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ECONOMICS OCR H460-01 QP Oct21
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Oxford Cambridge and RSAMonday 4 October 2021 – Morning
A Level Economics
H460/01 Microeconomics
Time allowed: 2 hours
You can use:
* 8 2 0 4 3 3 2 9 1 5 *
• a scientific or graphical calculator
* H 4 6 0 0 1 *
Please write clearly in black ink. Do not write in the barcodes.
Centre number Candidate number
First name(s)
Last name
INSTRUCTIONS
• Use black ink. You can use an HB pencil, but only for graphs and diagrams.
• Answer all the questions in Section A, one question in Section B and one question in
Section C.
• Write your answer to each question in the space provided. If you need extra space use
the lined pages at the end of this booklet. The question numbers must be clearly shown.
INFORMATION
• The total mark for this paper is 80.
• The marks for each question are shown in brackets [ ].
• Quality of extended response will be assessed in questions marked with an asterisk (*).
• This document has 20 pages.
ADVICE
• Read each question carefully before you start your answer.
© OCR 2021 [601/4799/4] OCR is an exempt Charity
DC (KN) 300876/7 Turn over
, 2
SECTION A
Read the following stimulus material and answer all parts of Question 1 which follow in this section.
The UK air travel sector
The UK’s biggest airline, easyJet, has reported profits before tax of £445m on revenues of almost
£6bn, in the financial year ending September 2018. As the largest of the UK operators (see
Table 1), easyJet faces strong competition from other ‘budget’ airlines (Flybe and Jet2), package
holiday firms (TUI and Thomas Cook) and the previous market leader, British Airways. The recent
5 growth of easyJet in the UK has been helped by the closure of Monarch in December 2017 and
continued labour disputes at British Airways.
2015 2016 2017
easyJet 58.6 63.3 68.3
British Airways 41.3 42.1 42.8
TUI 10.6 10.9 11.3
Jet2 5.9 6.7 9.7
Flybe 7.8 8.4 9.2
Thomas Cook 6.4 6.6 7.3
Monarch 5.7 5.4 3.4
Source: CAA
Table 1 – UK Passenger numbers (million)
Across the whole of Europe, easyJet flew a record 88.5 million passengers, up 10% on the
previous year, and filled 93% of its seats – meaning only 13 seats are empty on an average flight.
Over the year, this ‘load factor’ (the percentage of seats sold across all flights) has increased by
10 9.8%. Typically, airlines have been satisfied with a load factor of around 75%.
Revenue per seat for easyJet in 2018 was £62, leading to a profit of £6.53 on each seat. But the
airline had an additional £65 m cost from “a change in approach to IT development” and a £40m
cost from taking over the landing slots of the failed Air Berlin, at Tegel airport in Germany.
A growing amount of easyJet’s revenue comes from what it calls ‘ancillary’ sources. When a
15 customer buys a ticket online, they are also able to book hotel accommodation, car hire and
airport transfers. The business aims to grow its holiday sales, offer an improved customer loyalty
programme and target the business-travel market, with “a more personalised product including
new business fares”.
Although it is now common throughout the airline industry, easyJet was one of the first airlines
20 to introduce a ‘dynamic pricing model’ which sees the price of a ticket increase as the date of
the flight moves nearer. Table 2 shows how the prices quoted on two separate routes were lower
if booked on the 18 December 2018 compared to the 18 March 2019. As the weeks go by, the
price quoted will increase as the date of travel moves nearer. There are always exceptions to the
rule, due to other supply and demand factors, but, in general, the sooner a customer books the
25 better price they get.
© OCR 2021
, 3
Date of travel
Date when price
Route 6 April 1 June 5 October
was quoted
2019 2019 2019
London Gatwick to Gran 18 December 2018 £194 £74 £60
Canaria 18 March 2019 £259 £80 £76
18 December 2018 £110 £42 £39
London Luton to Barcelona
18 March 2019 £122 £46 £42
Source: www.easyjet.com (accessed 18/12/18 & 18/03/19)
Table 2 – Ticket prices quoted on different dates (seat only)
On most routes, customers have a choice of airline, and in each case the service is largely
identical. It is now common practice on these short and medium-haul routes that food, seat
reservations and luggage are not included in the basic ticket price (see Table 3).
Basic price Seat One piece of
Airline
including all taxes reservation check-in luggage
Included with
British Airways £143 £20
luggage
easyJet £74 £6 to £18.50 £42
Thomas Cook £73 £10 £48
TUI £311 £11 £25
Source: Company websites (accessed 18/12/18)
Table 3 – Ticket prices quoted for London Gatwick to Gran Canaria (to travel on 1 June 2019)
Air travel is often said to be a demerit good. Politicians and economists have argued over
30 the degree of control needed in the market and whether it is taxed enough. Most passengers
entering or leaving the UK on a commercial flight will pay the Air Passenger Duty (APD) which
was introduced by the UK government in 1993 for environmental reasons. However, a report
published in 2018, called the ‘Roadmap to decarbonising European aviation’ considers other
policies to reduce carbon emissions from air travel. The report criticises the lack of taxation of jet
35 fuel across the world, saying: “Artificially cheap tickets through tax exemptions and government
subsidies have propped up and propelled the industry.” There is certainly a strong case for the
current tax-free status of jet fuel to end.
Substitution, persuading travellers to switch from planes to trains, is another solution proposed in
the report. It calls for, “greater competition in the rail sector in order to improve performance and
40 drive down operating costs and fares”. This suggestion would have been unthinkable 20 years
ago. Today, speed and comfort have marginally improved for train travel (as there are now more
fast routes). While, especially for shorter distances, flying has become increasingly unpleasant
and time-consuming.
“It used to be a rule that, in order to compete with a one-hour flight, a train journey could be a
45 maximum of three hours,” says Mark Smith, of rail travel website Seat61. “That was allowing
for an hour in the air and two for security, boarding and transfers. That simply is not the case
anymore, with longer check-in and security times.”
© OCR 2021 Turn over
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