In January 2012, West Texas Air merged with East Texas Air to create the fourth largest U.S. carrier. The new All Texas Airline inherited both an aging fleet of Boeing 727-300 aircraft and John P. Jones. John Jones was a tough former Secretary of the Navy who stepped in as new president and chairman of the board.

John's first concern in creating a financially solid company was maintenance costs. It was commonly surmised in the airline industry that maintenance costs rise with the age of the aircraft. He quickly noticed that historically there had been a significant difference in the reported B727-300 maintenance costs (from ATA Form 41s) in both the airframe and engine areas between West Texas Air and East Texas Air, with East Texas Air having the newer fleet.

On February 12, 2012 Kathlene Contres, vice president of operations and maintenance, was called into John's office and asked to study the issue. Specifically, John wanted to know whether the average fleet age was correlated to direct airframe maintenance costs, and whether there was a relationship between average fleet age and direct engine maintenance costs. Kathlene was to report back by February 26 with the answer, along with quantitative and graphical description of the relationship.

Kathlene's first step was to have her staff construct the average age of West Texas Air and East Texas Air B727-300 fleets, by quarter, since the introduction of that aircraft to service by each airline in late 1993 and early 1994. The average age of each fleet was calculated by first multiplying the total number of calendar days each aircraft had been in service at the pertinent point in time by the average daily utilization of the respective fleet to total fleet hours flown. The total fleet hours flown was then divided by the number of aircraft in service at the time, giving the age of the "average" aircraft in the fleet.

The average utilization was found by taking the actual total fleet hours flown on September 30, 2011, from West Texas Air and East Texas Air data, and dividing by the total days in service for all aircraft at that time. The average utilization for East Texas Air was 8.3 hours per day, and the average utilization for West Texas Air was 8.7 hours per day. Because the available cost data were calculated for each yearly period ending at the end of the first quarter, average fleet age was calculated at the same points in time. The fleet data are shown in the following table. Airframe cost data and engine cost data are both shown paired with fleet average age in that table.

Prepare the report with supporting materials.

After the merger, All Texas Airline anticipated an increase in sales or seats sold. Michelle Howard, vice president of customer experience is aware of the importance of customer service. Michelle is insistent that enough customer service assistants (CSA) are ready to meet customer needs.

Based on the experience of both airlines, the anticipated number of phone calls to customer service was projected. Given the average call-length, the number of hours of customer-service time from January to May was projected and is shown in the table below.

Through experience, Michelle knew that training a new CSA well was essential. Each new CSA was put through a 1-month training program, and was assigned to an existing CSA for an entire month. Normally an existing CSA would work 160 hours per month. However, when a CSA was assigned to perform training of a new-hire, the productive work hours for that employee dropped to 80 hours per month.
During the training period, the trainee was paid $2,000 for the month. At the end of that time, the monthly salary increases to the standard salary for a regular CSA which is $3,000 per month. In the past, the company lost about 5% of the trained CSAs per month due to attrition. While the company is looking to improve upon this, for the next several months it is anticipated that this will continue. There will be 150 trained CSAs at the beginning of January. Management of the company would like to develop a schedule of hiring new employees so that there are sufficient CSAs to meet the demand, but this is to be done at the lowest possible cost.

Develop a schedule for hiring new CSAs.

What is the total cost of this schedule?

Discuss any limitations that exist for this solution.

How would the schedule change if the attrition rate could be lowered to 3% per month instead of 5%?

What would be the impact on the cost?