Question: An airline company is considering providing a new daily service between Edinburgh and Copenhagen. The aircraft has a maximum capacity of 200 passengers and each flight incurs a fixed cost of £25 000 (regardless of the number of passengers). In addition, a cost is also incurred of £75 per passenger (to cover such things as catering, booking, baggage handling).

(a) The company is thinking of charging £225 per ticket. How many passengers will the airline need on each flight to break even?

(b) The company knows from previous experience that it is unlikely to sell more than 80 per cent of its seats on any one flight. Assuming it sells exactly this many, what price per seat should it charge to break even?

(c) The company also has the option of accepting a cargo contract with a Danish company. Under this contract the airline will receive £5000 per flight for transporting cargo but, because of the extra weight, it will have to reduce its maximum number of passengers to 190. How will this affect the break-even ticket price?