Sales Expenses Salaries and benefits Aircraft fuel Fleet operations cost Total operating costs Operating income

Interest expense Tax Net income

Ajax Airlines Financial data Year 1 7200 2400 1000 3200 6600 600 200 200 200

Year 2 8800 2900 1100 3900 7900 900 230 335 335

Balancesheet Year 1 Current assets 2100 Property and equipment 6300 Total assets 8400 Current liabilities 2000 Long term debt 3000 Equity 3400 Total liabilities 8400 ROE Asset/Equity - Leverage revenue/asset - ATO NI/Revenue - NI Margin
5.88%

Year 2 2600 7000 9600 2700 3000 3900 9600

8.59%

2.470588 2.461538462 0.857143 0.916666667 2.78% 3.81%

ATO increased, NI Margin increased and Leverage is stable.. So performance is reasonably gud.

Seat miles flown Available seat miles Capacity Utilisation

Cost data 1987 57000 89000 64.045%

1988 65000 102000 63.725%

Seat miles flown is the output of the airline

In the previous sheet, ATO increased but h

Revenue per seat mile Expense per seat mile Salaries and benefits aircraft fuel Fleet operations cost Operating profit per seat mile Contribution per seat mile BREAK-EVEN Break even capacity

0.126

0.135

7.18% Price per seat increase is seen,.. Inspite o

0.042 0.018 0.056 0.0105 0.11 53322.58 59.91%

0.045 0.017 0.060 0.0138 0.12 59344.16 58.18%

5.96% -3.54% Fuel cost has come down. 6.87%

Aircraft fuel is assumed to be variable cos

Reveneue - Variable Cost.. Note: here onl BEP = FIXED COST / CONTRIBUTION P Contribution is the surplus which would he S.P - V.C = Contribution

s flown is the output of the airlines

vious sheet, ATO increased but here capacity utilisation is bad.

seat increase is seen,.. Inspite of this volume increase has happened.. So it means, people have agreed to price rise

has come down.

el is assumed to be variable cost and other 2 are fixed cost

e - Variable Cost.. Note: here only aircraft fuel is variable cost. XED COST / CONTRIBUTION PER UNIT on is the surplus which would help the company to cover is fixed cost.. IF contribution is equal to Fixed cost, its BREAKEVEN = Contribution

d to price rise

cost, its BREAKEVEN

Sales Expenses Tickets and reservations Aircraft operations Customer service Total expenses Assets (Value chain) Tickets and reservations Aircraft operations Customer service Total
Costs: Tickets and reservations Aircraft operations Customer service Total expenses Assets Tickets and reservations Aircraft operations Customer service

Year 1 Year 2 7200 8000 300 3900 2400 6600 1000 5300 6300
Per seat mile 1987 0.005 0.068 0.042 0.116 0.018 0.093

320 4980 2600 7900 2000 5000 7000

1988 0.005 0.077 0.040 0.122 0.031 0.077 An increase of 100%

A fall may be due to depreciation, yet

l may be due to depreciation, yet there is some investment here.

Analysis of this case: Because ticketing and reservations has increased, i.e. investment in automation, this has led to increased profit Thus the strategy has paid off and value addition has happened, which may be duplicated by competitors

s increased, i.e. investment in automation, this has led to increased profit e addition has happened, which may be duplicated by competitors