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 11 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...
Southwest Airlines: (Questions were in one, but separated to make easier to read.) Research on Southwest...
Southwest Airlines: (Questions were in one, but separated to
make easier to read.) Research on Southwest Airlines
1.Relate Southwest’s Strategy to Michael Porter’s basic
strategy. What strategic position are they seeking to obtain and
hold? What are the key policies, procedures, operating practices,
and core values underlying this strategy?
2.What are the key elements of Southwest’s culture? Does culture
make a difference in their relative success as a business?
3.What weaknesses or problems do you seat Southwest through the
case...
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...
United Airlines plan to buy 34 airplanes for $120,000,000. Flight operations and ground costs are expected...
United Airlines plan to buy 34 airplanes for $120,000,000.
Flight operations and ground costs are expected to be $7,000,000
per year and $4,000,000 per year respectively. United expects to
sell 300,000 tickets and variable costs are expected to be 20
percent of revenue. With a 14 percent required rate of return, what
minimum price per ticket are needed to justify the purchase of the
airplanes? (Assume a 20- year life and no salvage value for the
airplane at the end...
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...
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- Young and Company claims that its pressurized diving bell will, on average, maintain its integrity to...
- 1) Alternative compiled code sequence using instructions in classes A, B, C. What is the average...
- An asset is purchased on January 1 for $48,700. It is expected to have a useful...
- Do we have any online or offline tool to convert c and cpp programs into MIPS...
- -what is the pH of HCl 0,1M and NaCl 0,1M mixed together solution? -What is the...
- function X=extractDWT(x_train,startS,endS,wStep,wRange) % x_train = input signal % startS = from second % endS = end...
- Do you agree that Social Loafing is similar to Theory X. Give an example to support...
ADVERTISEMENT