Concept explainers
Airline pricing, considerations other than cost in pricing. Costal Airways is about to introduce a daily round-trip flight from New York to Los Angeles and is determining how to price its round-trip tickets.
The
Pleasure travelers start their travel during one week, spend at least one weekend at their destination, and return the following week or thereafter. Business travelers 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 $18,500 and that fixed costs allocated to the round-trip flight for airplane-lease costs, ground services, and flight-crew salaries total $150,000.
- 1. If you could charge different prices to business travelers and pleasure travelers, would you? Show your computations.
- 2. Explain the key factor (or factors) for your answer in requirement 1.
- 3. How might Costal Airways implement
price discrimination ? That is, what plan could the airline formulate so that business travelers and pleasure travelers each pay the price the airline desires?
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Horngren's Cost Accounting: A Managerial Emphasis (16th Edition)
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