Jet Airways Case Study -

Jet Airways operates a week-day charter plane service on three routes, Chicago/Atlanta, Chicago/Los Angeles, and Atlanta/Los Angeles. Jet Airways operates a fleet of aircraft that has a capacity of 30 passengers per plane.

The CEO of Jet Airways, Meg Davis, received the following operating results over the period from the Controller, Grover Greensleeves:

Revenue $2,600,000

Costs:

Fuel 960,000

Airplane Lease Payment 360,000

Crew Salaries 240,000

Ground Personnel Salaries 130,000

Airport Take-Off and Landing Fees 385,000

Gate Rental 200,000

Operating Income $325,000

Operating Income / Revenue 12.5%

Although Jet Airways' current Operating Income / Revenue of 12.5% is a satisfactory return, Meg wants to analyze the business with more precision in order to discover where additional profit opportunities lie. She is considering three different scenarios and would like to have a differential analysis performed to determine which possible scenario would add the most to the company's profits.

The following additional information provides more details on the revenue and cost numbers presented above.

Revenue and Flight Information

Total Total

Passengers Ticket Revenue Number of

Flight Per Route Price Per Route Flights

Chic/ATL 2,500 $400 $1,000,000 100

Chic/LA 1,000 800 800,000 50

ATL/LA 800 1,000 800,000 50

Ground Activities

Chicago Atlanta Los Angeles Total

Ground personnel salaries $40,000 $60,000 $30,000 $130,000

Airport take-off and landing fees 75,000 210,000 100,000 385,000

Gate rental 75,000 75,000 50,000 200,000

Number of arrivals or departures 150 150 100 400

Route Flight Miles (One Way)

Chicago to Atlanta 600 miles

Chicago to Los Angeles 1,600 miles

Atlanta to Los Angeles 2,000 miles

Additional Information Regarding Costs

The following are FIXED costs:

Airplane lease payment $360,000

Ground personnel salaries 130,000

The following are VARIABLE costs:

Fuel $4 per mile flown

Crew salaries** 1,200 per flight

Airport take-off and landing fees - Chicago 500 per arrival or departure

Airport take-off and landing fees - Atlanta 1,400 per arrival or departure

Airport take-off and landing fees - Los Angeles 1,000 per arrival or departure

Gate rental 500 per arrival or departure

** Flight crews staffing is very flexible to demand, through use of temporary and part-time employees and work-load shifting.

Complete the template below to show the financial impact of these three scenarios.

	Base Case	Scenario #1	Scenario #2	Scenario #3
Revenue	$ 2,600,000
Costs:
Fuel	960,000
Airplane Lease Payment	360,000
Crew Salaries	240,000
Ground Personnel Salaries			130,000
Airport Take-Off and Landing Fees			385,000
Gate Rental	200,000
Operating Income	$ 325,000
Operating Income / Revenue	12.5%
Impact on Company's Profit