Question
In: Finance
Freedom Airlines recently started operations in the Southwest. The airline owns two airplanes, one based in...
Freedom Airlines recently started operations in the Southwest. The airline owns two airplanes, one based in Phoenix and the other in Denver. Each airplane has a coach section with 140 seats available. Each afternoon, the Phoenix based airplane flies to San Francisco with stopovers in Las Vegas and in San Diego. The Denver-based airplane also flies to San Francisco with stopovers in Las Vegas and in San Diego. Each airplane returns to its home-base with no stopovers.
Freedom Airlines uses two coach-fare classes: A discount fare (A) and a full fare (B). Discount fares are available with a 21-day advance purchase. Full fares applied at any time, up to the time of the flight.
Below is the daily fare and demand data for 16 selected Freedom Airline itineraries. Itineraries 1 through 6 apply to the Phoenix based airplane (leg 1); itineraries 7 through 12 apply to the Denver based airplane (leg 2); itineraries 13 and 14 apply to the Phoenix based airplane (leg 3); itineraries 15 and 16 apply to the Denver based airplane (leg 4):
|
1 |
Phoenix |
Las Vegas |
A |
$ 180.00 |
50 |
|
2 |
Phoenix |
San Diego |
A |
$ 270.00 |
40 |
|
3 |
Phoenix |
San Francisco |
A |
$ 230.00 |
35 |
|
4 |
Phoenix |
Las Vegas |
B |
$ 380.00 |
15 |
|
5 |
Phoenix |
San Diego |
B |
$ 460.00 |
10 |
|
6 |
Phoenix |
San Francisco |
B |
$ 560.00 |
15 |
|
7 |
Denver |
Las Vegas |
A |
$ 200.00 |
50 |
|
8 |
Denver |
San Diego |
A |
$ 250.00 |
45 |
|
9 |
Denver |
San Francisco |
A |
$ 350.00 |
40 |
|
10 |
Denver |
Las Vegas |
B |
$ 385.00 |
15 |
|
11 |
Denver |
San Diego |
B |
$ 445.00 |
10 |
|
12 |
Denver |
San Francisco |
B |
$ 580.00 |
10 |
|
13 |
San Francisco |
Phoenix |
A |
$ 250.00 |
70 |
|
14 |
San Francisco |
Phoenix |
B |
$ 600.00 |
10 |
|
15 |
San Francisco |
Denver |
A |
$ 325.00 |
50 |
|
16 |
San Francisco |
Denver |
B |
$ 585.00 |
10 |
- Develop a revenue management (maximizing) model based on the information given in the scenario.
- How many seats should be allocated to each of the 16 itineraries to maximize revenue?
- What is the (maximum) expected revenue to be earned per day for all 16 flights?
- Assume operating costs for each of the legs is as follows:
- Leg 1 = $20,250
- Leg 2 = $19,750
- Leg 3 = $20,500
- Leg 4 = $19,500
What is the expected operating income for each of the legs? And in total for Freedom Airlines, given these 16 itineraries?
- Develop a revenue management (maximizing) model based on the information given in the scenario.
- How many seats should be allocated to each of the 16 itineraries to maximize revenue?
- What is the (maximum) expected revenue to be earned per day for all 16 flights?
- Assume operating costs for each of the legs is as follows:
- Leg 1 = $20,250
- Leg 2 = $19,750
- Leg 3 = $20,500
- Leg 4 = $19,500
What is the expected operating income for each of the legs? And in total for Freedom Airlines, given these 16 itineraries?
Solutions
Expert Solution
| Leg 1 | ||||||
| 1 | Phoenix | Las Vegas | A | $180.00 | 50 | 9000 |
| 2 | Phoenix | San Diego | A | $270.00 | 40 | 10800 |
| 3 | Phoenix | San Francisco | A | $230.00 | 35 | 8050 |
| 4 | Phoenix | Las Vegas | B | $380.00 | 15 | 5700 |
| 5 | Phoenix | San Diego | B | $460.00 | 10 | 4600 |
| 6 | Phoenix | San Francisco | B | $560.00 | 15 | 8400 |
| Max Revenue | 46550 | |||||
| Operating Cost = | 20250 | |||||
| Operating Profit | 26300 | |||||
| Leg 2 | ||||||
| 7 | Denver | Las Vegas | A | $200.00 | 50 | 10000 |
| 8 | Denver | San Diego | A | $250.00 | 45 | 11250 |
| 9 | Denver | San Francisco | A | $350.00 | 40 | 14000 |
| 10 | Denver | Las Vegas | B | $385.00 | 15 | 5775 |
| 11 | Denver | San Diego | B | $445.00 | 10 | 4450 |
| 12 | Denver | San Francisco | B | $580.00 | 10 | 5800 |
| Max Revenue | 51275 | |||||
| Operating Cost = | 19750 | |||||
| Operating Profit | 31525 | |||||
| Leg 3 | ||||||
| 13 | San Francisco | Phoenix | A | $250.00 | 70 | 17500 |
| 14 | San Francisco | Phoenix | B | $600.00 | 10 | 6000 |
| Max Revenue | 23500 | |||||
| Operating Cost = | 20500 | |||||
| Operating Profit | 3000 | |||||
| Leg 4 | ||||||
| 15 | San Francisco | Denver | A | $325.00 | 50 | 16250 |
| 16 | San Francisco | Denver | B | $585.00 | 10 | 5850 |
| Max Revenue = | 22100 | |||||
| Operating Cost = | 19500 | |||||
| Operating Profit | 2600 | |||||
Total Operating Profit for freedom airlines = summation of operating profits of all 4 legs:
=26300 + 31525 +3000 + 2600
= $63425
jeff jeffy answered 4 months agoRelated Solutions
How can capacity and utilization be measured at an airline such as Southwest Airlines?
