Questions
Patricia Johnson is the sole owner of Crane Vista Park, a public camping ground near the...

Patricia Johnson is the sole owner of Crane Vista Park, a public camping ground near the Crater Lake National Recreation Area. Patricia has compiled the following financial information as of December 31, 2020. Revenues during 2020—camping fees $186,228 Fair value of equipment $186,228 Revenues during 2020—general store 86,463 Notes payable 79,812 Accounts payable 14,632 Expenses during 2020 199,530 Cash on hand 30,595 Accounts receivable 23,278 Original cost of equipment 140,336 (a) Determine Patricia Johnson’s net income from Crane Vista Park for 2020. Net income $enter Net income in dollars (b) Prepare a balance sheet for Crane Vista Park as of December 31, 2020. (List Assets in order of liquidity.) CRANE VISTA PARK Balance Sheet choose the accounting period Assets enter a balance sheet item $enter a dollar amount enter a balance sheet item enter a dollar amount enter a balance sheet item enter a dollar amount select a closing section name for this part of the balance sheet $enter a total amount for this part of the balance sheet Liabilities and Owner’s Equity select an opening name for section one enter a balance sheet item $enter a dollar amount enter a balance sheet item enter a dollar amount select a closing name for section one enter a total amount for this section of the balance sheet select an opening name for section two enter a balance sheet item enter a dollar amount select a closing name for this part of the balance sheet $enter a total amount for this part of the balance sheet

In: Accounting

At the end of 2020, the records of Block Corporation reflected the following. Common stock, $5...

At the end of 2020, the records of Block Corporation reflected the following.

Common stock, $5 par, authorized 500,000 shares
Outstanding January 1, 2020, 400,000 shares $2,000,000
Sold and issued April 1, 2020, 2,000 shares 10,000
Issued 5% stock dividend, September 30, 2020; 20,100 shares 100,500
Preferred stock, 6%, $10 par, nonconvertible, noncumulative, authorized 50,000 shares
Outstanding during year, 20,000 shares 200,000
Paid-in capital in excess of par, common stock 180,000
Paid-in capital in excess of par, preferred stock 100,000
Retained earnings (after the effects of current preferred dividends declared during 2020) 640,000
Bonds payable, 6.5%, nonconvertible, issued at par January 1, 2020 1,000,000
Net income 164,000
Income tax rate, 25%

a. What EPS presentation is required—basic, diluted, or both?

Answer: Basic EPS/Diluted EPSBasic and Diluted EPS

b. Compute the required EPS amount(s).

  • Note: Round earnings per share amount to two decimal places.
Net Income Available to
Common Stockholders
Weighted Avg. Common
Shares Outstanding
Per
Share
Answer: Basic EPS/Diluted EPSBasic and Diluted EPS Answer Answer Answer

c. Compute the required EPS amount(s), assuming that the preferred stock is cumulative.

  • Note: Round earnings per share amount to two decimal places.
Net Income Available to
Common Stockholders
Weighted Avg. Common
Shares Outstanding
Per
Share

Answer: Basic EPS/Diluted EPSBasic and Diluted EPS

Answer Answer Answer

In: Accounting

Taxable income and pretax financial income would be identical for Bridgeport Co. except for its treatments...

Taxable income and pretax financial income would be identical for Bridgeport Co. except for its treatments of gross profit on installment sales and estimated costs of warranties. The following income computations have been prepared.

Taxable income

2019

2020

2021

Excess of revenues over expenses (excluding two temporary differences)

$149,000

$192,000

$96,700

Installment gross profit collected

7,600

7,600

7,600

Expenditures for warranties

(5,500

)

(5,500

)

(5,500

)

   Taxable income

$151,100

$194,100

$98,800

Pretax financial income

2019

2020

2021

Excess of revenues over expenses (excluding two temporary differences)

$149,000

$192,000

$96,700

Installment gross profit recognized

22,800

-0-

-0-

Estimated cost of warranties

(16,500

)

-0-

-0-

   Income before taxes

$155,300

$192,000

$96,700


The tax rates in effect are 2019, 40%; 2020 and 2021, 45%. All tax rates were enacted into law on January 1, 2019. No deferred income taxes existed at the beginning of 2019. Taxable income is expected in all future years.

Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2019, 2020, and 2021. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Date

Account Titles and Explanation

Debit

Credit

                                                          Dec. 31, 2021Dec. 31, 2019Dec. 31, 2020
                                                          Dec. 31, 2019Dec. 31, 2021Dec. 31, 2020
                                                          Dec. 31, 2021Dec. 31, 2020Dec. 31, 2019

In: Accounting

Pharoah Home Improvement Company installs replacement siding, windows, and louvered glass doors for single-family homes and...

Pharoah Home Improvement Company installs replacement siding, windows, and louvered glass doors for single-family homes and condominium complexes. The company is in the process of preparing its annual financial statements for the fiscal year ended May 31, 2020. Jim Alcide, controller for Pharoah, has gathered the following data concerning inventory.

At May 31, 2020, the balance in Pharoah’s Raw Materials Inventory account was $428,400, and Allowance to Reduce Inventory to Market had a credit balance of $26,750. Alcide summarized the relevant inventory cost and market data at May 31, 2020, in the schedule below.

Alcide assigned Patricia Devereaux, an intern from a local college, the task of calculating the amount that should appear on Pharoah’s May 31, 2020, financial statements for inventory at lower-of-cost-or-market as applied to each item in inventory. Devereaux expressed concern over departing from the historical cost principle. Assume Garcia uses LIFO inventory costing.

Cost

Replacement
Cost

Sales Price

Net Realizable
Value

Normal Profit

Aluminum siding $73,500 $65,625 $67,200 $58,800 $5,355
Cedar shake siding 90,300 83,370 98,700 89,040 7,770
Louvered glass doors 117,600 130,200 195,720 176,715 19,425
Thermal windows 147,000 132,300 162,540 147,000 16,170
      Total $428,400 $411,495 $524,160 $471,555 $48,720


(a1) Determine the proper balance in Allowance to Reduce Inventory to Market at May 31, 2020.

Balance in the Allowance to Reduce Inventory to Market

$


(a2) For the fiscal year ended May 31, 2020, determine the amount of the gain or loss that would be recorded due to the change in Allowance to Reduce Inventory to Market.

The amount of the gain (loss)

$

In: Accounting

Cyclops Company has its own research department. However, the company purchases patents from time to time....

Cyclops Company has its own research department. However, the company purchases patents from time to time. The following is a summary of transactions involving patents now owned by the company.

  • During 2014 and 2015, Cyclops spent a total of P459,000 in developing a new process that was patented (Patent A) on April 1, 2016; additional legal and other costs of P50,000 were incurred.

  • A patent (Patent B) developed by Nanette Inventor, an inventor, was purchased for P187,500 on December 1, 2017, on which date it had an estimated useful life of 12 ½ years.

  • During 2016, 2017 and 2018, research and development activities cost P510,000. No additional patents resulted from these activities.

  • A patent infringement suit brought by the company against a competitor because of the manufacture of articles infringing on Patent B was successfully prosecuted at a cost of P42,600. A decision in the case was rendered in June 2018.

  • On July 1, 2019, Patent C was purchased for P172,800. This patent had 16 years yet to run.

  • During 2020, Cyclops experienced P180,000 on patent development. However, the company is still undecided as to how the patent, if approved by the Bureau of Patents, will generate probable future economic benefits.

Assume that the legal life of each patent is also its useful life.

Required:

  1. Prepare the journal entries for the above transactions and related amortization from 2014 to 2020.
  2. Determine the following:
  1. Patent A’s carrying amount on December 31, 2020
  2. Patent B’s carrying amount on December 31, 2020
  3. Patent C’s carrying amount on December 31, 2020

Total amortization expense for the year ended December 31, 2020

these are all the information given.

In: Accounting

PLEASE READ ALL OF THESE INSTRUCTIONS BEFORE BEGINNING THIS ASSIGNMENT. For this assignment, you need to...

PLEASE READ ALL OF THESE INSTRUCTIONS BEFORE BEGINNING THIS ASSIGNMENT. For this assignment, you need to analyze the information below from BOTH the management AND the employee perspective. This information pertains to a labor union in a simulated/made up/not real firm in Glen Ellyn. The first part of your information relates to Management – the second part relates to the Labor Union employees. I have provided you with information from the last union negotiations at the plant in 2016. It is now time to begin preparing for negotiations for 2020 and beyond. The third part of this assignment is your analyzing what you have gained from this assignment.

