Deliverable:

Complete the template below to show the financial impact of these three scenarios.

$\backslash$table$[[$Solution Template$],[,$Base Case,Scenario #$1,$Scenario #$2,$Scenario #$3],[$Revenue$,$$$2,600,000,,,],[$Costs:$,,,,],[$Fuel$,960,000,,,],[$Airplane Lease Payment,$360,000,,,],[$Crew Salaries,$240,000,,,],[$Ground Personnel Salaries,$130,000,,,],[$Airport Take$-$Off and Landing Fees,$385,000,,,],[$Gate Rental,$200,000,,,],[,,,,],[,,,,],[,,,,],[,,,,],[$Operating Income,,,,$],[,,,,],[$Operating Income $/$ Revenue,$12\mathrm{.}5\%,,,],[,,,,],[$Impact on Company's Profit,,,,$],[,,,,]]$Blue Skies Airways operates a week$-$day charter plane service on three routes, Chicago$/$Atlanta$,$ Chicago$/$Los Angeles, and Atlanta$/$Los Angeles. Blue Skies operates a fleet of aircraft that have a capacity of $30$ passengers per plane.

Differential Analysis Assignment:

you will need to perform a differential analysis to determine the most profitable

business decision based on multiple possible scenarios.

Background Information:

Blue Skies Airways operates a week$-$day charter plane service on three routes, Chicago$/$Atlanta$,$

Chicago$/$Los Angeles, and Atlanta$/$Los Angeles. Blue Skies operates a fleet of aircraft that have a

capacity of $30$ passengers per plane.

The CEO of Blue Skies Airways, Meg Davis, received the following operating results over the period

from the Controller, Grover Greensleeves:

Although Blue Skies' current Operating Income $/$ Revenue of $12\mathrm{.}5\%$ is a satisfactory return, Meg

wants to analyze the business with more precision in order to discover where additional profit

opportunities lie. She is considering three different scenarios and would like to have a differential

analysis performed to determine which possible scenario would add the most to the company's

profits.

Revenue $ $2,600,000$

Costs:

Fuel $960,000$

Airplane Lease Payment $360,000$

Crew Salaries $240,000$

Ground Personnel Salaries $130,000$

Airport Take$-$Off and Landing Fees $385,000$

Gate Rental $200,000$

Operating Income $ $325,000$

Operating Income $/$ Revenue $12\mathrm{.}5\%$

Revenue and Flight Information

Total Total

Passengers Ticket Revenue Number of

Flight Per Route Price Per Route Flights

Chic$/$ATL $2,500$ $ $400$ $ $1,000,000100$

Chic$/$LA $1,000800800,00050$

ATL$/$LA $8001,000800,00050$

Ground Activities

Chicago Atlanta Los Angeles Total

Ground personnel salaries $ $40,000$ $ $60,000$ $ $30,000$ $ $130,000$

Airport take$-$off and landing fees $75,000210,000100,000385,000$

Gate rental $75,00075,00050,000200,000$

Number of arrivals or departures $150150100400$

Route Flight Miles $($One Way$)$

Chicago to Atlanta $600$ miles

Chicago to Los Angeles $1,600$ miles

Atlanta to Los Angeles $2,000$ miles

Additional Information Regarding Costs

The following are FIXED costs:

Airplane lease payment $ $360,000$

Ground personnel salaries $130,000$

The following are VARIABLE costs:

Fuel $ $4$ per mile flown

Crew salaries$**1,200$ per flight

Airport take$-$off and landing fees $-$ Chicago $500$ per arrival or departure

Airport take$-$off and landing fees $-$ Atlanta $1,400$ per arrival or departure

Airport take$-$off and landing fees $-$ Los Angeles $1,000$ per arrival or departure

Gate rental $500$ per arrival or departure

$**$ Flight crews staffing is very flexible to demand, through use of temporary and part$-$time

employees and work$-$load shifting.

Solution Template

Base Case Scenario #$1$ Scenario #$2$ Scenario #$3$

Revenue $ $2,600,000$

Costs:

Fuel $960,000$

Airplane Lease Payment $360,000$

Crew Salaries $240,000$

Ground Personnel Salaries $130,000$

Airport Take$-$Off and Landing Fees $385,000$

Gate Rental $200,000$

Operating Income $ $325,000$

Operating Income $/$ Revenue $12\mathrm{.}5\%$

Impact on Company's Profit

The following additional information provides more details on the revenue and cost numbers

presented above.

Requirements:

Use the background information above to determine which of the following three scenarios would best improve the company's profits.

Scenario $1$:

Increase the number of seats sold on the Atlanta$/$LA route to an average of $20/$flight$.$ It will require an increase in advertising costs of $$180,000$ to sell the additional seats.