Trans Western Airlines is considering a proposal to start flights service between Phoenix, Arizona and Las Vegas, Nevada. The route would be primarily designed to serve recreational and tourist travelers who travel frequently between the two cities. By offering low-cost tourism fares, airlines hope to persuade people who are now traveling on other modes of transport to change and fly Trans Western on this route. In addition, the airline hopes to attract business travelers during hours from 7 am to 6 pm on Mondays and Fridays. the price of the tariff schedule or rate would be designed to charge a higher rate during hours of business travel so that tourist demand is reduced during those hours The company believes that a business far from $75 each way during business hours and a fee of $40 for all other hours would result in passenger load is the same during business trips and tourist trips hours. To operate the route, the airline would need two 120-passenger aircraft aircraft. The aircraft would be leased at an annual cost of $3,800,000 each. Other fixed costs for ground services would amount to $1,500,000 by year. The operation of each aircraft requires a flight crew whose salaries are based primarily on hours of flight time. Flight crew costs. that's about $400 per hour of flight time. Fuel costs are also a function of flight time. These costs are estimated at $500 per hour of flight time. Flight time between Phoenix and Las Vegas is estimated at 45 minutes each way. The costs associated with processing each passenger amount to $3. This includes ticket processing, agent commissions, and variable costs of baggage handling. Food and beverage services have a cost of $7.80 per passenger and will be offered free of charge on flights during business hours. He The cost of this service on flights outside business hours is expected to be recovered through charges collected for alcoholic beverages.

Required:

1. If five business flights and three tourist flights are offered each way every day of the week, and ten tourist flights are offered each way Saturday and Sunday what is the average number of passengers What should be carried on each flight to reach the break-even point?

2. What is the balance load factor or percentage of available seats busy on a route?

3. If Trans Western Airlines operates the Phoenix-Las Vegas route, your plane on that route will be idle between midnight and 6 am The airline is considering offering a "Red Die" special, which leave Phoenix daily at midnight and return at 6 am division estimates that if the fee were not more than $20, at least 60 new passengers could be drawn to each “Red Die” flight. The operating costs would be the same rate for this flight, but Advertising costs of $1,225 per week would be required to service promotion. No cost of food or drink would be  in charge of the company. Management wants to know the minimum fee that would be required to break even on the "Red Die" special assuming the marketing division's passenger estimates are correct

Answer rating: 100% (QA)

SOLUTION 1 To calculate the average number of passengers needed to reach the breakeven point we need to consider the total costs associated with operating the route and the revenue generated from pass... View the full answer