Read: http://www.zacks.com/stock/news/81160/airline-industry-stock-outlook-augus

Question

Read: http://www.zacks.com/stock/news/81160/airline-industry-stock-outlook-august-2012 We’ve all experienced (or heard about) the challenges that the airlines have been facing. Read the Zacks Investment Research article, “Airline Industry Stock Outlook – August 2012.” Identify three factors that are affecting airline company’s ability to break even. For each of your factors, discuss how these have an impact on the breakeven (contribution margin, fixed costs, variable costs, a combination, etc.), and what happens if these factors increase or decrease

Explanation / Answer

Factor affecting airline company’s ability to break even-

1

Fuel Cost-It is one of the major variable cost it is declining and even with the falling fuel prices, the Association projects fuel to account for 33% of the overall operating costs.High price tends to make increase variable cost and increase break-even point and low cost decrease Break-even point and increase profitability.

2

Less efficient old plane-Old plane are maintenance extensive and consume more fuel which tends to make increase variable cost and increase break-even point and low cost decrease Break-even point and increase profitability .

3

Labor cost-Airline ahs to pay to piolets ground staff and other staff which is major fixed expenses and high cost increase break even point and low cost decrease Break-even point and increase profitability.

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