Coastal Airways Segments Assignment

5. 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 market research group at Coastal Airways segments the market into business and pleasure travelers. 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: (Click the icon to view the pricing and ticket information.) 2(Click the icon to view additional information.)

Read the requirements Requirement 1. If you could charge different prices to business travelers and pleasure travelers, would you? Show your computations. Before determining if you would charge different prices to business travelers and pleasure travelers, calculate the total contribution margin at each price for each type of traveler. Total contribution margin Price charged Business Pleasure $ 600D 1,350 P D – and Coastal Airways would maximize contribution margin and operating income by charging business travelers a fare of (1) – pleasure travelers a fare of (2) -. Costal Airways would maximize contribution margin and operating income by (3) – , where business travelers are charged (4) – pleasure travelers. Requirement 2. Explain the key factor (or factors) for your answer in requirement 1. Business travelers are relatively priced (5) – – because they must get to their destination during the week (exclusive of weekends) and their fares are paid by their companies. Pleasure travelers are price (6) own airfare. because they have to pay for their (Round the percentages to the nearest tenth percent, X.X%.) An increase in fares from $600 to $1,350 will deter only In contrast, a similar fare increase will lead to a(n) travelers (17) offset by the total contribution margin. % of the business passengers from flying with Coastal Airways. % drop in pleasure travelers. The drop in demand for pleasure Requirement 3. How might Coastal Airways implement price discrimination? That is, what plan could the airline formulate so that business travelers and pleasure travelers each pay the price desired by the airline? Answer true or false to the following two statements in regards to how Costal Airways can implement price discrimination. (8) Airlines can require that a Saturday night stay is needed to qualify for the $600 discount fare. This requirement would discriminate between the passenger categories. (9) The statement above is illegal because airlines are service companies rather than manufacturing companies and because these practices destroy competition. 1: Data Table Price Charged $ 600 1,350 variable Cost per Ticket $ 65 Number of Seats Expected to Be Sold Business Pleasure 110 215 225 150 2: More Info 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 workweek. 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 3: Requirements 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 Coastal 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? .