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Fuel costs are also a function of flying time. These costs are estimated at

$1,000 per hour of flying time. Flying time between Phoenix and Las Vegas is

estimated at 45 minutes each way.

The flexible costs associated with processing each passenger amount to $5.

This amount includes ticket processing, agent commissions, and baggage

handling. Food and beverage service cost $10 per passenger and will be

offered at no charge on flights during business hours. The airline expects to

recover the cost of this service on non-business-hour flights through

charges levied for alcoholic beverages.

Required

1) If six business flights and four tourist flights are offered each wayevery weekday, and 12 tourist flights are offered each way every

Saturday and Sunday, what is the average number of passengers that

must be carried on each flight to break even?

2) What is the breakeven load factor (percentage of available seatsoccupied) on a route?

3) If Trans Western Airlines operates the Phoenix Las Vegas route, itsaircraft on that route will be idle between midnight and 6 A.M. The

airline is considering offering a Red Die special, which would leave

Phoenix daily at midnight and return by 6 A.M. The marketing divisionestimates that if the fare were no more than $40, the load factor

would be 50% for each Red Die flight. Operating costs would be the

same for this flight, but advertising costs of $10,000 per week would

be required for promotion of the service. No food or beverage costs

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would be borne by the company. Management wants to know the

minimum fare that would be required to break even on the Red Die

special, assuming that the marketing divisions passenger estimates

are correct.

III) 1. and 2. As shown in the following table, the average flight would have

to have about 69 passengers on board, which is a load factor of about

34.24%.

3. As shown in the following table, the minimum fare required is

approximately $25.64 (35910/ (14*50%*200)).

Normal Red Die

Number of business flights each week 60

Number of tourist flights each week 40

Number of tourist flights each

weekend

48

Red Die Flights 14

Load factor 34.24% 50.00%

Revenues

- Red Die $35,910

- Business Flights $21,365,760

- Tourist Flights Weekdays 8,546,304

- Tourist Flights Weekends 10,255,565

Total Revenues $40,167,629 $35,910

Flexible Costs

- Passenger Costs $2,635,110 $7,000

- Flight Crew 4,617,600 8,400

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- Food and Beverage Service 2,136,576

- Fuel Costs 5,772,000 10,500

Committed Costs

- Advertising 10,000

- Aircraft leasing costs 20,000,000

- Ground Service 5,000,000

Total Costs 40,161,286 35,900

Profit $6,342 $10