Contribution approach. Air Delta is about to introduce a daily round-trip flight from New York to Los Angeles and is determining how it should price its round-trip tickets. The market research group 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.

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 work week. They do not stay over weekends.
Assume that round trip fuel costs are fixed at $24,000, and that the fixed costs allocated to the round trip flight for airplane lease costs, ground services, and flight-crew salaries total $188,000.
REQUIRED 1. If you could charge different prices to business travellers and pleasure travellers, would you?
Show your computations.
2. Explain the key factor or factors for your answer in requirement li 3. How might Air Delta implement price discrimination? That is, what plan could the airline formulate so that business travellers and pleasure travellers each pay the &e 1.

a. 632,912 monthly treatments se, ie ee Ge price desired by the airline?LO1

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Ticket Price Variable Cost/Ticket $ 500 2,000 $ 80 180 Number of Seats Expected to Be Sold Business Pleasure 200 100 190 20