Your assignment needs to include the following information:

  • Part One:
    • Considerations for Management as they begin to prepare for negotiations
    • Beginning offer to the plant workers - This means if you were management for this firm, what would your initial/first offer be to the labor union employees in each of the categories below.
  • Part Two:
    • Considerations for Labor Union employees as they begin to prepare for negotiations
    • Beginning offer to management - This means if you were the employees in the union, what would your initial/first offer be to the management of the firm in each of the categories below.
  • Part Three:
    • Analysis of what you have gained from this assignment and insights you now have into labor union negotiations. Understand that negotiations go on and on sometimes for years. But each set of contract negotiations has to begin somewhere - and this is what I'm having you look at in this assignment. First offers don't include what you really want - it's your starting point.

Format this assignment using the section headings noted as you see below with “Management” and the “CPFac Workers Labor Union”. Be very clear about the information required above.

Management –

Put yourself in the role of President and Owner of Cooper Plastics Corp. located in Glen Ellyn, Illinois. Cooper manufactures plastic cups, plates, silverware, bowls, etc.

There is a union, CPFacWorkers, representing the 95 factory workers at Cooper Plastics.

It is time for the management team at Cooper to once again negotiate with the CPFacWorkers.

Your negotiations document needs to include the following for BOTH Management and the Union - you must include these categories for both offers:

  • Length of the next contract in years - Labor contracts are frequently 2-4 years in length
  • Base pay
  • Annual pay increases for each year of your labor contract
  • Shift pay differential
  • Overtime pay
  • Number of workers per shift
  • Benefits percentage of salaries
  • Annual paid sick days
  • Annual paid holidays
  • Total increased costs - calculate how much your increases are going to cost you - you need to provide me a total of costs and how you arrived at that number
  • Source of money for increased costs - where is the money coming from for these increased costs - this is obviously an assumption based on the information you have

Data from Current Contract, which expires in September 2020:

  • Contract began in March 2016
  • CPFacWorkers conceded to 20 layoffs when negotiating the 2016-2020 contract
  • Remaining workers agreed to a 10% pay cut to help the company continue to recover from the recent US recession
  • Sick days were reduced from 10 to 6
  • Holidays reduced from 10 to 6
  • Shift differential pay (The dates show you the increases/decreases throughout the contract)

/hour

  • 7am-3pm shift – 50 workers - $1,040,000
  • 3pm-11pm shift – 30 workers - $624,000
  • 11pm-7am shift – 15 workers - $312,000
  • Managers – 10 @$30K, 2 @ $40K, 1@$50K, Pres/Owner $75K
  • Overtime – time and a half; 2017-2019 no OT has been worked

Sales:                                                              Profits:

  • 2016 $4,000,000                                          2016 $1,040,000
  • 2017 $5,250,000                                          2016 $2,392,000
  • 2018 $6,000,000                                          2018 $3,300,000
  • 2019 $6,200,000 2019 $3,400,000

CPFacWorkers Labor Union –

Now, put yourself in the role of the negotiating team representing the CPFacWorkers labor union at Cooper Plastics in Glen Ellyn, Illinois. Cooper manufactures plastic cups, plates, silverware, bowls, etc. There are a total of 95 factory workers in the bargaining unit of your union.

It is time to negotiate with the Cooper Plastics management team.

Your negotiations document needs to include the following - you must include these categories in both offers:

  • Length of contract in years
  • Base pay
  • Annual increases
  • Shift pay differential
  • Overtime pay
  • Number of workers per shift
  • Benefits percentage of salaries
  • Annual paid sick days
  • Annual paid holidays
  • Total increased costs
  • Source of money for increased costs

Data from Current Contract, which expired in September 2020:

  • Contract began in March 2016
  • CPFacWorkers conceded to 20 layoffs when negotiating the 2016-2020 contract
  • Remaining workers agreed to a 10% pay cut to help the company recover from the recent US recession
  • Sick days were reduced from 10 to 6
  • Holidays reduced from 10 to 6
  • Shift differential pay:
    • 3pm-11pm   $0.50 3/15-3/16 $.25 3/17-3/19
    • 11pm-7am    $1.00 3/15-3/16 $.35 3/17-3/19
  • Benefits are 28% of salaries

Current Salaries based on 2080 hours per year, base pay $10/hour

  • 7am-3pm shift – 50 workers - $1,040,000
  • 3pm-11pm shift – 30 workers - $624,000
  • 11pm-7am shift – 15 workers - $312,000
  • Managers – 10 @$30K, 2 @ $40K, 1@$50K, Pres/Owner $75K
  • Overtime – time and a half; 2017-2019 no OT has been worked

Sales:                                                              Profits:

