Sun Airlines is a commercial airline that targets business and non-business trav
ID: 2340853 • Letter: S
Question
Sun Airlines is a commercial airline that targets business and non-business travelers. In recent months, the airline has been unprofitable. The company has break-even sales volume of 75% of capacity, which is significantly higher than the industry average of 65%. Sun's CEO, Neil Armstrong, is concerned about the recent string of losses and is considering a strategic plan that could reduce the break-even sales volume by increasing ticket prices. He has asked for your help in evaluating this plan.
Explanation / Answer
Hi Student
Please see below answer.
Ways to reduce the Company’s Break Even point is as below:-
While Sun Airline can go with all the above strategy , CEO , Neil Armstrong should first to look into their fixed cost structure and should find out the way the company can cut down as far as possible the avoidable and irrelevant fixed cost.
Neil Armstrong should also look into their variable cost structure and should find out the way the company can cut down as far as possible the avoidable and irrelevant variable cost by having a best negotiation with business partners to optimally reduce the variable cost per unit.
Sun Airlines is targeting the business and non-business travelers and hence the CEO, Neil Armstrong should figure out the optimum mix of their business and non-business product by making more feasible allocation to business travelers so that company’s sales with high margin can contribute higher to reduce the break even point.
Increasing the selling price may not be feasible always in a stiff competitive environment of business.
Sun Airlines CEO ‘Neil Armstrong can go with increase in selling price for some group of customer with other incentive and non cash gift/vouchers so as the number of units sold will not decline significantly.
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