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Cost Analysis of Airline Business

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Airway Express has an evening flight from Los Angeles to New York with an average of 80 passengers and a return flight the next afternoon with an average of 50 passengers. The plane makes no other trip. The charge for the plane remaining in New York overnight is $1,200 and would be zero in Los Angeles. The airline is contemplating eliminating the night flight out of Los Angeles and replacing it with a morning flight. The estimated number of passengers is 70 in the morning flight and 50 in the return afternoon flight. The one-way ticket for any flight is $200. The operating cost of the plane for each flight is $11,000. The fixed costs for the plane are $3,000 per day whether it flies or not.

(a): Should the airline replace its night flight from Los Angeles with a morning flight? Please calculate and compare the profit under each flight.

(b) Should the airline remain in business? This question is asking should Airway Express continue providing the flight between Los Angeles and New York? Even Airway Express decides not to fly, it still have to pay the fixed costs of $3,000 per day.

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