  • 2016 $4,000,000                                          2016 $1,040,000
  • 2017 $5,250,000                                          2017 $2,392,000
  • 2018 $6,000,000                                          2018 $3,300,000
  • 2019 $6,200,000 2019 $3,400,000

Other Considerations:

  • The United States appears to have come out of its 2008-2010 recession, though there are those who are beginning to say it will return in 2020 as recent stock market fluctuations may confirm.
  • Cooper has new products scheduled to be coming out in mid-2020 which may help stimulate growth in the firm’s revenues and profitability.
  • Management at Cooper does all hiring, scheduling, firing, and promotions.
  • It has become increasingly difficult to get employees to work the 3-11pm and 11pm-7am shifts. Absenteeism is high on these shifts and productivity on both of these shifts are lower than on the 7am-3pm shift.

When complete, click on the assignment name link to submit the assignment for grading.

In: Operations Management

PROBLEM: Skinny Enterprise has operated a business for the past two years from his home. In...

PROBLEM:

Skinny Enterprise has operated a business for the past two years from his home. In January 2020, she
decided to move to a lease office space. Skinny registered the business as a corporation according to
Delaware laws in January 2020. Skinny Enterprise Corporation received authorization to issue 1,500,000
common shares with $1.4 par value. During January 2020, the business entered the following transactions:

2 The following assets received from Skinny Enterprise in exchange for 175,000 common shares: Cash, $156,000; Accounts Receivable, $75,000; Office Supplies, $8,280; Prepaid Insurance $36,000 (for 24 month) and Building, $208,000. There were no liabilities assumed.

2 Borrowed $125,000 from Banco Popular with 8% of interest.

3 Paid THREE year of rent on a lease rental contract, $36,000 (recorded as Prepaid)

3 Purchased office equipment on account for $28,000.

4 Purchase a Building with a market value of $160,000 in exchange of 47,890 company shares.

4 Paid the premiums on property and casualty insurance policies, $9,000 for 18 MONTHS (recorded as Prepaid)

5 Received cash from clients as an advance payment for services to provided and recorded it as unearned fees, $34,000.

6 Invests cash not needed for operations in trading shares at 5%, $180,000.

7 Received cash from clients on account, $43,000.

10 Paid cash for a newspaper advertisement for TWO years, $2,400 (recorded as Prepaid)

11 Paid part of debt incurred on January 3, $7,000.

12 Recorded services provided on account for the period January 1-15, $48,000.

13 Recorded cash from cash clients for fees earned during January 1-15, $55,000.

15 Skinny declared cash dividends of $.30 for outstanding shares to be paid on January 31.

17 Paid telephone, cable, and internet bills for January, $1,825.

18 Issue 18,000 new shares for a market value of $2.00.

19 Paid cash for supplies, $5,700.

21 Received cash from clients on account, $38,000.

22 Received $1,575 from a leased space.

25 Paid electricity bill for January, $1,340.

26 Obtain the investor list for dividend payment on January 31

27 Paid part of debt incurred on January 3, $7,000.

30 Paid monthly office salary, $16,000; sales salaries for $24,000; and $8,000 to Skinny as General Manager of Skinny Enterprise Corporation. Deductions for FICA 6.2% and Medicare Tax 1.45%, federal income tax withheld 20%. Voluntary deductions are: United Funds $200 and Red Cross $500.

30 Recorded employer payroll taxes expense for FICA 6.2% and Medicare Tax 1.45%, 5.4% for state unemployment (SUTA tax) and .8% for federal unemployment (FUTA tax).

29 Recorded cash from cash clients for fees earned during January 16-30, $54,880

30 Recorded services provided on account for the remainder of January 16-30, $46,000.

31 Skinny paid cash dividends declared on January 15.


Instructions:

1. Journalize each transaction in a Journal

2. Prepare a General Ledger

3. Prepare an unadjusted trial balance on January 31, 2020.

4. Prepare Adjusting Entries

a. Supplies on hand on January 31 are $4,375.

b. Depreciation of office equipment for January 31, use the straight-line method (Residual value $5,000, and useful life 60 months)

c. Depreciation of building for January 31, use the straight-line method (Residual value $18,000, and useful life 120 months)

d. Unearned fees earned during January 31 are $15,000.

e. Market value in Investment in trading securities increase to $189,500.

f. Record one month of interest accrued on note payable.

g. Record one month of interest accrued on trading securities.

