PROBLEM $6-23$ Dropping or Retaining a Flight $$ LO $6-2$

Profits have been decreasing for several years at Pegasus Airlines. In an effort to improve the company's performance, the company is thinking about dropping several flights that appear to be unprofitable.

A typical income statement for one round$-$trip of one such flight $($flight $482)$ is as follows:

The following additional information is available about flight $482$:

a$.$ Members of the flight crew are paid fixed annual salaries, whereas the flight assistants are paid based on the number of round trips they complete.

b$.$ One$-$third of the liability insurance is a special charge assessed against flight $482$ because, in the opinion of the insurance company, the destination of the flight is in a "high$-$risk" area. The remaining two$-$thirds would be unaffected by a decision to drop flight $482.$

c$.$ The baggage loading and flight preparation expense is an allocation of ground crews' salaries and depreciation of ground equipment. Dropping flight $482$ would have no effect on the company's total baggage loading and flight preparation expenses.

d$.$ If flight $482$ is dropped, Pegasus Airlines has no authorization at present to replace it with another flight.

$\backslash ($ e $\backslash ).$ Aircraft depreciation is due entirely to obsolescence. Depreciation due to wear and tear is negligible.

$\backslash ($ f $\backslash ).$ Dropping flight $482$ would not allow Pegasus Airlines to reduce the number of aircraft in its fleet or the number of flight crew on its payroll.

Required:

$1.$ What is the financial advantage $($disadvantage$)$ of discontinuing flight $482?$

$2.$ The airline's scheduling officer has been criticized because only about $\backslash (50\backslash \%\backslash )$ of the seats on Pegasus's flights are being filled compared to an industry average of $\backslash (60\backslash \%\backslash ).$ The scheduling officer has explained that Pegasus's average seat occupancy could be improved considerably by eliminating about $\backslash (10\backslash \%\backslash )$ of its flights, but that doing so would reduce profits. Explain how this could happen.