Profits have been decreasing for several years at Pegasus Airlines. In an effort

Question

Profits have been decreasing for several years at Pegasus Airlines. In an effort to improve the company's performance, consideration is being given to dropping several flights that appear to be unprofitable A typical income statement for one round-trip of one such flight (flight 482) is as follows Ticket revenue (105 seats x 40% occupancy x $75 ticket price) Variable expenses ($11.00 per person $3.150 462 14.7 100% 2,688 853% Contribution margin Flight expenses Salaries, flight crew Flight promotion Depreciation of aircraft Fuel for aircraft Liability insurance Salaries, flight assistants Baggage loading and flight $ 320 690 510 155 300 700 180 preparation Overnight costs for flight crew and assistants at destination 60 2,915 $(227) Total flight expenses Net operating loss

Explanation / Answer

1) Contribution margin lost if the flight is discontinued -2,688 less Flight costs that can be avoided if the flight is discontinued: Flight promotion 690 Fuel for aircraft 155 liability insurance (300*1/3) 100 Salaries,Flight assistants 700 overnight costs for flight crew and assistants 60 1705 net decrease in profits if the flight is discontinued -983

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