6. Journalize and post adjusting entries to the ledger accounts.

7. Prepare an adjusted trial balance.

8. Prepare on January 31, 2020 a Multiple Step Income Statement, a Retained Earnings Statement, Statement of Shareholder’s, and a Statement of Financial Position (Balance Sheet).

9. Journalize and post to the ledger accounts the closing entries.

10. Prepare a Post-Closing Trial Balance on January 31, 2020.

In: Accounting

Q1. The Cartel That Makes Sure Airplane Tickets Never Get Cheaper SKY HIGH It’s been a...

Q1. The Cartel That Makes Sure Airplane Tickets Never Get Cheaper

SKY HIGH

It’s been a windfall year for the industry, but you won’t be getting any better accommodations or more affordable fares. What gives?

Updated Apr. 14, 2017 10:33AM ET / Published Jun. 22, 2015 5:21AM ET

Jim Young/Reuters

Screw the passengers.

That appears all too often to be the governing philosophy of the airline business.

Take the case of a United Airlines flight from Chicago to London last weekend. A technical problem forced the plane to abort its trans-Atlantic route and divert to Goose Bay in Canada. The 176 passengers were marooned there for more than 20 hours, sleeping in unheated military barracks at near-freezing temperatures.

“There was nobody from United Airlines to be seen anywhere,” one passenger told NBC News. “No United representative ever reached out to anybody, no phone calls, no human beings, no nothing. Nobody had any idea what was going on.”

It so happened that this came at the end of a week in which the world’s airline chiefs, junketing in Miami, celebrated their most lucrative year ever. They are projecting profits totaling $29.3 billion in 2015—almost double what they made in 2014.

And you must have noticed if you’re flying anywhere in the U.S. this summer that seat prices are not falling. Indeed, if the owners of those seats are suddenly feeling fat and happy, they are in no mood to pass on their swell feelings to you. It’s hard to imagine any other service industry being run like the airline business—but then there is no other business like the airline business.

So now we have a novel opportunity to see how airlines behave when, suddenly and much to their surprise, they find themselves with a business model that is working. If making a profit is a new experience for them, what effect will that have on their behavior?

First, let us consider why the numbers have been transformed.

There has been a steep change in the efficiency of jets. Beginning with the Boeing 787 Dreamliner, the combination of lighter but stronger composite materials in structures and a quantum leap in engine efficiency, using far less fuel, has slashed operating costs per airplane by as much as 30 percent.

In the last year, this windfall has been boosted by the large decline in oil prices.

However, these dual benefits are not being evenly spread either among airlines or continents. Airlines stuck with fleets of older airplanes are not getting these benefits. Fleet age has become far more decisive in deciding an airline’s profitability, particularly true in the U.S.

The three major U.S. legacy carriers—American, United, and Delta—failed to get in early to order the new generation of airplanes—the 787, the Airbus A350, revamped versions of the Boeing 777, the Airbus A320, and the Boeing 737—and allowed European, Middle Eastern, and Asian competitors to become first adopters and, thereby, reap the benefits of lower fuel costs.

The average age of the jets in the American fleet is 12.3 years; for United 13 years; and for Delta 17.2 years. It won’t be until at least 2020 that they can finally dump the oldest of their airplanes. (American has actually been delaying the delivery of some new jets that it ordered.)

Age doesn’t mean that an airplane is unsafe. Properly maintained 20-year-old jets are not in danger of falling apart. The frequency of flights determines retirement age more than years and the smaller single-aisle jets used on domestic routes age the fastest because they are making up to seven flights a day.

Age may not be dangerous but it sure registers with passengers when it contrasts with the comforts they encounter in the new generation of jets with their better cabin climate and quieter engines. So it’s not surprising that when airlines show up with all-new fleets as well as gracious cabin crews people start wondering, Why can’t it always be like this?

It’s also not surprising that the major American carriers are now trying to stop those airlines from coming to an airport near you.

When it comes to price and the domestic U.S. routes, not only are prices not coming down but there is persuasive evidence of price-fixing. The veteran investigative reporter James B. Stewart described this market as a classic oligopoly in a penetrating piece in The New York Times .

However, this is far from being a new phenomenon. These tactics began long before the final round of consolidation mergers when US Airways was swallowed by American Airlines in 2013. They have merely been continually refined to the point now when the airlines, suddenly enjoying profits, have responded not by lowering fares but by tightening control over the number of seats available and cutting back on flight frequency and destinations.

