Joe, the vice president of operations for Indiana Airlines, was recently approached by a travel agency to travel his clients from Toronto to Cancun in Mexico. The tourist agency offers Indiana $ 160,000 per flight for a Type 747 aircraft. A normal flight (considering an average occupancy rate and the regular price of a return ticket) normally brings in a gross income of 260,000. $ to the Indiana company.

Joe knows that Indiana currently has 2 type 747 planes that are not in use. The company has just eliminated some unprofitable journeys which has freed these 2 planes for other purposes. The company has no plans at this time to add new destinations.

To help him with his decision, Joe Bleau asks the company's accountant for information on the costs associated with such a trip. This is how the accountant provided him with all of the following information regarding the costs of a Toronto - Cancun trip on a 747 aircraft. This information is based on a scheduled / normal flight. (see table 1).

Table 1

Revenue $ 260,000

Expenses Costs directly linked to theft 95,000 Fixed costs broken down or charged to each flight 105,000 200 000

Profit $ 60,000

The costs directly linked to the flight include, among other things, gasoline, the costs of booking and selling tickets, direct labor (hostesses, pilots), newspapers, meals as well as airport costs for the flight. 'landing. As for the fixed costs broken down on each flight, they cover the following fixed costs: aircraft maintenance, depreciation of aircraft, buildings and equipment as well as administrative and advertising costs.

By considering the costs presented in Table 1, Joe realizes that the costs related to the flight would be even lower since the costs related to the reservation and the sale of tickets would be saved (it is the travel agency that would take care of this. ). These costs amount to $ 5,000 per flight.

As a further background, Indiana Airlines has a turnover of 10 million annually. It currently serves the North and South American market with some flights in Europe. It intends to expand its flights to serve Asia and Australia within a few years. Finally, it currently has more than 300 aircraft to its credit.

1) Should Indiana Company accept or decline the travel agency's offer? (For this question, present the table of relevant data and your quantitative analysis only)

2A) Would your decision change if the following additional information were known to you: the information mentioned in the case is the same except that Indiana is at full capacity (i.e. all of its aircraft are used) and in order to accept the travel agency's special order she must cancel her least profitable flight currently for the company. This flight (Toronto - Vancouver) contributes only $ 80,000 to cover common fixed costs and to the benefit of the company.

2B) How much must the travel agency's offer be for the Indiana airline to be indecisive to accept or reject the offer?

2C) What are the other qualitative factors to consider in this decision?