a. West Jet’s daily flight from Edmonton to Toronto 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 is on each flight. The variable cost of a filled seat is $25.
b. 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?