Profits have been decreasing for several years at Pegasus Airlines. In an effort

Question

Profits have been decreasing for several years at Pegasus Airlines. In an effort to improve the company's performance, the company is thinking about dropping several flights that appear to be unprofitable A typical income statement for one round-trip of one such flight (flight 482) is as follows: Ticket reven ue (190 seats x 40% occu pancyx $210 ticket price) Variable expenses ($17.00 per person) Contribution margin Flight expenses: $15,960 1,292 14,668 100.0% 8.1 91 . 9% Salaries, flight crew Flight promotion Depreciation of aircraft Fuel for aircraft Liability insura Salaries, flight assistants Baggage loading and flight preparation Overnight costs for flight crew and 1,700 790 1,750 5, 400 5,400 1,300 1,850 nce 700 18,890 assistants at destination Total flight expenses Net operating loss $(4,222) The following additional information is available about flight 482

Explanation / Answer

Solution:

Statement showing impact of dropping flight 482 on Airline Profit - Pegasus Airline Particulars Amount Loss of contribution -$14,668.00 Saving of Flight assistant salaries $1,300.00 Saving in liability insurance cost ($5,400*1/3) $1,800.00 Saving in flight promotion cost $790.00 Saving in fuel cost $5,400.00 Saving in overnight costs for flight crew and attendants at destination $700.00 Net Increase (Decrease) in income due to dropping flight 482 -$4,678.00

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