Reference no: EM132558391

Airline operates 38 scheduled round-trip flights between A city and B city each week. It charges a fixed one-way fare of $200 per passenger. Airline can carry 150 passengers per flight. Fuel and other flight-related costs are 5000 per flight. On-flight meal costs are $5 per passenger. Sales commission averaging 5% of sales is paid to travel agents. Flying crew, ground crew, advertising, and other administrative expenditures for the route amount to $400,000 each week. Airline accepts standby passengers on flights 30 minutes before takeoff if space is available.

Question 1: Assume standby passengers book the tickets through a travel agent, and that the airplane pays a flat $6 commission per standby ticket rather than a 5% sales commission. What is the minimum price the airline should charge a standby passenger to cover the incremental costs associated with that passenger? Should the airline make the price higher or sustain it?