NorthAir charges low fares for its economy-class seats, but it provide

NorthAir charges low fares for its economy-class seats, but it provides very cramped seating and few amenities. Market research shows that economy passengers would willingly pay more for wider seating and better service, and additional revenue provided by these higher ticket prices would more than cover the additional cost of providing these amenities. Even though NorthAir is searching for ways to improve its profitability, it has decided not to make these improvements.

Type - Paradox
Boil it down -NorthAir is searching for ways to improve its profitability .Although NorthAir can earn more by making their economy more premium , it chose not to .
Pre-thinking- What if business class users switch to premium economy ?


(A) None of NorthAir's competitors offers significantly better seating and service to economy-class passengers than NorthAir does. - Irrelevant

(B) On many of the routes that NorthAir flies, it is the only airline to offer direct flights. - Irrelevant

(C) A few of NorthAir's economy-class passengers are satisfied with the service they receive, given the low price they pay. Incorrect - there are others who will be happy to use premium economy

(D) Very few people avoid flying on NorthAir because of the cramped seating and poor service offered in economy class. - Incorrect

(E) The number of people who would be willing to pay the high fares NorthAir charges for its business-class seats would decrease if its economy-class seating were more acceptable. - Correct
- premium economy will cannibalize market share of business class

Answer E

IMO E.

E clearly gives us reason why North Air is not going to make any improvement in its services , if they do so then the profitability of Business class will suffer because people people will book more economy seats as it will cost less than business class.
Hope it helps.

An easy E the number of people who would be willing to pay the high fares NorthAir charges for its business-class seats would decrease if its economy-class seating were more acceptable.­

Hi GMATNinja / Experts
I was able to identify paradox correctly here:
Fact 1: Market research shows that economy passengers would willingly pay more for wider seating and better service, and additional revenue provided by these higher ticket prices would more than cover the additional cost of providing these amenities
Fact 2: it has decided not to make these improvements in spite of NorthAir (NA)
is willing to increase its profitability.
Why would NA do so is goal of my answer.
I could eliminate A (it strengthens the conclusion, but does not resolve the paradox, unless NA is willing to follow the same) , B (not related to conclusion).
However as per (C) and (D), both seem to point out that NA is not willing to make improvement by providing new amenities even at cost that customers are wiling to pay.
Could you elaborate on striking off these options?

Clear how (E) is correct.
WR,
Arpit

Not an Expert by any means, but I will give it a shot to explain why C and D are wrong.

Argument paraphrase : NA Airlines is looking to increase profits and they can do it easily by giving wider seats and better services, but they are not doing it. WHYYY??

PRETHINK : Something is fishy as they might be losing the revenue on the same flight where they can easily make the profit. In the long run flight maintenance will be more with wider seats and other improvements(long shot).

Going to the options :
(C) A few of NorthAir's economy-class passengers are satisfied with the service they receive, given the low price they pay.
They are satisfied now , so with improvement in services they will be satisifed later as well. So NA should accept the proposal as it would eventually increase the profits. Hence this option does not help resolve the madness by NA.

(D) Very few people avoid flying on NorthAir because of the cramped seating and poor service offered in economy class.
Very similar to B. If people do not have a problem with seats and services now, then they will not have it later as well. So NA should go ahead with the proposal to improve the profits.Hence this option does not help resolve the madness by NA.

(E) The number of people who would be willing to pay the high fares NorthAir charges for its business-class seats would decrease if its economy-class seating were more acceptable.
Bingo ,Now we are taking about the intrinsic factors that led NA to reject the proposal. They are already making huge margins on Business class and if they improve the services and seats , people will chose economy over business and this might get into their profits.

Error Analysis:

The argument says that the airline is looking ways to improve the profitability, but wouldn't consider improving the quality of seats in its economic class though more people may travel after the quality improvement,

The reason for the airline's decision is that what if people travelling in business class switch over to the economic class after the quality improvement on seats is being made. This reduces the revenue to the airline in turn decreasing the profitability.

Option A:We aren't bothered about the other airlines here. Irrelevant.
Option B: So what, if this is the only flight that offers direct flight, people may still continue to fly as they don't have any other option.Eliminate. Doesn't address profitability.
Option C: Irrelevant .
Option D:Same as D. Doesn't address profitability.
Option E: Correct.

