Part I- Chapter 13 Southeastern Airline’s daily flight from Atlanta to Charlotte

Question

Part I- Chapter 13 Southeastern Airline’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 $140 for the one-way flight. An average of 80 passengers are on each flight. The variable cost of a filled seal is $25. Katie Morgan, the new operations manager, has decided to try a yield revenue approach, with seats priced at $80 for early bookings and at $190 for bookings within 1 week of the flight. She estimates that the airline will sell 65 seats at the lower price and 35 at the higher price. Variable cost will not change. Which approach is preferable to Ms. Morgan? Show all work/calculations, or points will not be given.

Explanation / Answer

Current Profits = Sales - Variable costs = 80 seats x $140 - 80 seats x $25 = $9,200

Proposed = (65 seats x $80 + 35 seats x $190) - 100 seats x $25 = $9,350

So, Profits would increase by $150 ($9,350 - $9,200).

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