The reality is that the airlines don’t need to expose themselves to charges of collusion on fares and the operation of a hidden cartel that mutually governs capacity. That’s so 20th century.

These days their key tool is “yield management”—being able to precisely calculate how many seats should be available on any given route at any time of the day or night and adjusting the price hour-by-hour according to demand. This algorithm has become so refined and the market so controlled that each of the major airlines ends up looking at the same numbers on their computer screen. No human intervention is needed. In all but name it is a cartel—but one run entirely by unaccountable robots.

So?

We live in the world’s most vigorously capitalist marketplace. What’s wrong with airlines trying to make a decent profit, for once? And what is the point of them flying empty seats around the skies?

But I come back to my earlier point: How do these airline executives behave when, joy of joys, they find their balance sheets deeply in the black? Like a lot of other corporate minders they think a lot more about their shareholders than their customers. Short-termism rules. Wall Street responds to quarterly earnings, not patient long-term strategy.

A good example is Jet Blue. This airline was a rare example of a successful startup based on a maverick idea: super-chummy cabin staff and generously spaced seating. A new CEO (previously schooled by the stingy bean-counters at British Airways) is undermining that spirit by jamming more seats into the cabin and raising baggage charges, all at the behest of shareholders.

The problem is that the people running airlines in the U.S. have one part of their brain missing, the part that provides the service ethic. As well as fare-gouging they’re space gouging in the cabins. Even with the newest jets like the Dreamliner they are packing more seats into coach than the airplane designers (or nature) intended.

Q1. Read the above article and answer the questions that follow.

a. Why did the investigative reporter James B. Stewart describe US airlines as a classic Oligopoly?

b. What is the meaning of yield management as described in the above article?

c. Why did the writer accuse people running airlines of missing service ethics

In: Economics

1. The Cartel That Makes Sure Airplane Tickets Never Get Cheaper SKY HIGH It’s been a...

1. The Cartel That Makes Sure Airplane Tickets Never Get Cheaper

SKY HIGH

It’s been a windfall year for the industry, but you won’t be getting any better accommodations or more affordable fares. What gives?

Updated Apr. 14, 2017 10:33AM ET / Published Jun. 22, 2015 5:21AM ET

Jim Young/Reuters

Screw the passengers.

That appears all too often to be the governing philosophy of the airline business.

Take the case of a United Airlines flight from Chicago to London last weekend. A technical problem forced the plane to abort its trans-Atlantic route and divert to Goose Bay in Canada. The 176 passengers were marooned there for more than 20 hours, sleeping in unheated military barracks at near-freezing temperatures.

“There was nobody from United Airlines to be seen anywhere,” one passenger told NBC News. “No United representative ever reached out to anybody, no phone calls, no human beings, no nothing. Nobody had any idea what was going on.”

It so happened that this came at the end of a week in which the world’s airline chiefs, junketing in Miami, celebrated their most lucrative year ever. They are projecting profits totaling $29.3 billion in 2015—almost double what they made in 2014.

And you must have noticed if you’re flying anywhere in the U.S. this summer that seat prices are not falling. Indeed, if the owners of those seats are suddenly feeling fat and happy, they are in no mood to pass on their swell feelings to you. It’s hard to imagine any other service industry being run like the airline business—but then there is no other business like the airline business.

So now we have a novel opportunity to see how airlines behave when, suddenly and much to their surprise, they find themselves with a business model that is working. If making a profit is a new experience for them, what effect will that have on their behavior?

First, let us consider why the numbers have been transformed.

There has been a steep change in the efficiency of jets. Beginning with the Boeing 787 Dreamliner, the combination of lighter but stronger composite materials in structures and a quantum leap in engine efficiency, using far less fuel, has slashed operating costs per airplane by as much as 30 percent.

In the last year, this windfall has been boosted by the large decline in oil prices.

However, these dual benefits are not being evenly spread either among airlines or continents. Airlines stuck with fleets of older airplanes are not getting these benefits. Fleet age has become far more decisive in deciding an airline’s profitability, particularly true in the U.S.

The three major U.S. legacy carriers—American, United, and Delta—failed to get in early to order the new generation of airplanes—the 787, the Airbus A350, revamped versions of the Boeing 777, the Airbus A320, and the Boeing 737—and allowed European, Middle Eastern, and Asian competitors to become first adopters and, thereby, reap the benefits of lower fuel costs.

