Scenic Flights is considering replacing the existing 2 hour flight with a more luxurious 1 hour flight costing $250 per passenger. Under the new proposal it is estimated that demand will increase to 190 scenic flights per year with each flight limited to 15 passengers. Flights will be conducted in the morning and afternoon over the week ends. Other costs to change from the original offer include: inflight refreshments up from $30 to $50 per passenger and the annual fixed costs to increase from $150,000 to $200,000. The two pilots and 2 flight attendants will each be paid $250 and $100 respectively reflecting the shorter duration of the flight compared to the original offer. Fuel costs also reduce to $450 per flight
 
Calculate the number of flights under this new proposal needed to break even annually.
 
Given Scenic Flights wants to maximize total yearly profit discuss, justifying your answer ,whether they should continue with the existing 2 hour flight offer or replace it with the luxury 1 hour flight. (Please note the same aircraft is used under either proposal. The aircraft remains on the ground having no alternate use on weekends. Show all workings/ calculations as part of your answer)

 

 

 

Answer rating: 100% (QA)

ANSWER To calculate the number of flights needed to break even annually under the new proposal we need to consider the total costs and revenues associ... View the full answer