Delta Airlines -COVID and the Business Issues This case study is based on a true story. On March 2 my wife and I traveled to Mexico with plans to stay for the month, returning home March 27. Early news of the coronavirus starting appearing but nobody was really thinking much about it. Then by mid-March things changed. The virus had found its way to North America and was starting to have an impact. We initially noticed how tourist traffic in the village restaurants had slowed down. Then the Canadians staying in our complex were told to return home by their Prime Minister. Then we noticed everyone was changing their flights to return home earlier than planned, and very few were coming into the Mayan Riviera. We were staying in a condo in a small complex and felt very safe because we were able to stay isolated and Mexico seemed to be behind the movement of the virus. Classes were now converted to online through the end of the semester, so we considered staying in Mexico until April/May to wait out the virus. Then around May 18 the rumors came out that the U.S. government would be shutting down the airports and not allowing people to come back. So this is how our personal story becomes a case study for the managerial accounting discussion group. With tickets to return home March 27, we starting considering rebooking our flights and leaving earlier. Delta had announced that they would waive the rebooking fees (about $150) for anyone who wanted to change their flights. Our concern was that Delta was flying empty airplanes from Detroit to Cancun, then returning to Detroit in airplanes with less and less people on board. Our concern was that Delta, at some point, would recognize they were flying round trip Detroit/Cancun with significantly empty airplanes and diminished revenue, while still bearing much of the costs. Our ultimate fear was Delta would cancel ALL of their flights to/from Mexico, and we would be stuck there. We decided to rebook our flights to March 24. Interestingly, we received a $200 refund because the rebooked flight was cheaper than our original round trip tickets. Then, on March 23 I received a text from Delta saying our flight was cancelled. We scrambled and found a Delta flight later in the day on March 24. We returned home on a 25% full airplane and through empty airports. For your Discussion, consider the Cost-Volume-Profit chapter, and discuss what financial issues Delta had to consider as they decided on their flights to and from Cancun during those last two weeks of March. Keep in mind, the chapter is all about Variable and Fixed Costs, Revenue and Break Even Point. Go to the Thought starters for more. THE DELTA AIRLINES CASE STUDY 1. Delta's first step was to allow customers to rebook without a penalty fee. Also, they gave us a refund because the rebooked flight was cheaper, We as customers were all starting to panic and many would have likely rebooked even with the fee and not expecting a refund. Or maybe not. Was it a good decision by Delta? What did they consider in making this change? Be specific in explaining the reasons for your conclusion. 2. How does flying empty airplanes from Detroit to Cancun, then returning at 25% full, effect fixed costs of running an airline? Be specific in identifying the key fixed costs an airline company would have. 3. How does flying empty airplanes from Detroit to Cancun, then returning at 25% full, effect variable costs of running an airline? Be specific in identifying the key variable costs an airline company would have. 4. It would be interesting to prepare an estimate of the real variable costs related to our empty flight out to Cancun and 25% full flight back to Detroit (maybe Google it) then compare those costs to the revenue Delta received for the flight. Was it a good idea to deliver the flight for us and the other passengers? 5. What did Delta accomplish by canceling our initial March 24 flight? Delta Airlines -COVID and the Business Issues This case study is based on a true story. On March 2 my wife and I traveled to Mexico with plans to stay for the month, returning home March 27. Early news of the coronavirus starting appearing but nobody was really thinking much about it. Then by mid-March things changed. The virus had found its way to North America and was starting to have an impact. We initially noticed how tourist traffic in the village restaurants had slowed down. Then the Canadians staying in our complex were told to return home by their Prime Minister. Then we noticed everyone was changing their flights to return home earlier than planned, and very few were coming into the Mayan Riviera. We were staying in a condo in a small complex and felt very safe because we were able to stay isolated and Mexico seemed to be behind the movement of the virus. Classes were now converted to online through the end of the semester, so we considered staying in Mexico until April/May to wait out the virus. Then around May 18 the rumors came out that the U.S. government would be shutting down the airports and not allowing people to come back. So this is how our personal story becomes a case study for the managerial accounting discussion group. With tickets to return home March 27, we starting considering rebooking our flights and leaving earlier. Delta had announced that they would waive the rebooking fees (about $150) for anyone who wanted to change their flights. Our concern was that Delta was flying empty airplanes from Detroit to Cancun, then returning to Detroit in airplanes with less and less people on board. Our concern was that Delta, at some point, would recognize they were flying round trip Detroit/Cancun with significantly empty airplanes and diminished revenue, while still bearing much of the costs. Our ultimate fear was Delta would cancel ALL of their flights to/from Mexico, and we would be stuck there. We decided to rebook our flights to March 24. Interestingly, we received a $200 refund because the rebooked flight was cheaper than our original round trip tickets. Then, on March 23 I received a text from Delta saying our flight was cancelled. We scrambled and found a Delta flight later in the day on March 24. We returned home on a 25% full airplane and through empty airports. For your Discussion, consider the Cost-Volume-Profit chapter, and discuss what financial issues Delta had to consider as they decided on their flights to and from Cancun during those last two weeks of March. Keep in mind, the chapter is all about Variable and Fixed Costs, Revenue and Break Even Point. Go to the Thought starters for more. THE DELTA AIRLINES CASE STUDY 1. Delta's first step was to allow customers to rebook without a penalty fee. Also, they gave us a refund because the rebooked flight was cheaper, We as customers were all starting to panic and many would have likely rebooked even with the fee and not expecting a refund. Or maybe not. Was it a good decision by Delta? What did they consider in making this change? Be specific in explaining the reasons for your conclusion. 2. How does flying empty airplanes from Detroit to Cancun, then returning at 25% full, effect fixed costs of running an airline? Be specific in identifying the key fixed costs an airline company would have. 3. How does flying empty airplanes from Detroit to Cancun, then returning at 25% full, effect variable costs of running an airline? Be specific in identifying the key variable costs an airline company would have. 4. It would be interesting to prepare an estimate of the real variable costs related to our empty flight out to Cancun and 25% full flight back to Detroit (maybe Google it) then compare those costs to the revenue Delta received for the flight. Was it a good idea to deliver the flight for us and the other passengers? 5. What did Delta accomplish by canceling our initial March 24 flight