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

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NorthAir charges low fares for its economy-class seats, but it provide  [#permalink]

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New post Updated on: 04 Sep 2018, 18:27
1
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A
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D
E

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The Official Guide for GMAT Review 2018

Practice Question
Question No.: CR 660
Page: 543

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.

NorthAir Cheap Seats

Step 1: Identify the Question

The words help to explain in the question stem indicates that this is an Explain the Discrepancy question.

Step 2: Deconstruct the Argument

cheap, bad e-c seats

If ↑ quality, ↑ rev more than cost

NA wants to ↑ profit

BUT

won't ↑ quality

Step 3: Pause and State the Goal

On Explain the Discrepancy questions, the goal is to find an answer choice that makes the unexpected result less surprising. In this case, why would NorthAir refuse to provide wider seating and better service to economy class if the increased price would more than cover the cost?

On Discrepancy questions, the most tempting wrong answers will typically heighten the discrepancy. Your goal is to find an answer that makes the information less surprising.

Step 4: Work from Wrong to Right

(A) If true, then providing a higher quality experience would give NorthAir a competitive edge. This reinforces the discrepancy.

(B) This is irrelevant to whether NorthAir should improve its service. If the change would improve profits, then why wouldn’t the company make that change even on routes where it has a monopoly on direct flights?

(C) This doesn't negate the market research that the revenue would exceed the cost. Perhaps these customers would also be satisfied to pay more for better service. Or perhaps NorthAir could lose these customers and the research says they would still increase revenue sufficiently to overcome costs.

(D) Even if people fly NorthAir today with cramped seating, why not implement a strategy that would increase profits? This choice doesn’t explain why the company seemingly does not want to increase its profits.

(E) CORRECT. Though revenue would exceed costs for the economy-class seats, this answer suggests an unintended consequence of upgrading the service to economy class. NorthAir would start losing revenue from business class, which could outweigh the gains in economy class. Overall profits might not actually rise, in this case.

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Originally posted by hazelnut on 29 May 2017, 21:13.
Last edited by hazelnut on 04 Sep 2018, 18:27, edited 3 times in total.
Corrected option E
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Re: NorthAir charges low fares for its economy-class seats, but it provide  [#permalink]

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New post 29 May 2017, 22:00
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IMO E
1) None of NorthAir's competitors offers significantly better seating and service to economy-class passengers than NorthAir does--This does not discourage NorthAir to make the improvements
2) On many of the routes that NorthAir flies, it is the only airline to offer direct flights.- No relation to NorthAir's decision to not make the improvements
3) A few of NorthAir's economy-class passengers are satisfied with the service they receive, given the low price they pay- The decision of few does not matter to the airline as such
4) Very few people avoid flying on NorthAir because of the cramped seating and poor service offered in economy class.--Strengthes
5) 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 profitable.--The number of people who would generally buy the business class tickets will then be allured to pay less and would therefore buy the Economy Class tickets, resulting in decrease in their revenue from business class.
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Re: NorthAir charges low fares for its economy-class seats, but it provide  [#permalink]

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New post 31 May 2017, 02:30
[quote="hazelnut"]
The Official Guide for GMAT Review 2018

Practice Question
Question No.: CR 660
Page: 543

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 profitable.



B) for me

Because people will have no option to go from one place to another via direct route except this flight..So, they may pay whatever it takes to make them reach on a place they want to be in less time
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Re: NorthAir charges low fares for its economy-class seats, but it provide  [#permalink]

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New post 31 May 2017, 04:43
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
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Re: NorthAir charges low fares for its economy-class seats, but it provide  [#permalink]

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New post 31 May 2017, 05:35
I don't understand what E is saying but chose it anyway. I read E as stating that people would not travel on the airline solely because the airline was turning a higher profit. If it had said, "The number of people willing to pay the high fares Northair charges for its business-class would decrease if its economy-seating were cheaper" it would make more sense, but to say more profitable seems to change the scope slightly. It never states that people would switch to business-class from economy-class; rather people will not buy a ticket at all. Can someone help with this?
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Re: NorthAir charges low fares for its economy-class seats, but it provide  [#permalink]

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New post 31 May 2017, 05:54
emockus wrote:
I don't understand what E is saying but chose it anyway. I read E as stating that people would not travel on the airline solely because the airline was turning a higher profit. If it had said, "The number of people willing to pay the high fares Northair charges for its business-class would decrease if its economy-seating were cheaper" it would make more sense, but to say more profitable seems to change the scope slightly. It never states that people would switch to business-class from economy-class; rather people will not buy a ticket at all. Can someone help with this?

Hi emockus ,
The last word in Option E was incorrect and it has been corrected now .
"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 "
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Re: NorthAir charges low fares for its economy-class seats, but it provide  [#permalink]

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New post 31 May 2017, 06:15
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.
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Re: NorthAir charges low fares for its economy-class seats, but it provide  [#permalink]

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hazelnut wrote:
The Official Guide for GMAT Review 2018

Practice Question
Question No.: CR 660
Page: 543

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.

Note : Official answer will be provided once GMAT Official Guide 2018 Review released (June 19, 2017).


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.
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Re: NorthAir charges low fares for its economy-class seats, but it provide  [#permalink]

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New post 03 Jun 2017, 03:20
hazelnut wrote:
The Official Guide for GMAT Review 2018

Practice Question
Question No.: CR 660
Page: 543

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.

Note : Official answer will be provided once GMAT Official Guide 2018 Review released (June 19, 2017).


