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Some airlines allegedly reduce fares on certain routes to a

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Re: Some airlines allegedly reduce fares on certain routes to a [#permalink]

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New post 28 Nov 2017, 21:53
Nikhil_as wrote:
I want to understand why option E is incorrect. In the long term, profitability may be sustained because of more number of passengers that the airlines managed to attract.

Whereas in option B, the airlines will again decrease prices thereby affecting profitability further.

Need an expert's opinion on this question.

Choice (E) only tells us that we will have more customers "when airlines dramatically reduce their fares on a particular route." But what will happen when the airline increases its fares? Will those customers stick around? If they do, will other airlines offer lowers prices to undercut the increased fares?

The author of the passage would argue that an increase in the popularity of the route wouldn't help of those customers just end up flying with competitors once we start charging higher fares to recoup our earlier losses. Thus, choice (E) doesn't impact the author's specific argument and should be eliminated.

Notice the words "for an extended period" in the passage. The author's concern is that if the airline charges higher fares for an EXTENDED period, then eventually rivals will undercut those prices. Choice (B) tells us that the airline can charge higher fares for a while and then, after an EXTENDED period, reduce the fares again if needed to drive away competitors. Even though the airline has to repeatedly lower its prices, with each cycle they'll enjoy an EXTENDED period of charging higher fares and recouping their losses.

I hope that helps!

In other words, the airline would take some losses and then gain them back by charging higher fares for a while. If competitors try to undercut the airline, they'll simply slash fares again for a while to drive out the competition and then repeat the cycle.
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Re: Some airlines allegedly reduce fares on certain routes to a   [#permalink] 28 Nov 2017, 21:53

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