A Chicago-based international air carrier plans to purchase a jumbo-class aircraft (Airbus A-340-600 or B777-200IGW) to serve the Chicago-London city pair. Restrictions in landing slots at Heathrow airport in London allowed the purchase of five landing/takeoff slots, one per weekday (Monday through Friday). The carrier does not intend to offer weekend service. Therefore, the carrier will offer daily round-trip flights Monday through Friday. The following table presents passenger demand estimates and fares charged by competitors:
TRIP weekly demand Fare
Chicago-London-Chicago 840 $920
Chicago-London (one way) 240 710
London-Chicago-London 925 960
London-Chicago (one way) 345 770
The airline company estimates that the average passenger load will be 95 percent, due to fluctuations in the demand for travel. Estimated passenger revenue should be calculated by proportionally assigning passengers from the different fare categories. Calculate the revenue for each direction (it will most likely be different).
The round trip Chicago-London-Chicago is 8100 miles and the aircraft choices and respective costs are as follows:
Aircraft Seating Operating Annual Fixed
Capacity cost per cost
seat-mile
B777-200IGW 310 11.25 cents $17.7 million
A340-600 385 11.55 cents $19.4 million
Can the airline operate at a profit using the B777-200IGW? How much profit or loss (per week) is realized using the B777-200IGW?
Can the airline operate at a profit using the A340-600? How much profit or loss (per week) is realized using the A340-600?
What Load Factor (percent of seats occupied) is required to break even using the B777-200IGW?
What Load Factor (%) is required to break even using the A340-600?