The average age of the jets in the American fleet is 12.3 years; for United 13 years; and for Delta 17.2 years. It won’t be until at least 2020 that they can finally dump the oldest of their airplanes. (American has actually been delaying the delivery of some new jets that it ordered.)

Age doesn’t mean that an airplane is unsafe. Properly maintained 20-year-old jets are not in danger of falling apart. The frequency of flights determines retirement age more than years and the smaller single-aisle jets used on domestic routes age the fastest because they are making up to seven flights a day.

Age may not be dangerous but it sure registers with passengers when it contrasts with the comforts they encounter in the new generation of jets with their better cabin climate and quieter engines. So it’s not surprising that when airlines show up with all-new fleets as well as gracious cabin crews people start wondering, Why can’t it always be like this?

It’s also not surprising that the major American carriers are now trying to stop those airlines from coming to an airport near you.

When it comes to price and the domestic U.S. routes, not only are prices not coming down but there is persuasive evidence of price-fixing. The veteran investigative reporter James B. Stewart described this market as a classic oligopoly in a penetrating piece in The New York Times .

However, this is far from being a new phenomenon. These tactics began long before the final round of consolidation mergers when US Airways was swallowed by American Airlines in 2013. They have merely been continually refined to the point now when the airlines, suddenly enjoying profits, have responded not by lowering fares but by tightening control over the number of seats available and cutting back on flight frequency and destinations.

The reality is that the airlines don’t need to expose themselves to charges of collusion on fares and the operation of a hidden cartel that mutually governs capacity. That’s so 20th century.

These days their key tool is “yield management”—being able to precisely calculate how many seats should be available on any given route at any time of the day or night and adjusting the price hour-by-hour according to demand. This algorithm has become so refined and the market so controlled that each of the major airlines ends up looking at the same numbers on their computer screen. No human intervention is needed. In all but name it is a cartel—but one run entirely by unaccountable robots.

So?

We live in the world’s most vigorously capitalist marketplace. What’s wrong with airlines trying to make a decent profit, for once? And what is the point of them flying empty seats around the skies?

But I come back to my earlier point: How do these airline executives behave when, joy of joys, they find their balance sheets deeply in the black? Like a lot of other corporate minders they think a lot more about their shareholders than their customers. Short-termism rules. Wall Street responds to quarterly earnings, not patient long-term strategy.

A good example is Jet Blue. This airline was a rare example of a successful startup based on a maverick idea: super-chummy cabin staff and generously spaced seating. A new CEO (previously schooled by the stingy bean-counters at British Airways) is undermining that spirit by jamming more seats into the cabin and raising baggage charges, all at the behest of shareholders.

The problem is that the people running airlines in the U.S. have one part of their brain missing, the part that provides the service ethic. As well as fare-gouging they’re space gouging in the cabins. Even with the newest jets like the Dreamliner they are packing more seats into coach than the airplane designers (or nature) intended.

Q1. Read the above article and answer the questions that follow.

a. Why did the investigative reporter James B. Stewart describe US airlines as a classic Oligopoly?

b. What is the meaning of yield management as described in the above article?

c. Why did the writer accuse people running airlines of missing service ethics?

In: Economics

Q1. The Cartel That Makes Sure Airplane Tickets Never Get Cheaper SKY HIGH It’s been a...

Q1. The Cartel That Makes Sure Airplane Tickets Never Get Cheaper

SKY HIGH

It’s been a windfall year for the industry, but you won’t be getting any better accommodations or more affordable fares. What gives?

Updated Apr. 14, 2017 10:33AM ET / Published Jun. 22, 2015 5:21AM ET

Jim Young/Reuters

Screw the passengers.

That appears all too often to be the governing philosophy of the airline business.

Take the case of a United Airlines flight from Chicago to London last weekend. A technical problem forced the plane to abort its trans-Atlantic route and divert to Goose Bay in Canada. The 176 passengers were marooned there for more than 20 hours, sleeping in unheated military barracks at near-freezing temperatures.

“There was nobody from United Airlines to be seen anywhere,” one passenger told NBC News. “No United representative ever reached out to anybody, no phone calls, no human beings, no nothing. Nobody had any idea what was going on.”

It so happened that this came at the end of a week in which the world’s airline chiefs, junketing in Miami, celebrated their most lucrative year ever. They are projecting profits totaling $29.3 billion in 2015—almost double what they made in 2014.

