Airline pricing, considerations other than cost in pricing. Air North is about to introduce a daily round-trip flight from Toronto to Vancouver. Air North offers only one class of seats—Comfort Class, which allows more leg room for passengers—on all its flights. No other airline offers this kind ofseat. Air North is in the process of determining how it should price its round-trip tickets. The following information is available:

Seating capacity per plane 360 Maximum demand for seats on any flight 300 Food and beverage service cost for a round trip

(no charge to passenger) $ 48 per passenger Commission to travel agents paid by Air North on each ticket booked on Air North (assume all ofAr North’s tickets are booked by travel agents) 8% offare Fuel costs for a round-trip flight $ 28,800 Fixed annual lease costs allocated to a round-trip flight $120,000 Fixed ground services (maintenance, check-in, baggage handling) costs allocated to a round-trip flight $ 12,000 Fixed flight crew salaries allocated to a round-trip flight $ 9,600 For simplicity, assume that fuel costs are not affected by the actual number of passengers on a flight.
The market research group at Air North segments the market into business and pleas¬
ure travellers and provides the following information on the effect of two different prices on the estimated number ofseats sold:
* Number ofSeats Price Charged Expected to Be Sold Business travellers $ 600 200 $2,400 190 Pleasure travellers $ 600 100 $2,400 20 Assume these prices are the only choices available to Air North. The market research team offers one additional fact. Pleasure travellers start their travel in one week, spend at least one weekend at their destination, and return in some following week. Business travellers usu¬
ally start and complete their travel within the week. They do not stay over weekends.
Required 1. Ifyou could charge different prices to business travellers and pleasure travellers, would you?
Show all your computations.
2. Explain the key factor (or factors) that drives your answer in requirement 1.
3. How might Air North implement price discrimination? That is, what scheme could the airline devise so that business travellers pay the price the airline would like business trav¬
ellers to pay, and pleasure travellers pay the price the airline would like pleasure travellers to pay?