Therefore the answer is Option E.

Which of the following, if true, would most help to explain NorthAir's decision in light of its objectives?


NorthAir's objective: Improve profitability
Possible way according to market research: Improve services and arrangements and charge higher to the economy class passengers.

NorthAir's decision: Not to go ahead following the above way, but stay with the current seating arrangements/services for economy class passengers.

Why has NorthAir taken this decision?
- Is it because NorthAir thinks that implementing the change could result in some sort of loss?


(A) None of NorthAir's competitors offers significantly better seating and service to economy-class passengers than NorthAir does - if NorthAir's current seating and service are best in the market, then it is possible that NorthAir sees no scope to change. But we are given that NorthAir is finding ways to improve profitability. Then there should have been no problems in implementing the change. Still, NorthAir doesn't do so. Why? This answer choice doesn't help to answer this question. Reject

(B) On many of the routes that NorthAir flies, it is the only airline to offer direct flights - That might be a good thing for NorthAir from a revenue perspective. Though it doesn't answer the question. Reject

(C) A few of NorthAir's economy-class passengers are satisfied with the service they receive, given the low price they pay. - the bold face means, very little number. This should probably motivate NorthAir to implement the change, since very large number are unsatisfied passengers. Explains the opposite. Reject

(D) Very few people avoid flying on NorthAir because of the cramped seating and poor service offered in economy class. - In other words, majority of people do not avoid flying with NorthAir because of the poor services or cramped seating. That is, NorthAir's current arrangements results in loss of very few people/passengers. But a loss of any form is a loss. Since the main objective is to improve profitability, then why even allow a minor loss. NorthAir should still think about implementing the change. But it doesn't do so. Why? This answer choice doesn't answer that question. Reject

(E) The number of people who would be willing to pay the high fares NorthAir charges for its business-class seats would decrease if its economy-class seating were more acceptable - Aha! This answer choice says that NorthAir is seeing loss of some form (decrease in no. Of people willing to pay high fares for business class seats) in implementing the change. This could be the reason for NorthAir's decision to avoid going ahead with the change

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Why is A wrong? I think since none of Northair competitors offer better seating, the airlines knows that it is only option available to the public so the people HAVE to take this flight. they don't have any other option and so NOrthAir would not want to improve its services. What is wrong in the reasoning here?

According to the passage, NorthAir should improve its economy-class seats not to attract more customer, but to improve its profitability. The passage argues that the advantage of improving those seats is that customers would willingly pay more and that the additional revenue would more than cover the cost of the improvements. So, the plan appears profitable.

Even if (A) is true, NorthAir would still likely increase its profits by improving the economy-class seats. In fact, if anything, (A) indicates that improving those seats would offer NorthAir a further advantage over its competitors. We know that customers are willing to pay more for improved seats, and NorthAir would be the only company offering those improvements. So, naturally, customers would flock to NorthAir.

For that reason, (A) does not explain NorthAir’s decision, and we can eliminate it.

I hope that helps!

NorthAir charges low fares for its economy-class seats, but it provides very cramped seating and few amenities. Market research shows that economy passengers would willingly pay more for wider seating and better service, and additional revenue provided by these higher ticket prices would more than cover the additional cost of providing these amenities. Even though NorthAir is searching for ways to improve its profitability, it has decided not to make these improvements.

Which of the following, if true, would most help to explain NorthAir's decision in light of its objectives?

(A) None of NorthAir's competitors offers significantly better seating and service to economy-class passengers than NorthAir does.

(B) On many of the routes that NorthAir flies, it is the only airline to offer direct flights.

(C) A few of NorthAir's economy-class passengers are satisfied with the service they receive, given the low price they pay.

(D) Very few people avoid flying on NorthAir because of the cramped seating and poor service offered in economy class.

(E) The number of people who would be willing to pay the high fares NorthAir charges for its business-class seats would decrease if its economy-class seating were more acceptable.


I was able to eliminate A and D in first go
B - Ok, NorthAir has direct flights than others - So why not provide wider seats and charge more? Eliminate
C - A few - we would like to consider others too. What if others are ready to pay - why not make money?
E - Yes, if Business class people start booking economy seat if they become better then it can be a valid reason not to alter Economy seats.

