Your firm has been approached by a large hospital in one of the cities you are currently serving to provide air transportation for certain critically ill patients. These patients would need to be brought in to the hospital from various cities in your geographical area and, in some cases, flown back to their hometown or the hospital at their home city for further recuperation. The prospective client has built a reputation for conducting a particularly complicated medical procedure and is one of the few hospitals in the country that can perform this procedure. The trips would be made on an as-needed basis and would be taken after regular scheduled hours (i.e., from 10 p.m. until 6 a.m.). Each charter would bring in revenues averaging $3,000. To take on this business opportunity, you would need to equip an aircraft with medical equipment and stretcher tie-downs. This would cost $12,000. The accounting for this special charter business would be kept separately and any profits or losses would be shown under “Other Revenue” or “Other Expense,” respectively, on your Income Statement. It is assumed that your smallest aircraft would be used for this service. Revenue and cost estimates indicate the gross profits could be as little as a few thousand dollars to as much as $20,000 per quarter. Your president states, “I think it would be a great public relations move to take this project on. We have aircraft sitting on the ground at several cities overnight, positioned for the early morning run, and this project could be done without repositioning any aircraft.” The director of maintenance responds, “Our routes are spread out far enough now without going to a lot of cities where we don’t have maintenance facilities. I don’t think we should do it. Besides, we’re in the passenger business, not the charter business.” The vice president of finance interjects, “I do not agree with you. We’re in the transportation business, and this is transportation. In addition, I’ve looked at the cost/income projections with the hospital staff, and I think it will pay off. Even if we just break even, it’s a great public image move. We have a few pilots who have even agreed to fly for free if it is a charity case." 

Note: 

If you do not own aircraft smaller than 40 seats, you should pass on this incident, as the other aircraft are too large and expensive to operate this type of service.

Options:

1). Begin the service with the smallest aircraft in your fleet. (Cost: $12,000)
2). Turn the offer down.
Our company is a discount fare airline, our aircraft types are TP-340, each aircraft seats is 37. Is it appropriate for us to start this business? Will this business affect our normal passenger business?

Answer rating: 100% (QA)

Synopsis of the case An airline management company has been approached by a leading hospital to provide air transportation for certain critically ill ... View the full answer