Question

Jenna Elfman, the Manager of Flight Scheduling for the Flying Airlines, is currently considering some alternatives for its flights from Sydney to Hawaii.

Currently the flight is non-stop but it is considering having a stop in Fiji.

She considers that the route would attract additional passengers if the stop is made but that there would also be additional variable costs.

Currently the non-stop flight provides the following revenues and costs for the single flight:

Currently the non-stop flight provides the following revenues and costs for the single flight:

Passenger revenue $240,000

Cargo revenue 80,000

Flight crew cost (2,000)

Fuel (21,000)

Meals and Services (4,000)

Aircraft maintenance (1,000)

Elfman has made some calculations concerning the effects the new flight route would have on revenue and costs:

If the alternative flight route was to be taken,

the new route passenger revenue would be $251,000 and cargo revenue remaining unchanged.

The flight crew costs would increase to $3,400 per flight and the fuel cost would increase to $26,000 per flight.

The meals and services cost would be $4,900 per flight.

In addition it would cost $5,000 per flight to land in Fiji and the aircraft maintenance costs would remain unchanged.

(A) On purely financial grounds should the Flying Airlines use the alternative flight route with the stopover?
(B) Should other factors be considered?

Answer 1

(A) The differential cost incurred on the flight route with the stopover :

	Non stop flight	Fight with stopover	Differential cost
Passenger revenue	240000	251000	11000
Cargo revenue	80000	80000	0
Flight crew costs	-2000	-3400	-1400
Fuel costs	-21000	-26000	-5000
Meals and services	-4000	-4900	-900
Aircraft maintenance costs	-1000	-1000	0
Landing costs	0	-5000	-5000
Differential cost incurred on alternative flight route with the stopover			-1300

So, on purely financial grounds it is not economical to use the alternative flight route with the stopover as the differential cost is -$1300

(B) The other factors which should be considered for opting stopover flight route are :

1) The fatigue of the pilot and the passengers of the long journey.

2) regular aircraft maintenance

3) any emergency during the flight towards the weather or health of the crew or passengers.

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