­My only issue with E is - arent we assuming that business class has huge margins? It doesnt state so explicitly - we dont know the amenities and services that business class has. Why isnt it a possibility that the wider seat economy class gives a larger margin than business? In contrast (D) - if very few people avoid flying because of cramped seats and poor service they might be travelling on NA despite these things because of the cost and hence if the cost goes up for better amenities they wont travel by NA?

The passage specifically says, "Market research shows that economy passengers would willingly pay more for wider seating and better service," so we don't need to worry about them leaving if the price goes up. Is it POSSIBLE that they lose some customers if they increase the cost by too much? Sure, but that would adding a pretty significant assumption to choice (D).

As for choice (E), remember what's being asked: "Which of the following, if true, would most help to explain NorthAir's decision in light of its objectives?"

That's not the same as asking, "Which one would DEFINITELY explain the decision." It is possible that the new seats would offer a larger profit margin than the business class seats, but that's not something we can assume.

Without knowing anything specific about profit margins, choice (E) offers a solid explanation for why they would forego the changes even though revenues would exceed costs. NA doesn't want to miss out on the "high fares" that customers are currently paying for business class tickets.

Can we come up with an edge case in which (E) doesn't work? Yes, but we could do the same thing for choice (D), perhaps by assuming that NA won't raise prices high enough to scare customers away.

Again, the correct answer does not have to be 100% airtight. Based on the information in the passage, (E) is definitely the choice that would MOST help explain the decision.

I hope that helps!

why doesnt A work? i would think that if north airs competitors offer better seating then North air can charge less and pursue a cost leadership approach, which would explain why they would not improve the seats.

Premises:

NorthAir charges low fares for its economy-class seats, but it provides very cramped seating and few amenities.
Market research shows that economy passengers would willingly pay more for wider seating and better service,
Additional revenue provided by these higher ticket prices would more than cover the additional cost of providing these amenities.
NorthAir is searching for ways to improve its profitability,

Plan: Upgrade services and charge more for more profits from the economy section.
Decision: It has decided not to make these improvements


Note that the comparison is of NorthAir current status with NorthAir future possibility only. They want to improve profitability. People are willing to pay more for better services and the increased revenue will more than make up for costs (so profits will increase) from economy. Still they have decided to not make these improvements. Why?


(A) None of NorthAir's competitors offers significantly better seating and service to economy-class passengers than NorthAir does.

Competitors are irrelevant. The discussion is between NorthAir current status with NorthAir future possibility of more profits. Current customers are willing to pay more for better service. They will not leave NorthAir if it hikes the ticket price for better service.

(B) On many of the routes that NorthAir flies, it is the only airline to offer direct flights.

Again, competition is irrelevant. If it can get more money from people from these flights too, why isn't it getting?


(C) A few of NorthAir's economy-class passengers are satisfied with the service they receive, given the low price they pay.

No connection to the argument. It is fine if some people are satisfied with the service they receive, given the low price they pay. We know that they will still be willing to pay extra for more service. Say if currently the price is $100 and the customer gets no food and has to buy baggage allowance, he might be ok with it since he is paying only $100. But he may be willing to pay $150 for good food onboard and better overall service too.

(D) Very few people avoid flying on NorthAir because of the cramped seating and poor service offered in economy class.

People don't avoid it, that's fine. But the profitability of NorthAir will improve with the suggested plan. So why not implement it?

(E) The number of people who would be willing to pay the high fares NorthAir charges for its business-class seats would decrease if its economy-class seating were more acceptable.

Here, the profitability comes into play. NorthAir may make more money from the economy section with the implementation of the plan, but it may lose revenue from business class then. People may switch from business to economy if economy becomes better. This explains why NorthAir is not implementing the plan.

Answer (E)

First, (A) says that none of the competitors offer more comfortable seats. Also, the plan doesn't require North Air to sell more tickets. If they're simply able to retain their current customers, all of whom will be paying more per ticket, the plan should be profitable, right?

So if the competitors aren't great and North Air can charge more (and increase profits) by improving their seats, they have every incentive to do so. So (A) is no good.

If (E) is true, and the airline would sell fewer tickets at the higher price, well, that would be a pretty compelling reason not to move forward with the plan, which may no longer be profitable. So (E) is our answer.

I hope that clears things up!