Imagine Widgets Airlines, Inc.operates 18-seat commercial flights between New York City and Washington, DC.After 10 seats have been sold on each aircraft, the company has reached the break-even point.
Should Widgets consider offering a discounted fare for seats 11 through 18? Yes. Widgets Airlines, Inc. should offer a discount on the remaining seats. What are the advantages and disadvantages of not offering a discount on seats 11 through 18? The advantages of selling at a discounted price are that they would sell their seats faster depending on the price they are selling at.
This could be a beneficial by gaining more customers who travel for business on a weekly basis especially on Thursdays. The disadvantage of not offering discounts is that the flight will have empty seats because the price is too high. Even though the company will lose profit initially, the airline will develope a good reputation for low fares and fair treatment; as a result, they will continue to get business. What are the advantages and disadvantages of offering a discount on seats 11 through 18?
The disadvantages of offering a discount include: unhappy customers (who feel that the discount wasn’t good enough, aka insignificant). Another disadvantage is that the company will lose revenue . The advantages include: happy customers (who are glad to have been able to save money and to not have to mess with rebates), selling the seats more quickly, boosting the company’s reputation with the promotion, and possibly securing the loyalty of frequent fliers. How would you decide how much of a discount, if any, could be offered? What effect would the discount have on the financial statements of Widgets Airlines, Inc.?
We will decide how much of a discount would be offered by comparing the other competitors. For example if the other competitors sell more tickets base on a %20 discounted rates for specific days, the company will adjust its discount rates at %25 on those days. Widgets would not lose any revenue because it is all profit at this point. This would only bring in more customers especially the ones who fly on a weekly basis. The financial statement will stay the same because all companies offer discounts at some point and this would show on the income statement.