How can capacity and utilization be measured at an airline such
as Southwest Airlines?
Southwest Airline (SWA) is one of the most well-known low-cost airlines in the world. The company...
Southwest Airline (SWA) is one of the most well-known low-cost
airlines in the world. The company has been profitable for more
than 40 years, a feat that no other airline has achieved.
How would you characterize the generic business strategy
followed by Southwest Airlines? Why? Provide evidence. If you think
their strategy changed over time, state that as well.
Your textbook mentions certain industry conditions under which
each generic strategy is viable, as well as some risks associated
with each....
An airline owns an aging fleet of Boeing 737 jet airplanes. It is considering a major...
An airline owns an aging fleet of Boeing 737 jet airplanes. It
is considering a major purchase of up to 17 new Boeing model 787
and 767 jets. The decision must take into account numerous cost and
capability factors, including the following: (1) the airline can
finance up to $1.6 billion in purchases; (2) each Boeing 787 will
cost $80 million, and each Boeing 767 will cost $110 million; (3)
at least one-third of the planes purchased should be the...
As a national manager for Southwest Airlines you have recently undertaken a survey of the number...
As a national manager for Southwest Airlines you have recently
undertaken a survey of the number of passengers per flight on the
Boston-Phoenix route that you service. The survey was conducted
over five successive months. The data collected included the
round-trip fare for an economy-class flight, the average annual per
capita income of people who fly the Boston-Phoenix route, and the
average passengers per flight on both Southwest and American.
Assume that all other factors (the price charged by other...
a review of an airlines operations revealed that historyically the airline had an average of 6.42...
a
review of an airlines operations revealed that historyically the
airline had an average of 6.42 mishandled bags per 1000 passengers.
a. what is the chance that for the next 2000 passengers the
airline will have more than 11 mishandled bags?
b. after a conuslting company evaluated the airlines
operations the airline overhauled its bag-monitoring computer
system. as a result the number of mishandled bags per 1000
passengers decreased by 30%. what is the probability that for the
next 3000...
Western Airlines merged with a smaller airline recently. Every day since the merger, a random sample...
Western Airlines merged with a smaller airline recently. Every
day since the merger, a random sample of 30 Western flights has
been analyzed. A flight that takes off more than 10 minutes after
its scheduled departure time is considered to be late; otherwise,
it is not late. Western’s performance over the past 10 days is
shown in the table below.
Day 1 2 3 4 5 6 7 8 9 10 # Late Flights 4 2 5 9 2 3...
Western Airlines merged with a smaller airline recently. Every day since the merger, a random sample...
Western Airlines merged with a smaller airline recently.
Every day since the merger, a random sample of 30 Western flights
has been analyzed. A flight that takes off more than 10 minutes
after its scheduled departure time is considered to be late;
otherwise, it is not late. Western’s performance over the past 10
days is shown in the table below.
Day
1 2 3 4 5 6 7 8 9 10
# Late Flights 4 2 5 9 2 3...
Consider the situation of United Airlines (UA), an international airline based in United States of America....
Consider the situation of United Airlines (UA), an international
airline based in United States of America. As part of its business
it is heavily exposed to fluctuations in the price of jet fuel and
foreign exchange rates. It sells tickets in foreign currencies and
has significant EUR costs. For either jet fuel costs or forex,
evaluate one derivative product UA could use to hedge fluctuations
in the underlying price.
• Briefly describe how the product would be used to hedge...
Firm A is one of the largest airlines in the world and is based in Europe....
Firm A is one of the largest airlines in the world and is based
in Europe. Firm A sold all its struggling operations that operate
in the United States to Airline B for a price much less than
industry experts had expected.Despite this lower than expected
sales price, Firm A’s stock price sharply increased. The primary
explanation for the rise in the stock price was hinted at in the
announcement. Firm A indicated they would not rush on spending
dollars...
For one of the following companies (UPS, Microsoft, Coca-Cola, McDonalds, Harley-Davidson, Southwest Airlines, Abbott, Marriott International),...
For one of the following companies (UPS, Microsoft, Coca-Cola,
McDonalds, Harley-Davidson, Southwest Airlines, Abbott, Marriott
International), what performance measures do you think would be
useful in the Internal Processes Perspective of the Balanced
Scorecard?
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- S&P 500 Index is at 2780. A European June 21, 2019 SPX call option struck at...
- ou are required to post a minimum of one 200-word post in discussing this issue. 1-What...
- You are planning on retiring the moment that you accumulate $1,000,000 in your mutual fund. Currently,...
- Why must a power cycle release heat at some point
- Gaseous ammonia can be injected into the exhaust stream of a coal-burning power plant to reduce...
- You will find that we consume monopolies in our daily lives from our electricity to internet...
- A ball thrown straight up into the air is found to be moving at 7.24 m/s...
ADVERTISEMENT