for discussion at the next management meeting. 

Required: 

(i) Provide a recommendation to NT Airways on which pricing strategy the airline should implement i.e. whether to charge a single price for pleasure travellers, a single price for business travellers or different prices to business travellers and pleasure travellers). Support your recommendation with clear explanations and relevant calculations.

(ii) As part of your recommendation discuss whether NT Airways would be ablto implement price discrimination, should they decide to charge business travellers and pleasure travellers each different prices for the same flight. Support your recommendation with clear explanations of why or why not.

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Price charged Number of seats expected to Variable cost per ticket Seats Available be sold Business Pleasure Business Pleasure Business Pleasure Business Pleasure $1,350 S600 $150 $65 50 300 50 300 $779 $80 375 295 $1,298 $165 250 177 Price charged Number of seats expected to Variable cost per ticket Seats Available be sold Business Pleasure Business Pleasure Business Pleasure Business Pleasure $1,350 S600 $150 $65 50 300 50 300 $779 $80 375 295 $1,298 $165 250 177

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