One of delta's most profitable routes is their daily overnight flight from Seatlle to Shanghai.

Delta currently offers 3 classes of service on this route; First Class, Premium Select and Economy. Their 2020 Financial results are below, in Exhibit 1. Delta anticipates air travel reduced in 2020 and will return to the 2019 level of performance in 2021. Nevertheless, they want to determine the financial impact of dropping the premium service in 2021. This service was introduced in 2019 and Delta management believes it is not profitable.

Conduct a Relevant Costing analysis. See exhibit 2 below. You determine the probable impact to many in-flight and support cost categories if the premium select service class is dropped. during your evaluation, you will also determine the following will be incurred in 2021:

A. The annual lease payment on the airbus 350xwb, the plane used on this route, will increase per delta's 2018 lease agreement with airbus corporation and

B. Per the flight crew union agreement, the 6% annual increase in flight crew compensation will take effect.

Exhibit 1-

Exhibit : fall $ in SOOOs) FY2020 Total $ Ticket Revenue fall three classes) $192,000 Food & Other Variable In-Flight Costs 49.000 Variable Fuel Costs 52 500 Route Contribution Margin $90,500 Fixed Route Expenses Aircraft tease Costs 10.000 Flight Equipment Depreciation 12.000 Food Preparation Personnel Costs 10.000 Pre flight Services 8.000 Flight Crew Compensation 6.000 Cleaning & Maintenance 6.000 Delta Sky Club Costs for Premium Select 1.000 Total Route Fixed Costs $53.000 Operating Profit - Seattle/Shanghai $37.500 Changes to costs and passenger benefits if the Premium Select Service is eliminated:Exhibit 2 % change Cost item Reduction in Food & other Variable In-flight costs. These variable food costs -76% represent 80% of the Premium Select ticket price. 20% Reduction in total Flight Equipment Depreciation -30% Reduction in Food Preparation Personnel Costs -25% Reduction in total Pre-Flight Service Costs -20% Reduction in Flight Crew Compensation -20% Reduction in Cleaning & Maintenance Elimination of Delta Sky Club costs for Premium Select as PS service will be -100% dropped Increase in annual lease payments for the Airbus 350XWB per 2018 lease 8% agreement