Cost Allocation; Cost Shifting In the last several years, airlines have succeeded in boosting profits by adding fees for previously free services such as in-flight snacks and meals, checked baggage,priority boarding, and other services. These fees have caused some shifts in customer behavior,as more airline passengers bring their own snacks on the airline and pack a smaller bag that isacceptable for “carry-on.” By using carry-on luggage, the airline customer can save $25 or more inbaggage-checking fees. This situation has resulted in a cost shifting for passengers, airlines, and airport security. As the number of checked bags decreases, the cost of baggage handling for the airlinesdecreases (and revenues increase for those bags that are checked). In contrast, the costs and delaysin security checkpoints increase as security personnel must check additional carry-on bags, causingdelays for passengers and the need for additional security personnel to handle the increased numberof carry-on bags. Transportation Security Administration (TSA) officials explain that there has beena “huge” increase in the number of carry-on bags. In response, the Department of Homeland Securityhas adopted an increase in the passenger security fee each passenger pays for each flight from $2.50in 2011 to $5.60 effective July 21, 2014. Alternatively, as suggested by the U.S. Travel Association,TSA could simply require each airline to include one free checked bag as part of the ticket price. Theairline industry has objected to this fee increase on the grounds that it “diminishes customer choiceand competitive differentiation among carriers.”Required1. Explain the nature of the cost-shifting taking place currently in the airline industry.2. What are the ethical issues, if any, in this case?3. Explain how you think airlines compete, on cost leadership or differentiation, and explain whether thecurrent “fees for services” approach is or is not consistent with the airlines’ strategy.
Critical Path Method
The critical path is the longest succession of tasks that has to be successfully completed to conclude a project entirely. The tasks involved in the sequence are called critical activities, as any task getting delayed will result in the whole project getting delayed. To determine the time duration of a project, the critical path has to be identified. The critical path method or CPM is used by project managers to evaluate the least amount of time required to finish each task with the least amount of delay.
Cost Analysis
The entire idea of cost of production or definition of production cost is applied corresponding or we can say that it is related to investment or money cost. Money cost or investment refers to any money expenditure which the firm or supplier or producer undertakes in purchasing or hiring factor of production or factor services.
Inventory Management
Inventory management is the process or system of handling all the goods that an organization owns. In simpler terms, inventory management deals with how a company orders, stores, and uses its goods.
Project Management
Project Management is all about management and optimum utilization of the resources in the best possible manner to develop the software as per the requirement of the client. Here the Project refers to the development of software to meet the end objective of the client by providing the required product or service within a specified Period of time and ensuring high quality. This can be done by managing all the available resources. In short, it can be defined as an application of knowledge, skills, tools, and techniques to meet the objective of the Project. It is the duty of a Project Manager to achieve the objective of the Project as per the specifications given by the client.
Cost Allocation; Cost Shifting In the last several years, airlines have succeeded in boosting profits by adding fees for previously free services such as in-flight snacks and meals, checked baggage,
priority boarding, and other services. These fees have caused some shifts in customer behavior,
as more airline passengers bring their own snacks on the airline and pack a smaller bag that is
acceptable for “carry-on.” By using carry-on luggage, the airline customer can save $25 or more in
baggage-checking fees. This situation has resulted in a cost shifting for passengers, airlines, and airport security. As the number of checked bags decreases, the cost of baggage handling for the airlines
decreases (and revenues increase for those bags that are checked). In contrast, the costs and delays
in security checkpoints increase as security personnel must check additional carry-on bags, causing
delays for passengers and the need for additional security personnel to handle the increased number
of carry-on bags. Transportation Security Administration (TSA) officials explain that there has been
a “huge” increase in the number of carry-on bags. In response, the Department of Homeland Security
has adopted an increase in the passenger security fee each passenger pays for each flight from $2.50
in 2011 to $5.60 effective July 21, 2014. Alternatively, as suggested by the U.S. Travel Association,
TSA could simply require each airline to include one free checked bag as part of the ticket price. The
airline industry has objected to this fee increase on the grounds that it “diminishes customer choice
and competitive differentiation among carriers.”
Required
1. Explain the nature of the cost-shifting taking place currently in the airline industry.
2. What are the ethical issues, if any, in this case?
3. Explain how you think airlines compete, on cost leadership or differentiation, and explain whether the
current “fees for services” approach is or is not consistent with the airlines’ strategy.
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