Southeastern Airlines\'s daily flight from Atlanta to Charlotte uses a Boeing 73

Question

Southeastern Airlines's daily flight from Atlanta to Charlotte uses a Boeing 737, with all-coach seating for 120 people. In the past, the airline has priced every seat at $142 for theone-way flight. An average of 78 passengers are on each flight. The variable cost of a filled seat is $23. Katie Morgan, the new operations manager, has decided to try a yield revenue approach, with seats priced at $83 for early bookings and at $195 for bookings within 1 week of the flight. She estimates that the airline will sell 66 seats at the lower price and 34 at the higher price. Variable cost will not change.

A) Total $ contribution in the single price approach is ? (enter your response as a whole number).

B) Total $ contribution in the two price points approach is ? (enter your response as a whole number).

Which approach is preferable to Ms. Morgan?

A.

Proposed model minus two price pointsProposed modeltwo price points

B.

Current model minus single priceCurrent modelsingle price

Explanation / Answer

A. Contribution in the singe price approach = $142x 78 = $11076

B. Contribution in the double price approach = ($83x66) + ($195x34) = $5478 + $6630 = $12108

The double price approach is more profitable for the company and hence the double price model could be adopted.

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