Work these problems.admin / August 17, 2018
MBAA 522 Problem Set 7 1. Between 1995 and 1997, American Airlines competed with several low-cost-carriers on routes from Dallas/Fort Worth. The US…
Work these problems.
Problem Set 7
Between 1995 and 1997, American Airlines competed with several low-cost-carriers on
routes from Dallas/Fort Worth.
The US Department of Justice sued alleging predatory
A judge disagreed.
Read this article from the Wall Street Journal (available through
the Hunt Library ProQuest database):
Wilke, J. R., & McCartney, S. (2001, April 30).
American Airlines secures antitrust win —
Judge dismisses U.S. case, says competitive moves were company’s right.
(Eastern edition), pp. A.3.
The antitrust legal standard for predatory pricing is pricing below variable or marginal cost.
Discuss why the plaintiffs lost this case in the face of what most lay people would consider
Consider how to compute marginal cost for an airline.
Most large airlines operate networks, or hub-and-spoke systems, which connect many
spoke cities (or nodes) with flights to and from a hub airport.
A network carrier serves 39 spoke cities from a single hub.
How many city-pairs does it
(A city-pair is City A to City B.
City A to City B and City B to City A are consider
just one city-pair)
This same airline adds a 40
spoke city to its network using a 100 seat capacity aircraft.
On a flight from this 40
spoke to the hub, how many passengers, on average, does it
need to attract to each destination to achieve an 80% load factor?