The manager of operations of Air Canada is trying to decide whether to
adopt a new discount fare. Focus on one 134-seat airplane now operating at a
56 percent load factor. That is, on the average the airplane has 0.56 x 134 = 75
passengers. The regular fares produce an average revenue of $0.12 per passengerkilometre.
Suppose an average 40 percent fare discount (which is subject to restrictions
regarding time of departure) will produce three new additional passengers. Also
suppose that three of the previously committed passengers accept the restrictions
and switch to the discount fare from the regular fare.
1. Compute the total revenue per airplane-kilometre with and without
the discount fares.
2. Suppose the maximum allowed allocation to new discount fares is
50 seats. These will be filled. As before, some previously committed
passengers will accept the restrictions and switch to the discount
fare from the regular fare. How many will have to switch so that the
total revenue per mile will be the same either with or without the
discount plan?