Second City Airlines owns one aircraft (capacity =120 passengers) and can operate 20 scheduled one-way flights between NewYork City and Pittsburgh each week. It charges a fixed one-way fare of $150 per passenger. Fuel and other flight-related costs are $5,000 per one-way flight. On-flight meal costs are $11 per passenger. Sales commissions averaging 6% of fare are paid to travel agents. Flying crew, ground crew, advertising and other administrative costs amount to $210,000 each week.

Required:

Assuming that Second City has decided to operate 20 one-way flights, how many passengers must each of the one-way flights have on average to make a total after-tax profit of $20,000 per week? Assume that the income tax rate is 35%.

Assuming that Second City has not yet decided on the number of flights and that all the scheduled flights will be 90% full, how many one-way flights must they operate on this route to make the same profit as in A? Are fuel costs fixed or variable?

Comment on your answers to parts A & B. Second-City can lease (cancelable with a month notice) another aircraft (capacity=120 passengers) that can provide an additional 20 one-way flights in a week. Flying crew, ground crew, advertising and other administrative costs (including the lease for the airplane) will increase by $100,000 per week. Would you recommend leasing the second aircraft assuming that this route has enough demand? Explain with supporting numbers and other factors.

Refer to the original data. If all the scheduled 20 flights are 90% full, what is the one-way fare to make a 10% (pre-tax) profit on sales?