Air Calabria owns a single jet aircraft and operates between Cantazaro and Venice. Flights leave Cantazaro on Mondays and Thursdays and depart from Venice on Wednesdays and Saturdays. Air Calabria cannot offer any more flights between Cantazaro and Venice. Only tourist-class seats are available on its planes. An analyst has collected the following information: 

Required 

1. What is the operating profit that Air Calabria makes on each one-way flight between Cantazaro and Venice? 

2. The Market Research Department of Air Calabria indicates that lowering the average one-way fare to €480 will increase the average number of passengers per flight to 212. Should Air Calabria lower its fare? 

3. Cima-Rosa, a tour operator, approaches Air Calabria on the possibility of chartering (renting out) its jet aircraft twice each month, first to take Cima-Rosa’s tourists from Cantazaro to Venice and then to bring the tourists back from Venice to Cantazaro. If Air Calabria accepts Cima-Rosa’s offer, Air Calabria will be able to offer only 184 (208 – 24) of its own flights each year. The terms of the charter are as follows: 

(a) For each one-way flight, Cima-Rosa will pay Air Calabria €75,000 to charter the plane and to use its flight crew and ground service staff; 

(b) Cima-Rosa will pay for fuel costs; 

(c) Cima-Rosa will pay for all food costs. On purely financial considerations, should Air Calabria accept Cima-Rosa’s offer? What other factors should Air Calabria consider in deciding whether or not to charter its plane to Cima-Rosa?

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Seating capacity per plane 360 passengers Average number of passengers per flight 200 passengers Flights per week 4 flights Flights per year 208 flights Average one-way fare €500 Variable fuel costs €14,000 per flight Food and beverage service cost (no charge to passenger) €20 per passenger Commission to travel agents paid by Air Calabria (all tickets are booked by travel agents) 8% of fare Fixed annual lease costs allocated to each flight €53,000 per flight Fixed ground services (maintenance, check in, baggage handling) cost allocated to each flight €7000 per flight Fixed flight crew salaries allocated to each flight. €4000 per flight For simplicity, assume that fuel costs are unaffected by the actual number of passengers on a flight.