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Partly as a result of the Covid pandemic (but also for other reasons) airlines have noticed a shift in the preferences of fliers away from
Partly as a result of the Covid pandemic (but also for other reasons) airlines have noticed a shift in the preferences of fliers away from economy (E) seating toward premium-business (PB) class seating, despite the higher prices associated with that class. Suppose an airline company, Zephyr Air, is now considering swapping out some of its economy seats for more premium-business class seats. Of course, the financial impact of this plan must be assessed, because although each PB seat brings in more revenue than an E seat, the space for the additional 20 PB seats requires the removal of 48 E seats. Assume that the average price for a PB seat on a flight is $2,600, and that the average price for an E seat on a flight is $850. Airlines are fixed-cost operations, so one dollar of revenue also contributes one dollar of profit. Assume as well that the incremental cost of adding one PB seat is $10,200 (there's no cost associated with removing E seats, which will be used on other planes). This incremental cost of $10,200 will not be repeated until the airline changes the seat configuration in two years time. In the meantime, over the next two years, the plane with the revised seating will fly 300 flights. Based on the financial impact for the next two years, do you recommend Zephyr Air undertake the proposed seat swap? Begin your answer with Yes or No, and provide calculations to support your recommendation
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