Quango Airlines Ltd. operates an extensive network of flights throughout Europe. Most flights operate to or from the companys hub airport in Strasbourg. The companys top management team receives monthly reports on the profitability of each flight route, and any loss-making routes are considered for closure. The following report shows the average loss on each one-way flight between Dublin and Strasbourg (in either direction): Ticket sales (60% occupancy rate of 150-seater aircraft; ticket price = 100) 9,000 OPERATING COSTS: Airport security charge 450 Advertising costs 600 Aviation fuel 3,600 Depreciation 2,200 Flight crew salaries 1,100 Ground staff costs 800 Insurance 2,400 Overnight expense allowances for flight crew 500 Total operating costs 11,650 Loss 2,650 The following information is also available: (1) Airports impose a security charge in proportion to the number of seats occupied on each departing flight. (2) The figure for advertising costs relates to the cost of an ongoing press advertising campaign to maintain public awareness of Quangos Dublin-Strasbourg route. (3) Aircraft depreciation occurs almost exclusively through obsolescence, not usage. (4) Flight crew are employed on permanent contracts. Quango has invested considerable amounts in training these crews. (5) Quango does not directly employ any ground staff. Instead, ground staff services are obtained through an agency as required. (6) The figure for insurance includes 600 which is the cost of a public liability insurance policy which specifically relates to this flight. The remaining 1,800 is an allocation of the Quangos company-wide insurance costs. REQUIRED: (a) On the basis of the information provided, should Quango discontinue this flight? As well as calculations, your answer should include clear explanations as to why you consider particular operating costs to be relevant or irrelevant to the decision. (10 marks) (b) Explain two other important pieces of information which, if provided, would enable you to provide a more accurate calculation of the financial implications of discontinuing this flight. (5 marks) (c) At present an average of 65% of the seats on Quangos flights across its entire European network are occupied. A firm of consultants has told the Managing Director that this figure could be increased to 70% by cutting out certain flights with lower-than-average seat occupancy rates, but they warn that this would be likely to result in a reduction in the companys total profits. Explain how this could happen.