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Chicago to Atlanta Flight Analysis

Essay by   •  November 29, 2016  •  Exam  •  917 Words (4 Pages)  •  884 Views

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3 Nov 2016

Memo

To

Name

Student ID

Course

BUSADMIN I603

Comments:

The following memo contains the route profitability analysis for US airlines as well as an assessment of the airlines ROI in delayed and cancelled flights


Chicago to Atlanta flight Analysis

Based on the data provided, it can be seen that in order for the airlines to reach breakeven for the Chicago to Atlanta flight, the flight needs to sell at least 62 tickets at a price of $300.00 each (Worksheet Part A-1).  Additionally, worksheet Part A-2 describes the effects of ticket price on revenue and profit, where the profit and revenue increase with increase in ticket price. If 200 reservations are made, the highest amount of profit is earned at a ticket price of $350 (Figure 1).

[pic 1]

Figure1. Profit gained on the Chicago to Atlanta flight as a function of ticket prices. The highest profit ($ 38 700) is earned when the airline charges $ 350 for the ticket.

Due to the additional costs associated with overbooking, an analysis was also done to see the effect of ticket prices and number of reservations on the profit. Based on the data, this route will gain the highest profit of $ 39 045 when they sell 198 tickets at a price of $ 350 (Worksheet Part A-3)

O’Hare International Airport Facility Improvement

Due to frequent carrier delays in the ORD-MSP route, an analysis about the investment in reducing carrier delay was carried out. In order for the airlines to gain a profit of $ 800 from their investment in this route, they need to invest $ 6063.16. This will reduce the delay in each flight with a carrier delay by 11 minutes. Based on the analysis on the effect of amount of investment and flight capacity utilization on profit, it can be said that the airline should aim to decrease the carrier delay by 10 minutes to get the highest profit of $ 2200 with a 100% capacity utilization rate (Worksheet Part B-2-4). However given that the average capacity utilization is 80%, the airlines should only invest $ 5 000 in their route to reduce the carrier delay by 10 minutes and gain a profit of $ 760 (Table 1). The overall pattern in this analysis indicates that the airlines should invest to reduce a maximum of 30 minutes to gain profit. This is only true however if the airline will be selling tickets at capacity utilization rate of 100%. If they sell anything less than 100%, then the airlines should invest in reducing carrier delay of 20 minutes.

Table 1. Annual Profit by Decrease in Carrier Delay and Capacity Utilization

Decrease in carrier delay

Capacity Utilization Rate

 

50.00%

60.00%

70.00%

80.00%

90.00%

100.00%

10.00 min

 $(1,400.00)

 $(680.00)

 $40.00

 $760.00

 $1,480.00

 $2,200.00

20.00 min

 $(4,240.00)

 $(3,088.00)

 $(1,936.00)

 $(784.00)

 $368.00

 $1,520.00

30.00 min

 $(7,440.00)

 $(5,928.00)

 $(4,416.00)

 $(2,904.00)

 $(1,392.00)

 $120.00

40.00 min

 $(10,640.00)

 $(8,768.00)

 $(6,896.00)

 $(5,024.00)

 $(3,152.00)

 $(1,280.00)

50.00 min

 $(13,840.00)

 $(11,608.00)

 $(9,376.00)

 $(7,144.00)

 $(4,912.00)

 $(2,680.00)

A similar analysis was done for flights on route of ORD-BNA. The effect of investment and capacity utilization rate, it can be seen that the airline will get the most on its return if they invest to reduce the carrier delays by 50 or 60 minutes at a 100% capacity. Given that one flight (number 3619) on this route has a delay of 55 minutes, the airlines should invest to reduce 50 minutes to get a profit of $ 12 500 (Worksheet Part B-2-4).

Four scenarios were analyzed to see which combination of investment in both the ORD-MSP and the ORD-BNA route will yield the greatest ROI (Table 2). On a budget constraint of $ 50 000, the airlines should invest in the both the routes using the combination outlined in Scenario 3 as it yields the highest ROI.

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