Question

The cost of flying a passenger plane from point \(A\) to point \(B\) is \(\$ 50,000\). The airline flies this route four times per day at \(7 \mathrm{AM}, 10 \mathrm{AM}, 1 \mathrm{PM}\), and \(4 \mathrm{PM}\). The first and last flights are filled to capacity with 240 people. The second and third flights are only half full. Find the average cost per passenger for each flight. Suppose the airline hires you as a marketing consultant and wants to know which type of customer it should try to attract-the off-peak customer (the middle two flights) or the rush-hour customer (the first and last flights). What advice would you offer?

Short answer

The average cost per passenger for each flight is approximately $277.78. The average cost per passenger is less for rush-hour flights (around $208.33) as compared to off-peak flights (around $416.67). Therefore, it would be more cost-effective for the airline to attract more rush-hour customers.

Step-by-step solution

Calculate the Total Passengers each day

First calculate the total number of passengers each day. The first and last flights are filled to capacity with 240 passengers each, that's 480 passengers. The second and third flights are only half full, which means 120 passengers each, so that's 240 passengers. So, total passengers each day is 480 + 240 = 720.

Calculate the Total Cost each day

Every flight costs $50,000, so since there are 4 flights each day, the total cost is $50,000 * 4 = $200,000.

Calculate the Average Cost per Passenger

Now, calculate the average cost per passenger. That is the total cost divided by the total number of passengers, so $200,000/720 = $277.78 approximately.

Calculate the average cost per passenger for Rush hour and Off-peak flights

For rush-hour flights (first and last flights), the number of passengers is 240 each. So, the average cost per passenger would be $50,000/240 = $208.33 approximately. For the off-peak flights (second and third flights), the number of passengers is 120 each. So, the average cost per passenger would be $50,000/120 = $416.67 approximately.

Offer advice to the airline

Looking at the average cost per passenger for each type of flight, it costs the airline less per passenger to fly during rush hour than off-peak. The airline should therefore try to attract more rush-hour customers as it would be more cost-effective.

Key concepts

Rush-hour flights

Rush-hour flights are typically scheduled during peak travel times when many passengers are looking to reach their destinations quickly. These flights are in high demand and usually occur at times most convenient for business travelers and daily commuters. In our exercise, rush-hour flights occur at 7 AM and 4 PM, and both are filled to their full capacity of 240 passengers.

The cost-effectiveness of rush-hour flights largely stems from their high passenger volume. Because flights during these times are full, the average cost per passenger decreases significantly. For instance, in this scenario, we calculated an average cost of $208.33 per passenger for rush-hour flights. This lower cost is due to the fixed cost of flying the plane being spread over a larger number of passengers. It highlights how important it is for airlines to fill their planes as much as possible.

However, the success of rush-hour flights depends on consistent demand, making it vital for airlines to adopt strategies, such as frequent flyer programs or business catering, to maintain these high occupancy rates.

Off-peak flights

Off-peak flights, which in this context are scheduled at 10 AM and 1 PM, typically have fewer passengers. These flights often serve leisure travelers or those who do not have tight time constraints. With only 120 passengers each, these flights are operating at 50% capacity.

The average cost per passenger for the off-peak flights is significantly higher at $416.67. This is because the cost of operating the flight doesn’t change, regardless of how many seats are filled. With fewer passengers, each person's ticket effectively covers a larger portion of the total cost.

Airlines may consider using pricing strategies, like offering discounts or special deals, to attract more passengers for these flights. The goal is to fill more seats, thereby lowering the average cost per passenger and increasing profitability. Additionally, appealing to passengers who prefer less crowded flights can also be a marketing strategy to enhance occupancy during off-peak times.

Airline marketing strategy

An effective airline marketing strategy takes into account both the rush-hour and off-peak flight times. For airlines, understanding customer behavior and preferences is key to filling planes and maximizing profits.

Focusing on rush-hour flights could mean targeting business travelers who are willing to pay more for convenience and time savings. This could include implementing loyalty programs, priority boarding, or other perks aimed at frequent flyers and corporate clients. Since rush-hour flights tend to have lower average costs per passenger, maintaining high occupancy can significantly improve an airline’s financial results.

On the other hand, improving occupancy for off-peak flights might involve crafting marketing campaigns that highlight reduced fares or added value benefits. By identifying specific segments, such as travelers looking for budget options or flexible itineraries, airlines can fill more seats.

Balancing both types of flights in marketing strategies ensures that airlines cater to diverse traveler needs while optimizing their operations to cover costs and realize profits. The strategic focus might vary based on geographical, seasonal, and competitive factors, but the ultimate aim remains to attract customers effectively during all flight times.