Problem 21 Airline Delays How will commercial airlines respo

Problem 2-1 Airline Delays: How will commercial airlines respond to the threat of new $27,500 in fines for keeping passengers on the trmac for more than 3 hours?

Solution

If we assume that the probability of keeping passengers waiting for more than 3 hours is P, then the expected value of fines to be paid is

= $27,500 x P + $0 x (1 - P)

= $27,500P

Therefore, the airlines are faced with an expected additional expense of $27,500P as fines paid.

Since this amount will increase the airlines costs without generating additional revenue to compensate for additional costs, the airlines will try to avoid payment of such fines by taking measures of not keeping passengers waiting on the tuemac for more than 3 hours. However, that doesn\'t preclude the possibility that airlines keep passengers in the turmac for less than 3 hours. Besides, for reasons beyond the airlines control that keep passengers waiting for more than 3 hours, the fine payable will add to a non-operational loss for the airlines. So, while from their end the airlines will try their best to avoid such fines, they are likely to lobby for removal of conditions that are beyond their control and may lead to such situations of prolonged delay.