Big Apple Airlines operates 35 scheduled round-trip flights between New York and Chicago each week. It charges a fixed one-way fare of $200 per passenger. Big Apple Airlines can carry 150 passengers per flight. Fuel and other flight related costs are $5,000 per flight. On-flight meals are $5 per passenger. Sales commissions averaging 5% of sales are paid to travel agents. Flying crew, ground crew, advertising, and other administrative expenditures for the New York-Chicago route are $400,000 each week.
a. To make a profit of $700,000 per week, each of the 70 one-way flights must have how many passengers, on average? Define X.
b. If the load factor is 60% on all flights, how many flights must Big Apple Airlines operate on this route to earn a total profit of $500,000 per week? Define X.
c. Are fuel costs variable or fixed? Explain.
d. Big Apple Airlines accepts standby passengers on flights 30 minutes before takeoff if space is available. Assume standby passengers book their tickets through a travel agent, and that the airline pays a flat $6 commission per standby ticket rather than a 5% sales commission.
What is the minimum price Big Apple Airlines can charge a standby passenger to cover the incremental costs associated with that passenger?