Airway Express has an evening flight from Los Angeles to New York with an averag

Question

Airway Express has an evening flight from Los Angeles to New York with an average of 80 passengers and a return flight the next afternoon with an average of 50 passengers. The plane makes no other trip. The charge for the plane remaining in New York overnight is $1200 and would be zero in Los Angeles. The airline is contemplating eliminating the night flight out of Los Angeles and replacing it with a morning flight. The estimated number of passengers is 70 in the morning flight and 50 in the return afternoon flight. The one-way ticket for any flight is $200.00. The operating cost of the plane for each flight is $11,000. The fixed costs for the plane are $3,000 per day whether it flies or not. A) Should the airline replace its night flight from Los Angeles with a morning flight? b) Should the airline remain in business?

Explanation / Answer

Answer)

Conclusions (a) is valid. Since the evening flight earns a profit of $2800 while, the morning flight earns a profit of $2000, hence the airline should not replace its evening flight from Los angeles. For conclusion (B), if the flight is operating once, that is either in the morning or in the evening shift then there is loss as the flight is not even able to recover its fixed cost, but if there is passanger traffic and the flight operates in both the shifts then there could be profit =($2800+$2000-$3000) that is $1800 as the fixed cost per day is $3000.

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