CHARTER AIRLINE OPERATING DECISION

Questions:

1. What are the variable costs for the decision to send one more person aboard a charter flight that is already 80% booked?

2. In making an entry/exit decision, if competitive pressure is projected to force the price down to $300, what is the break even unit sales volume this company should have projected as part of its business plan before entering this market and should reconsider each time it considers leaving (exiting) this business altogether?

3. Identify the indirect fixed costs of the charter service for a particular one of many such charters this month.

4. If one were trying to decide whether to operate (fly) or not to fly an unscheduled round-trip charter flight, what would be the total direct fixed costs and variable costs of the flight?

5. Charter contract are negotiable, and charter carriers receive many contract offers that do not promise $300 prices or 80-percent-full planes. Should the airline accept a charter flight proposal from a group that offers to guarantee the sale of 90 seats at $250? Why or why not?

6. What are the total contributions of the charter fligt with 90 seats at $250 per seat?

7. What are the net income losses for this two-day period if the airline refuses the 90-seat charter, stays in business, but temporarily shuts down? What are the net income losses if it decides to operate and fly the charter that has been proposed?

8. What is the segment -level contribution of a separate group that is willing to join the 90-seat-at$250-per-seat charter on the same departure, but only wishes to pay $50 per seat at 10 seats?

9. Should you accept their offer? What problems do you anticipate if both charter groups are placed on 737?