Westcoast Air: Case Study

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Westcoast Air Case Study Question 1 - Operating income per flight The operating income can be calculated by looking at the revenues generated and deducting all of the variable and fixed costs that have been allocated per flight (Elliott and Elliott, 2010). This is shown in table 1 with figures founded to whole dollars. Table SEQ Table * ARABIC 1: Operating income per flight Passengers 175 Ticket price (1 way) $325 Revenue per flight $56,875 Variable/allocated costs Fuel $14,000 Food and beverage ($4 per passenger) $700 Travel agent commission $5,688 Lease cost $53,000 Ground services $7,500 Flight crew salaries $7,000 Costs per flight $87,888 Profit/loss per flight -$31,013 From these calculations it is apparent that the firm is making a loss on these flights. This is a weak position to be in and the firm should consider alternatives. Question 2 - Decreasing Ticket Prices The market research department has undertaken some research indicating that by lowering the ticket price the demand will increase. It has been proposed that the ticket price is decreased to $280. It has been estimated that this will increase passenger numbers to 212 per flight. This will alter the level of revenue; it will also alter costs that are dependant on the number of passages meaning the food and beverage costs, and the travel agent commission which is dependant on the ticket prices. The adjusted operating income per flight is shown in table 2. Table SEQ

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