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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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Changes in the Price of Fuel for Aircraft

The cost of fuel is reported to be about 20% of the total operating cost for a major airline.

Events in the Middle East caused jet fuel costs to nearly double from 2008 to 2011.

Required:

1. If you were the CEO of a major airline, how would you suggest that the airline respond to the fuel price increase?

To determine

Introduction:

For the airline industry, fuel is a very important element because airplane cannot fly without fuel. The cost of fuel is very important for the company. A plane like a Boeing 747 uses roughly 1 gallon of fuel (around 4 liters) consistently.

As far as working cost is concerned, the greatest variable is the cost of fuel. This is straightforwardly identified with the cost of unrefined petroleum.

To discuss:

The way you would respond t the raised fuel price.

Explanation

The operating activity of the company is to fly a flight, but the price of fuel increases by about 20% of the total operating cost for a major airline. For instance, events in the Middle East caused the fuel cost to nearly double from 2008 to 2011.

The company’s direct income gets affected due to the increase in the cost of flying, but the income remains the same...

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