Group-8 Due Date- 21st October2013 Group Members: Sakshi Gupta, Sathi Paul, Shitiz Gupta, Nikhil Rawat,

Barkha Vig, Bhumika Kathuria

TRANS-WEST AIRLINES

PROBLEM
1. There is no flight between Phoenix and Las Vegas in midnight 2. Tourist passengers losing their interest due to increasing cost of fares.

OBJECTIVE
1. To attract tourist passengers by offering low cost fares and increasing number of flights during midnight. 2. To attract business travelers by providing them more services. 3. To increase the sales in keeping the balance between business and tourist passengers.

ALTERNATIVES
1. Increase the number of flights for business travelers during weekdays. 2. Increase the number of flights for tourist passengers during weekends and midnight with low cost fares. 3. Provide tourist passengers with some tour packages for places like, Las Vegas, Phoenix, Arizona, Nevada,

Group-8 Due Date- 21st October2013 Group Members: Sakshi Gupta, Sathi Paul, Shitiz Gupta, Nikhil Rawat, Barkha Vig, Bhumika Kathuria during weekends so as to attract more tourist passengers. 4. Airlines should start advertising commercials on their aircrafts and websites, so as to increase their earning. 5. During midnight, airlines should start flights for tourist passengers with minimum fare and minimum time taken in the journey with no service provided to them (like food and alcoholic and non-alcoholic beverages). This will reduce the cost of servicing and flight crew and will increase the number of passengers by 50% because of the fare cost and time taken during the journey.

CONSEQUENCES
1. Increasing number of flights during weekdays for business passengers will attract and facilitate them more to reach the destination early and it will be beneficial to the airlines. 2. Starting flights during midnight will not only increase the number of passengers, but also will reduce the cost of food & beverages. Also, it will reduce the number of flight crew, thus saving the cost there also. 3. Starting tour packages will be beneficial for both airlines as well as the tourist company and will end

Group-8 Due Date- 21st October2013 Group Members: Sakshi Gupta, Sathi Paul, Shitiz Gupta, Nikhil Rawat, Barkha Vig, Bhumika Kathuria up in the increased sales and number of passengers to the airlines. 4. Advertisement will help in airlines in increasing their income. Also, it will help them in getting popular among advertisers, which in turn will also provide them with some business travelers.

NEGATIVES
1. Airlines have to invest money for advertisement $1,225 per week, if company decides to start flights during midnight for tourist passengers. 2. Providing more services to the tourist passengers will increase the number of flight crew, which will increase the operating cost of flight. A. FIXED COST-

Leased cost of aircraft annually=$3,800,000 Therefore, Leased cost of an aircraft per day= 3,80,000/365=$10,411

Annual Ground Service Costs=$1,500,000 Therefore, Ground cost per day=1500000/365=$4110 Ground costs per week= 4110*7= $28770

Group-8 Due Date- 21st October2013 Group Members: Sakshi Gupta, Sathi Paul, Shitiz Gupta, Nikhil Rawat, Barkha Vig, Bhumika Kathuria B. VARIABLE COSTS-

Costs of the flight crew= $400/hr Cost of fuel= $500/hr Therefore, Total cost of flight crew and fuel= 400+500=$900/hr

Cost of business flight= 900*11= $9900(flight runs between 7am and 6pm) Cost of tourist flight= 900*13= $11,700

Cost of processing= $3/passenger Cost of processing associated with an aircraft with 120 passengers =3*120=$360

Food & beverages Cost= $7.80/passenger Total food and beverages cost= 7.80*120 = $936

Total cost related to business flight= 10411+9900+360+936= $21607

Group-8 Due Date- 21st October2013 Group Members: Sakshi Gupta, Sathi Paul, Shitiz Gupta, Nikhil Rawat, Barkha Vig, Bhumika Kathuria Cost related to tourist flight= 10411+11700+360=$22471

Now, if 5 business flights and three tourist flights are offered each way every weekday, and 10 tourist flights are offered each way every Saturday and Sunday.

Total cost in operating business flights= (10*21607) + (7*10411) = $288,947

Total cost in operating tourist flights= (26*22471) + (7*10411) = $657123

Total cost in operating total flights= 288947+657123+28770= $974840

Revenue generated from business flights = 75*120*10 =$90,000 Revenue generated from tourist flights = 40*120*26= $ 124800 Therefore, total revenue generated = $214800

Group-8 Due Date- 21st October2013 Group Members: Sakshi Gupta, Sathi Paul, Shitiz Gupta, Nikhil Rawat, Barkha Vig, Bhumika Kathuria

Profit= Total Revenue-Total Cost = 214800-974840 = -760040 Thus, Loss= $760040

Now, if TransWestern Airlines operates the Phoenix- Las Vegas route, its aircraft on that route will be idle between midnight and 6am. The airline is considering offering a Red die special, which would leave Phoenix daily at midnight and return by 6am. The marketing division estimates that if the fare were no more than $20, at least 60 new passengers could be attracted to each Red die flight. Operating costs would be at the same rate for this flight, but advertising costs of $1,225 per week would be required for promotion of the service. No food or beverage costs would be borne by the company.

Costs related with operating a business flight = $21607 Costs related with operating tourist flights = $17071 Costs related with operating a Red Die special= 10411+5400+360+0.175 = $16171.175

Group-8 Due Date- 21st October2013 Group Members: Sakshi Gupta, Sathi Paul, Shitiz Gupta, Nikhil Rawat, Barkha Vig, Bhumika Kathuria

Revenue Generated from Business Flights = 75*120= $9000 Revenue generated from a tourist flight= 40*120= $4800 Revenue generated from a Red Die special= 20*180= $3600

Profit= Total Revenue- Cost= 17400- 54849.175= -37449.175 Thus, Loss=$37449.175

CONCLUSIONThus, the company should consider its second option as the company would generate more revenue and thus, more profit than the first option.