Flyway Ltd. has hired an aircraft to specially operate between cities A and B. All the seats are economy class.

The following information is available:

Seating capacity of the aircraft.............................. 260 passengers

Average number of passengers per flight.............. 240 passengers

Average one-way fare from A to B........................ ` 5,000 per passenger

Fuel costs per flight from A to B............................... ` 90,000

Food cost (A to B sector)....................................... ` 300 per passenger

(no charge to passenger)

Commission to travel agents..................................... 10% of the fare

(All tickets are through agents)

Annual lease costs allocated to each flight............ ` 2,00,000

Ground services, baggage handling/checking in

service costs per flight A to B................................... ` 40,000

Flight crew salaries per flight A to B......................... ` 48,000

There .is an offer from another airlines operator, Haltgo Ltd. for a stop-over at destination D, which is on the way from A to B. Due to this, the flight will operate from A to D, then from D to B.

The following terms are considered for the stop-over:

50 seats from D to B will be booked by Haltgo at ` 2,700 per ticket, whether or not Haltgo is able to sell them to its customers. No agents' commission is payable on these tickets.

However, Snacks must be provided to these passengers also by Flyway Ltd. at no further charge to Haltgo or the passengers.

A maximum of 60 tickets can be sold by Flyway's travel agents for the A to D sector at a fare of ` 3,000 per passenger.

Since the stop-over wastes more time, 25 of Flyways original passengers in the A to B sector will voluntarily drop out in favour of other airlines offering direct flights between A and B.

Due to the stop-over fuel costs will increase from ` 90,000 to ` 1,35,000. Additional airport landing / baggage handling charges of ` 19,000 per stop-over will have to be incurred by Flyway Ltd.

Flyway Ltd. will have to serve snacks to all the passengers in the D to B sector, at no charge to passengers. Each snack will cost Flyway ` 200. This will be in addition to the original food at ` 300 served in the A to D sector.

You may assume that fuel costs are not affected by the actual number of passengers in the flight, ignore non-financial considerations, additional wear and tear to aircraft due to extra landing/take-off.

Required

Without considering Haltgo's offer,

1. What is the profit earned by Flyway Ltd. per flight from A to B?
2. What is the Break-even number of passengers for each flight from A to B? Considering the effects of Haltgo's offer,
3. Evaluate whether Flyway should accept the offer.

(A detailed profitability statement is not essential. Only figures relevant for the cost-revenue analysis are required.)