AirOxford owns one jet and operates flights between Oxford and the Fiji Islands. Flights leave Oxford on Mondays and Thursdays and return to Oxford from Fiji on Wednesdays and Saturdays; there is only one flight on each of these days. AirOxford cannot offer any more flights between Oxford and Fiji. Only economy-class seats are available on its plane. All tickets are booked through local travel agents. The following information pertains to AirOxfords operation.

Planes seating capacity 360 passengers

Average number of passengers per flight 200 passengers

Flights per week (one-way) 4 flights

Flights per year (flights per week x 52 weeks) 208 flights

Average one-way air fare $500 per passenger

Fuel costs $70 per passenger

Food and beverage service costs (all paid by AirOxford, no charge to passengers) $20 per passenger

Commission paid to travel agents by AirOxford 8% of fare

Fixed annual lease costs, allocated to each flight $53,000 per flight

Fixed annual ground service costs (maintenance, check in, baggage handling), allocated to each flight $7,000 per flight

Fixed annual flight crew salaries, allocated to each flight $4,000 per flight

Required: 1. Based on the average number of seats occupied, calculate the contribution margin (CM) that AirOxford earns for each one-way flight (i.e., per-flight CM, not per-passenger CM) between Oxford and Fiji.

2. The Market Research Department of AirOxford indicates that lowering the average one-way fare to $480 will increase the average number of passengers per flight to 220. Considering the financial impact, should AirOxford lower its fare?

3. Travel International, a tour operator, approaches AirOxford on the possibility of chartering (renting out) AirOxfords plane twice each month, first to take Travel Internationals tourists from Oxford to Fiji and then to bring them back. If AirOxford accepts Travel Internationals offer, AirOxford will be able to offer only 184 (208 24) of its own flights each year. The terms offered by Travel International are as follows: a. For each one-way flight, Travel International will pay AirOxford $75,000 to charter the plane and to use its flight crew and ground service; b. Travel International will pay for fuel costs; c. Travel International will pay for all food costs. On purely financial considerations, should AirOxford accept Travel Internationals offer? (this offer should be evaluated based on the original information provided; not the information pertaining to part 2.)

4. What other factors should AirOxford consider in deciding whether to keep operations as is (option 1) or charter its plane to Travel International (option 3)?