Question1:

Part C:

Ariana Airline announced that it will immediately charge an additional $20 per bag on all its flights, not for extra luggage but for the first bag! Crude oil had crushed from $50 to $34 per barrel in the previous 12 months. . This new baggage policy applied to all ticketed passengers except first class and business class. On top of incremental airline charges for food and snacks introduced the previous year, this new announcement stunned the traveling public. Since Ariana Airline and many other major carriers had belittled that policy as part of their overall marketing campaign against rivals a result Airline executive faced a dilemma.

Discussion Questions:

a. How should the airline respond when presented with an overweight bag by not charging any additional amount to its future passengers? Will this not affect the Airline Profitability?

b. Make a list of some of the issues that will need to be resolved ifAriana Airlines decides to routinely charge different prices to customers in the same class of service with additional luggage?

c. What would you do if you were the CEO of Ariana Airline while all other Airlines are not charging additional money per bag on all its flights for extra and non-extra bags? Define and justify your answers by referring to any of the economic principles discussed during the class.