Reference no: EM133140816

Question - Inter-City (IC) Airlines flies the Los Angeles-Las Vegas route. A full plane carries 100 passengers. All seats are first class. Because this is a short flight no food is served. However drinks are served.

The one way (either direction) fare is $420. All tickets are sold through a website operator who receives a sales commission of 10% of fare.

The costs per flight are as follows: Flying Crew = $4.000; Fuel Expenditures = $4,000; Aircraft Rental = $5,000; Airport Gate Fees = $2,000; Ground Personnel Costs = $3,000; Allocated overhead = $2,000.

In the route from Los Angeles to Las Vegas only soft drinks are served. The Cost is $10 per passenger.

In the route from Las Vegas to Los Angeles soft and hard drinks are served. The Cost is $10 per passenger.

Required -

1. How many passengers should IC fly to break-even?

2. How many passengers should IC fly to attain a profit target of $6,000 per flight?

3. Calculate the contribution margin per flight and the contribution margin per passenger.

4. IC plans stand-by fares. Stand-by passengers must purchase their drinks. Commission on stand-by-fares is 20%. What would be the minimum stand-by fare to increase profits?

5. IC reduces regular fares to $360 and negotiated Airport Gate Fees of only $1,000. Recalculate break-even point.

6. If IC cancels a scheduled flight, what costs are irretrievable (sunk)?

7. Enumerate strategies that could increase IC's profit.