Airway Express has an evenign flight from L.A. to N.Y. with an average of 80 pas

Question

Airway Express has an evenign flight from L.A. to N.Y. with an average of 80 passengers and a return flight the next afternoon with an average of 50 passengers. The paln makes no other trip. The chage for the plan remaining in N.Y. overnight is $1200 and would be zero in L.A. The airline is contemplating eliminating the ngiht flight out of L.A. and replacing it with a morning flight. The estimated number of passengers is 70 in the morning flight and 50 in the return afternoon flight. The one-way ticket for nay flight is $200. The operating cost of the plan for each flight is $11,000. The fixed costs for the plane are $3,000 per day whether it flies or not. (a) Shoudl the airline replace its night flight from L.A. with a morning flight? Please calculate and compare the profit under each flight. (b) Should the airline remain in business? This question is asking shoudl Airway Express continue providing the flight between L.A. and N.Y.? Even Airway Express decides not to fly, it still has to pay the fixed costs of $3,000 per day. The evening flight with the return flight the next afternoon is counted as one day, not two days.

Explanation / Answer

For evening flight from los angeles to new york:
Revenue = 80 x 200 + 50 x 200 = $26000
Expenses incurred:
Plane remaining overnight in New York = $1200
Operating cost for each flight = $ 11,000 x 2 = $22,000
Profit = 26,000 - 22,000 - 1,200=$$2800




For morning flight from los angeles to new york:
Revenue = 120 x 200 = $24000
Operating cost for each flight = $ 11,000 x 2 = $22,000
Profit = 24,000-22,000=$2,000
a). No, the airline should not replace its night flight from Los Angeles with a morning flight.
B). the profit is not enough even to cover the fixed cost of $3000 per day, hence the airline should not remain in business as there is a net loss.

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