Malin Aviation is a discount airline which operates on one major route between Beijing and Shanghai in China. It is a very competitive route with many operators.

Through good service and very careful cost control, Malin Aviation has been successful over the years, maintaining an occupancy rate of 60% of the 250 seats available on each of its 60 flights per month.

Ticket prices average RMB120 one-way, while costs per flight work out at: Fuel RMB3,200; Crew RMB2,250; Ground support, maintenance, government charges, etc RMB7,900.

The ticket price includes a snack and drinks which costs the airline RMB10 per passenger. Booking costs and government levies amount to approximately RMB6 per passenger.

Malin Aviation pays tax at a rate of 25%.

a) What is Malin Aviation’s current monthly operating result?

b) What is the company’s current break-even point in passengers per flight, and occupancy %?

Next month (August) food and drink costs are expected to rise by 30%. Because of the recent World Pandemic there is also the prospect of flights going down further. Because the discount airline game is extremely price sensitive, Malin Aviation is reluctant to increase ticket prices.

c) What ticket price would need to be charged to maintain the current contribution margin ratio? If ticket prices are not increased, how many passengers would need to be achieved to maintain the Company’s current after-tax operating result? What occupancy rate would this represent?

d) In addition to the increase in costs of food and drink, if aviation fuel prices increase by 20% in September, how many passengers would then be needed to maintain the company’s current after-tax operating result, without increasing ticket prices? What occupancy rate would this represent?