Question 3 Peak-Period Pricing alters the airlines’ marginal costs (and marginal profits) during peak periods. In practice, when the marginal change in cost is negligible to an airline, its flight schedule will not be greatly influenced. But when the surcharge significantly alters the costs/profits of a flight during peak periods, the airline might consider shifting flights away from those time slots. Before proposing the surcharge fee, Logan Airport investigates different airlines’ cost structures. An operating expense breakdown for three representative airlines is listed in Exhibit 12. In addition, per passenger revenue for different aircraft sizes is listed in Exhibit 13. 1 Source: FAA
(a) Assume a 70% passenger load factor. For which airplane types (conventional jet, regional jet, and turboprop) would a peak-period operation fee of $200 have a significant impact? (Hint: Estimate revenue per flight using data in Exhibit 13, and then estimate cost or profit per flight using data in Exhibit 12.)
(b) Based on your calculations for part (a), do you believe Peak-Period Pricing would bring significant relief to Logan’s current and future congestion?