=+9-26 KK Airline pricing, market segmentation OBJECTIVE 3 Heron Air is about to introduce a daily return flight from Perth to Sydney and is determining how it should price its return tickets.

The market research group at Heron Air segments the market into business and pleasure travellers. 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:

Number of seats expected to be sold Price charged Variable cost per ticket Business Pleasure

$500 $65 200 100 2100 175 180 20 Pleasure travellers start their travel during one week, spend at least one weekend at their destination and return the following week or thereafter. Business travellers usually start and complete their travel within the same working week. They do not stay over weekends.

Assume that return fuel costs are fixed costs of $24000 and that fixed costs allocated to the return flight for aircraft-lease costs, ground services and flight-crew salaries total $188000.

Chapter 9: Pricing decisions and customer-profitability analysis 369 M09_HORN3377_02_LT_C09.indd 369 2/09/13 3:45 PM Required 1 If you could charge different prices to business travellers and pleasure travellers, would you? Show your calculations.