Can someone look over my answer? I'm a little confused on this subject and feel like I'm missing something that would help better my argument as to why they should not discontinue operations. I'd like to make my explanation a little lengthier too but just don't know what else to add.

Question: The WSJ recently presented data suggesting that United Airlines was not covering its costs on flights from San Francisco to Washington, D.C. The article quoted analysts saying that United should discontinue this service. The costs per flight (presented in the article) included the costs of fuel, pilots, flight attendants, food, etc., used on the flight. They also included a share of the costs associated with running the hubs at the two airports, such as ticket agents, building charges, baggage handlers, gate charges, etc. Suppose that the revenue collected on the typical United flight from San Francisco to Washington does not cover these costs. Does this fact imply that United should discontinue these flights? Explain.

My Answer: In this weeks "Analyzing Managerial Decisions" there is a scenario of United Airlines not being able to cover the costs on certain flight routes. The flight from San Francisco to Washington D.C. is specified as not creating enough revenue to cover all of the fixed and variable costs associated with it. The question at hand is whether or not United Airlines should discontinue this flight route since it is technically costing the company to keep up operations. Ultimately, they should not discontinue this flight route because the revenue from other flight routes might be covering the cost of this one in the short-run, and if they were to discontinue this flight route, customers might migrate to another company which might disrupt revenue for United Airlines in other flight routes.

To understand why they should not discontinue, we first need to look at the different costs associated with this flight. The costs that are stated in the article by the WSJ are both variable costs and fixed costs. The variable costs include the cost of fuel, pilots, flight attendants, and food used on the flight. The fixed costs are the share of the costs for running the hubs at two airports which included building charges, gate charges, and more. If we were considering short run, the airline should technically discontinue its operations for this flight pattern due to the revenue not being sufficient to cover the average variable costs. Regarding short-run supply decisions, to maximize profit in a competitive industry, the output of a product's price should at least equal the short-run marginal cost. If it does not, then it would be better to cease operations since losing money to cover a business's fixed costs by stopping is less of a loss then continuing. However, since this is an established company with other flight routes that could possibly cover the costs of the new flight route for the time being, managers should probably look at the long-run supply to make decisions. As long as the price equals or exceeds the long-run average cost, it could stay in business (source). In short, it is okay to lose money in the short-run if it will benefit the company in the long-run.

Additionally, if United Airlines were to discontinue this flight, it might have an affect on its revenue in general. To further explain, if this flight was cancelled, but consumers still needed this flight route, they would then go to another competitor. If they go to another competitor who has the same flight routes as United Airlines and the one from San Francisco to Washington D.C., they may become loyal to that brand since it has more to offer. This would lead to a decline in revenue in the long run for United Airlines.