Problem 3 (18 points) Joe Bleau, the vice president of operations for Indiana airline, 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 Bleau knows that the Indiana company currently has 2 type 747 planes which are not in use. The company has just eliminated some unprofitable routes which freed up 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 Type 747 aircraft. This information is based on a scheduled / normal flight. (see table 1). Table 1 Income 260 000 $ Expenses Costs directly linked to the flight 95 000 Fixed costs broken down or charged to 105 000 each flight 200 000 60 000 $ Profit 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 for each flight, they cover the following fixed costs: maintenance of airplanes, depreciation of airplanes, buildings and equipment as well as administrative and advertising costs. By considering the costs presented in Table 1, Joe Bleau 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 to 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. Work to do: 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) (10 pts) 2. What are the other qualitative factors to consider in this decision? What do you suggest to the owner of the Beausoleil business from a qualitative point of view? (5 pts) 3. 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 (that is, all of its planes? are used) and 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. (2 pts) 4. How much must the travel agency's offer have to be for Indiana Airlines to be indecisive in accepting or rejecting the offer? (1 pts)
