Global Freightways is considering the purchase of a new airplane to fly between Tokyo (NRT) and Singapore
Question:
Global Freightways is considering the purchase of a new airplane to fly between Tokyo (NRT) and Singapore (SIN), a distance of 2,869 nautical miles. Global Freightways is evaluating two models of aircraft: the Boeing 747-400, which can safely carry 124 tons of freight and the slightly smaller Boeing 777, with an effective capacity of 104 tons. Costs associated with each:
aircraft | monthly fixed debt payment | Other Monthly Fixed Expenses | operating cost per ton/mile |
---|---|---|---|
boeing 747-400 | $1,367,000 | $50,000 | $1.45 |
boeing 777 | $1,517,000 | $50,000 | $1.38 |
Global Freightways can earn $2 revenue per ton/mile on this route, and expects to fly this plane loaded in both directions between SIN and NRT.
a. What does a break-even analysis indicate about the two choices of aircraft? It is tempting to say the Boeing 777 ‘has a lower break-even point’, but that is a dangerous statement considering that the Boeing 777 is a smaller aircraft.
b. Assuming Global loads each aircraft to its effective capacity, compute the adjusted break-even points to reflect that
* Remember that the 747-400 can safely carry 124 tons of freight and the slightly smaller Boeing 777 has an effective capacity of 104 tons.
Engineering Economy
ISBN: 978-0132554909
15th edition
Authors: William G. Sullivan, Elin M. Wicks, C. Patrick Koelling