Measuring the Break-Even Point for Airlines During the month of September 2001,

United Airlines was losing $15 million per day. With $2.7 billion in cash,

United had six months to return to profitability before facing a significant cash shortage. Many analysts believed

United's troubles resulted in part from a relatively high break-even point.

Airlines measure break-even points, also called load factors, in terms of the percentage of seats filled. At the end of 2001, one firm estimated that

United had to fill 96 percent of its seats just to break even. This is well above the figure for other major airlines, as you

can see in the list that follows:

American Airlines:

85 percent

Delta Airlines:

85 percent

Southwest Airlines:

65 percent

Alaska Airlines:

75 percent

United Airlines filed for bankruptcy at the end of 2002 and emerged from bankruptcy in

2006 after reducing costs by $7 billion a year. Other airlines continue to work on reducing

their break-even points and maximizing the percentage of seats filled.

Additional CVP Problem

Calculating a Load Factor for Airlines

"A_State" Airline needs to calculate a load factor (i.e., a break-even capacity) on their

Boston-San Francisco destination. "A_State" operates 4 daily flights (2 flights in each

direction) on this destination. Each aircraft's maximum capacity is 160 passengers. Each

one-way ticket is sold (on average) for $105.

"A_State" experiences the following costs:

Airport and navigation charges like security fees, airport landing fees

and terminal-use fees - $192,000 per month (or $ 48,000 per week).

2. Maintenance and Crew salaries - $117,120 per month (or $29,280 per

week).

3. Fuel (per flight) $3,000

4. Additional Fuel (per passenger) - $10 per passenger

Coffee, water and snacks (per passenger) - $5 per passenger

Question

: calculate a load factor (i.e., a break-even capacity) on their Boston-San

Francisco destination.