Finance and Business Essay Example | Topics and Well Written Essays - 750 words

Finance and Business - Essay Example Income Statement (per flight) (Fare Lowered) Average number of passengers per flight Average total revenue (212*280) Variable Costs Fuel costs Food and Beverage service costs (4*212) Commission to travel agents (10% of 59,360) Gross Profit Fixed Costs Fixed annual lease costs Fixed ground services costs Fixed flight crew salaries Operating Loss 212 59,360 (14,000) (848) (5936) 38,576 (53,000) (7,500) (7,000) (28,924) 3. Income Statement (per flight for Travel International’s offer) Number of flights by Travel International Revenue from Travel International Fixed Costs Fixed annual lease costs Fixed ground services costs Fixed flight crew salaries Operating Income 24 75,000 (53,000) (7,500) (7,000) 7,500 Report The calculations in the first part illustrate that Westcoast Air co. is currently incurring an operating loss of $31,012.5. This is mainly due to the fact that the costs are exceeding the revenues by a considerable margin. The seating capacity of the aircraft is 380; how ever, the average number of passengers per flight is even less than 50% of the aircraft’s capacity. This should be a symptom of worry for the Westcoast Air co. as it is not being able to efficiently utilize the capacity of its aircraft. The roots of this issue might lie somewhere in the marketing, advertising or service strategies of the company. Consequently, the average total revenue per flight is a modest $56,875.0. Though, it covers the variable costs of fuel, food, services and commission reasonably well, resulting in a Gross profit of $36,487.5; the problem arises largely because of high fixed costs. The annual leasing costs, constituting the bulk of the fixed costs along with fixed ground services costs and fixed flight crew salaries, result in a hefty sum of $67,500.0. An operating loss, which is the surpassing of revenues by operating costs, is considered to be a perilous warning sign for any business as it is an indication of discrepancies in the operating activitie s of the company. Thus, attempts should be made to tackle this problem on an immediate basis if the company wishes to survive in the market (Gibson, 2011). The company should lower the average one-way fare to $280 as it not only utilizes the vacant seating capacity of the aircraft by increasing the average number of passengers per flight up to 212, but it also reduces the operating loss incurred by the company per flight. When this measure is applied, the operating loss is reduced by $2088.5 to $28,924. The reduction takes place in consequence of increased revenues from increased customers. This proposal of cutting down the average one-way fare, by the Market Research Department of Westcoast Air is also significant because it indicates to the company, the path of eliminating the operating loss. Therefore, if the company makes further efforts to reduce its fare and increase its passengers, then a point will come when the company will be able to turn its operating loss into operating income. However, this turnaround depends on the accuracy of the projections made by the company with regard to fares and passengers. The analysis of financial results suggests that Westcoast