Second City Airlines operates 35 scheduled round-trip flights each week between

Question

Second City Airlines operates 35 scheduled round-trip flights each week between NY and Chicago. It charges a fixed one-way fare of $200 per passenger. Second City Airlines can carry 150 passengers per one-way flight. Fuel and other flight-related costs are $5,000 per one-way flight. On-flight meal and refreshment costs average $5 per passenger. Flight crew, ground crew, advertising, and other administrative expenditures for the NY-to-Chicago route amount to $400,000 each week. a. How many passengers must each of the 70 one-way flights have on average to break even each week? b. If the load factor is 60% on all flights (that is, the flights are 60% full), how many flights must Second City Airlines operate on this route to earn a total profit of $500,000 before taxes per week? c. Are fuel costs variable or fixed? d. What is the variable cost to Second City Airlines for one additional passenger on a flight if the passenger takes a seat that would otherwise go empty? Thank you very much :)!

Explanation / Answer

(a) Costs that vary with number of passengers: Meals and refreshments = $5 Let X ? number of passengers needed to break even each week Total revenue per week – costs per passenger per week – costs per flight per week – fixed costs per week = profit per week ($200 ? X ? 70) – ($5 ? X ? 70) – ($5,000 ? 70) – $400,000 = $0 $13,650X = $750,000 X ? $750,000 ÷ $13,650 = 54.95 (i.e., 55 passengers per flight) (b) Let N ? number of flights to earn a profit of $500,000 per week Number of passengers per flight = 60% ? 150 = 90 ($200 ? 90 ? N) – ($5 ? 90 ? N) – ($5,000 ? N – $400,000) = $500,000 N ? 71.71 (i.e., 72 flights) (c) Fuel costs are fixed once the flights are scheduled, but these costs vary with the number of flights. (d) In this case, there is no opportunity cost to the airline because the seat would otherwise go empty. The variable cost for the additional passenger is $5 for the meals and refreshments and perhaps a small amount of additional fuel cost.

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.