Oceanic United is an international airline operating two roundtrip flights between San Francisco and Nandi, Fiji each week. Oceanic's capacity level is three roundtrip flights each week. The only other competitor on this 5,600-mile route is Pacific Express; it operates three roundtrip flights between San Francisco and Nandi each week. Both Oceanic and Pacific offer only one class of seats (tourist class) on their planes. Assume that no one-way tickets are sold. Several months ago Oceanic United hired a consulting firm to compare the costs of Oceanic United and Pacific Express. The consultant's report includes the following summary cost comparison: Variable costs Fixed costs Total annual costs: OCEANIC UNITED $6,240,000 $12,480,000 $18,720,000 PACIFIC EXPRESS $17,160,000 $9,360,000 $26,520,000 Total passengers carried Total unit cost per passenger 20,800 $900 34,320 $773 The data analysis underlying these numbers is: OCEANIC PACIFIC UNITED EXPRESS Seating capacity per plane 360 310 Roundtrip flights per week 2 3 Roundtrip flights per year 104 156 Average passengers per roundtrip 200 220 Average price per roundtrip $1,000 $950 Variable cost per roundtrip $60,000 $110,000 Annual fixed costs $12,480,000 $9,360,000 * The variable costs associated with each passenger on a given flight are viewed as being close to zero. 12) Evaluate the essential market conditions for the below two pricing strategies, and then, recommend a new price to Oceanic United Airline for: a) Maximizing market share by penetration pricing strategy. b) Maximizing profit by skimming pricing strategy. Oceanic United is an international airline operating two roundtrip flights between San Francisco and Nandi, Fiji each week. Oceanic's capacity level is three roundtrip flights each week. The only other competitor on this 5,600-mile route is Pacific Express; it operates three roundtrip flights between San Francisco and Nandi each week. Both Oceanic and Pacific offer only one class of seats (tourist class) on their planes. Assume that no one-way tickets are sold. Several months ago Oceanic United hired a consulting firm to compare the costs of Oceanic United and Pacific Express. The consultant's report includes the following summary cost comparison: Variable costs Fixed costs Total annual costs: OCEANIC UNITED $6,240,000 $12,480,000 $18,720,000 PACIFIC EXPRESS $17,160,000 $9,360,000 $26,520,000 Total passengers carried Total unit cost per passenger 20,800 $900 34,320 $773 The data analysis underlying these numbers is: OCEANIC PACIFIC UNITED EXPRESS Seating capacity per plane 360 310 Roundtrip flights per week 2 3 Roundtrip flights per year 104 156 Average passengers per roundtrip 200 220 Average price per roundtrip $1,000 $950 Variable cost per roundtrip $60,000 $110,000 Annual fixed costs $12,480,000 $9,360,000 * The variable costs associated with each passenger on a given flight are viewed as being close to zero. 12) Evaluate the essential market conditions for the below two pricing strategies, and then, recommend a new price to Oceanic United Airline for: a) Maximizing market share by penetration pricing strategy. b) Maximizing profit by skimming pricing strategy
