Question

13.22 WestJet's daily flight from Edmonton to a Bocing 737, with all-coach seating for 120 pe airline has priced every seat at $140 for the on age of 80 passengers are on each flight. The variable cos seat is $25. to try a yield-revenue approach, with seats priced at $80 for bookings and at $190 for bookings within one week of the flight She estimates that the airline will sell 65 seats at the lower and 35 at the higher price. Variable cost will not change. Which to Toronto people. In the pas, 40 for the one-way flight. An t of a filled Katie Morgan, the new operations manager, has decides price approach is preferable to Ms. Morgan?

Answer 1

In the first method,

Price of each seat = $140

Number of seats reserved = 80

Variable cost = $25

Contribution Margin = Price - variable cost = 140 - 25 = $115

Therefore, Profit (including Fixed cost) = Contribution Margin * number of seats booked = 115*80 = $9,200

In the second method

Price of discounted seat = $80

Price of Late booked ticket = $190

Variable cost remains same i.e $25 per seat

Contribution Margin for discounted seat = 80-25 = $55

Contribution margin for late booked seats = 190-25 = $165

Therefore, Prpfit(including fixed cost) = 55*65+165*35 = 3575+5775 = $9,350

From the 2 figures that we have got we can that the new system will yield higher revenue to WestJet and hence should be preferable.