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.
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Re: NorthAir charges low fares for its economy-class seats, but it provide  [#permalink]

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New post 08 Jul 2017, 07:47
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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
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Re: NorthAir charges low fares for its economy-class seats, but it provide  [#permalink]

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adkikani wrote:
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.
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Re: NorthAir charges low fares for its economy-class seats, but it provide  [#permalink]

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New post 12 Jul 2017, 20:23
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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.
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New post 13 Jul 2017, 01:49
hi 282552

I must say you have unique way of explanation. Throughout your solution,
the word madness did help me to
understand the paradox.

Thanks for help!!

WR,
Arpit
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Re: NorthAir charges low fares for its economy-class seats, but it provide  [#permalink]

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New post 13 Jul 2017, 19:40
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adkikani wrote:
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

There are already some great replies to this, but let's toss one more in, just in case it helps. :)

As stated, if NA's goal is to improve its profitability, why would it not do something that would apparently increase profits?

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

Even though a few passengers are satisfied with the current service, that doesn't change the market research evidence showing that economy passengers would willingly pay more for wider seating and better service. This does not require that ALL passengers are willing to pay more. As long as the additional revenue would cover the additional costs, this option would still improve profitability. (C) does not explain the apparent discrepancy and can be eliminated.

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

This statement simply suggests that if NA does not make the changes, then NA will still be able to sell tickets. This does not address the apparent discrepancy, which is that NA could seemingly improve its profitability by making the changes. (D) can be eliminated.

I hope that helps!
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New post 30 Sep 2018, 20:36
Hi,

Can anyone explain as to why (B) On many of the routes that NorthAir flies, it is the only airline to offer direct flights. is incorrect?

When on many of the routes NA is the only airline offering flights, they anyway don't need to worry about the profitability as irrespective of the seating,customers would have to fly with NA.

A bit confused here.

Thanks
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New post 30 Sep 2018, 21:27
Hi Amirfunc

Quote:
Can anyone explain as to why (B) On many of the routes that NorthAir flies, it is the only airline to offer direct flights. is incorrect?

When on many of the routes NA is the only airline offering flights, they anyway don't need to worry about the profitability as irrespective of the seating, customers would have to fly with NA.


Here are my two cents:

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

From the question stem, you need to know we need to resolve a paradox or a mystery.
What is the mystery here?

Quote:
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.

NA charges low $ for EC seats. But the seating arrangement is very congested and amenities provided are few.
As per the results of market research, the passenger would be happy to pay for more wide seats and amenities even if they are asked for more $ in ticket prices. Also cost incurred by NA in making those amendments shall be less than revenue generated from sales of tickets.

Halt here, ideally at this stage: NA should have no problem in increasing ticket rates, right? Since
as per marker research, the passengers are willing to pay extra $

Quote:
Even though NorthAir is searching for ways to improve its profitability, it has decided not to make these improvements.

NA's aim is to increase profitability. So why should it ideally not work on improvements (widening seats and providing better
amenities) it has results of market research to back its plan, right? This the crux of paradox.

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

This has no bearing whatsoever on deciding why NA is resistant to make improvements.
The paradox is not at all about NA is direct or connecting flight or others are not.

Quote:
(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.

Recall that the goal of NA is to increase profitability and we are in search of an answer that shows given a way to do it,
why is NA still not optimistic about implementing that strategy?
Since BC seats are charged higher than EC seats and now same passengers would be willing to buy tickets in EC,
and any decrease IN BC seats will lower the profitability of NA; NA is unwilling to make amendments.

Does that help?
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New post 30 Sep 2018, 22:05
adkikani wrote:
Hi Amirfunc

Quote:
Can anyone explain as to why (B) On many of the routes that NorthAir flies, it is the only airline to offer direct flights. is incorrect?

When on many of the routes NA is the only airline offering flights, they anyway don't need to worry about the profitability as irrespective of the seating, customers would have to fly with NA.


Here are my two cents:

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

From the question stem, you need to know we need to resolve a paradox or a mystery.
What is the mystery here?

Quote:
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.

NA charges low $ for EC seats. But the seating arrangement is very congested and amenities provided are few.
As per the results of market research, the passenger would be happy to pay for more wide seats and amenities even if they are asked for more $ in ticket prices. Also cost incurred by NA in making those amendments shall be less than revenue generated from sales of tickets.

Halt here, ideally at this stage: NA should have no problem in increasing ticket rates, right? Since
as per marker research, the passengers are willing to pay extra $

Quote:
Even though NorthAir is searching for ways to improve its profitability, it has decided not to make these improvements.

NA's aim is to increase profitability. So why should it ideally not work on improvements (widening seats and providing better
amenities) it has results of market research to back its plan, right? This the crux of paradox.

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

This has no bearing whatsoever on deciding why NA is resistant to make improvements.
The paradox is not at all about NA is direct or connecting flight or others are not.

Quote:
(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.

Recall that the goal of NA is to increase profitability and we are in search of an answer that shows given a way to do it,
why is NA still not optimistic about implementing that strategy?
Since BC seats are charged higher than EC seats and now same passengers would be willing to buy tickets in EC,
and any decrease IN BC seats will lower the profitability of NA; NA is unwilling to make amendments.

Does that help?


Thanks for the detailed explanation , looks like i did not take the seating part in my analysis.
GMAT Club Bot
Re: NorthAir charges low fares for its economy-class seats, but it provide &nbs [#permalink] 30 Sep 2018, 22:05
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NorthAir charges low fares for its economy-class seats, but it provide

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