And you must have noticed if you’re flying anywhere in the U.S. this summer that seat prices are not falling. Indeed, if the owners of those seats are suddenly feeling fat and happy, they are in no mood to pass on their swell feelings to you. It’s hard to imagine any other service industry being run like the airline business—but then there is no other business like the airline business.

So now we have a novel opportunity to see how airlines behave when, suddenly and much to their surprise, they find themselves with a business model that is working. If making a profit is a new experience for them, what effect will that have on their behavior?

First, let us consider why the numbers have been transformed.

There has been a steep change in the efficiency of jets. Beginning with the Boeing 787 Dreamliner, the combination of lighter but stronger composite materials in structures and a quantum leap in engine efficiency, using far less fuel, has slashed operating costs per airplane by as much as 30 percent.

In the last year, this windfall has been boosted by the large decline in oil prices.

However, these dual benefits are not being evenly spread either among airlines or continents. Airlines stuck with fleets of older airplanes are not getting these benefits. Fleet age has become far more decisive in deciding an airline’s profitability, particularly true in the U.S.

The three major U.S. legacy carriers—American, United, and Delta—failed to get in early to order the new generation of airplanes—the 787, the Airbus A350, revamped versions of the Boeing 777, the Airbus A320, and the Boeing 737—and allowed European, Middle Eastern, and Asian competitors to become first adopters and, thereby, reap the benefits of lower fuel costs.

The average age of the jets in the American fleet is 12.3 years; for United 13 years; and for Delta 17.2 years. It won’t be until at least 2020 that they can finally dump the oldest of their airplanes. (American has actually been delaying the delivery of some new jets that it ordered.)

Age doesn’t mean that an airplane is unsafe. Properly maintained 20-year-old jets are not in danger of falling apart. The frequency of flights determines retirement age more than years and the smaller single-aisle jets used on domestic routes age the fastest because they are making up to seven flights a day.

Age may not be dangerous but it sure registers with passengers when it contrasts with the comforts they encounter in the new generation of jets with their better cabin climate and quieter engines. So it’s not surprising that when airlines show up with all-new fleets as well as gracious cabin crews people start wondering, Why can’t it always be like this?

It’s also not surprising that the major American carriers are now trying to stop those airlines from coming to an airport near you.

When it comes to price and the domestic U.S. routes, not only are prices not coming down but there is persuasive evidence of price-fixing. The veteran investigative reporter James B. Stewart described this market as a classic oligopoly in a penetrating piece in The New York Times .

However, this is far from being a new phenomenon. These tactics began long before the final round of consolidation mergers when US Airways was swallowed by American Airlines in 2013. They have merely been continually refined to the point now when the airlines, suddenly enjoying profits, have responded not by lowering fares but by tightening control over the number of seats available and cutting back on flight frequency and destinations.

The reality is that the airlines don’t need to expose themselves to charges of collusion on fares and the operation of a hidden cartel that mutually governs capacity. That’s so 20th century.

These days their key tool is “yield management”—being able to precisely calculate how many seats should be available on any given route at any time of the day or night and adjusting the price hour-by-hour according to demand. This algorithm has become so refined and the market so controlled that each of the major airlines ends up looking at the same numbers on their computer screen. No human intervention is needed. In all but name it is a cartel—but one run entirely by unaccountable robots.

So?

We live in the world’s most vigorously capitalist marketplace. What’s wrong with airlines trying to make a decent profit, for once? And what is the point of them flying empty seats around the skies?

But I come back to my earlier point: How do these airline executives behave when, joy of joys, they find their balance sheets deeply in the black? Like a lot of other corporate minders they think a lot more about their shareholders than their customers. Short-termism rules. Wall Street responds to quarterly earnings, not patient long-term strategy.

A good example is Jet Blue. This airline was a rare example of a successful startup based on a maverick idea: super-chummy cabin staff and generously spaced seating. A new CEO (previously schooled by the stingy bean-counters at British Airways) is undermining that spirit by jamming more seats into the cabin and raising baggage charges, all at the behest of shareholders.

The problem is that the people running airlines in the U.S. have one part of their brain missing, the part that provides the service ethic. As well as fare-gouging they’re space gouging in the cabins. Even with the newest jets like the Dreamliner they are packing more seats into coach than the airplane designers (or nature) intended.

Q1. Read the above article and answer the questions that follow.

a. Why did the investigative reporter James B. Stewart describe US airlines as a classic Oligopoly?

b. What is the meaning of yield management as described in the above article?

c. Why did the writer accuse people running airlines of missing service ethics?

In: Economics