Cheap Fly Air Answer Key

Question 1:

E ( Revenue and Cost )

 The case states in its beginning that Cheap Fly Air wants to improve improve its proftability. And through basic proftability inormation, we see that both Revenue Rev enue and Cost have ha ve been uctuating. t is not a problem o !ust revenue or cost. t is both"

Question 2:

C ( 2006 and 2009 )

#roft $argin $argin e%uals &perating ncome ' Rev Revenue. enue. This is a plain calculation %uestion. (owever, you should not hand)calculate those numbers *too much time+. o calculations with your eyes. The calculations in this %uestion are easy enough or your eyes to go to wor-.

Question 3:

C ( Economy downturn )

se the elimination method/ A. Cost has nothing to do with Revenue 0. Fares have decreased . t is true that the number o passengers carried has reduced, but that is only one side o the coin. Revenue made up o # passener carried and ! "are prices. 1. 2e have no clue that passengers don3t li-e our service. n act, in the case introduction, CFA CFA has been said to have an uni%ue culture. C. t is C the answer because/ o

o

 The case states in its beginning that the client client is acing the economy downturn. 4o this downturn happen or real"  The downturn really really a5ect revenue revenue in both # passener carried and ! "are prices. 4o this downturn a5ect revenue or real"

Question :

$(0)

1ven though more passengers were carried, CFA did it by increasing the seat usage, not through ac%uiring new planes. An increase in seat usage rom 67.89 to 6:.;9 will accommodate over ; millions more passengers which is enough to cover the << millions o passengers in =8>8.  This %uestion is a typical ?not hard hard but ast? %uestion where you can well do it i you have time. #ractice #ractice will help you get better with these -ind o %uestions.

Question %: 1 2 3 

& ( 1 and 3 )

- Fuel Cost  - Salaries - Capacity (measured by # of customers carriable x # mile own) - !ircraft Cost (depreciation " rentals)

t is tempting to chose Fuel and 4alaries since they are the two biggest costs. (owever, 4alaries and all other cost are in act driven by Capacity. 4o the best answer would be Fuel Cost and Capacity. @ote/ this case is based on 4outhwest Airlines, and they stated it in their annual reports that Fuel Cost and Capacity are really the two main cost drivers.

Question 6:

C ( 'andin )

 This is a plain calculating %uestion. And again, this %uestion can be done with your eyes.

Question :

$ ( 2 and 6 )

1 - i$erent types of fuels used by t%e client& 2 - 'rices paid by client for fuels 3 - orld oil - asoline mar*et   - 'ro+tability, oin concern of clients fuel supplier  . - Fuel cost per seat per mile of di$erent air-crafts / - Fuel usae 0olume by t%e client  = and 7 directly drive uel cost. All others are sub driver o = and 7.

Question :

* ( !2%0 m )

 This is more li-e a word problem rather than !ust plain calculation. (ere is how  would want to do this %uestion in the astest way to me/ o

A uel cost increase rom =.B> to ;.88 is about =89

o

 That translates to 6;7 millions * ;.7< bil  = '>8+

o

 That decreases #roft to the D =B8 millions level

Question 9:

E ( two types o" air+cra"ts )

 ! Sout%ast !ir %as a 0ery youn but expensi0e eet w%ile C%eap Fly !irs eet %as consistently been criticied to be a little old 4 Sout%ast focuses on ser0in t%e sout% east area, w%ere C%eap Fly !ir doesnt %a0e a lot of connections C Sout%ast !ir operates two ma5or aircrafts6 4737 and 4717 4717 eets of  Sout%ast !ir will %elp C%eap Fly !ir sa0e cost on t%ose small and s%ort routes  C%eap Fly !ir %as a stron on-i%t culture w%ereas Sout%ast does not  8%e all 4737 eet of C%eap Fly !ir sa0es t%em on maintenance cost Sout%ast !ir maintenance cost is %i%er due to its more complex eet All options rom A through  will help both airlines once the $EA happens. 0ut or 1, the $EA does not specifcally solve that ?comple eet? problem. t is not that ater the $EA, 4outh1ast Air 3s eet becomes less comple. A. 2ith the new eet !oined *brought by the $EA+, CFA eet will be newer while 41A eet will be less epensive. 0. 2ith more connections *brought by the $EA+, both airlines get more rom eisting customers base. C. 2ith some smaller planes *brought by the $EA+, CFA can operate better. . 2ith the culture help rom CFA *brought by the $EA+, 41A fes one o its problems.