Airspace Airlines is a regional passenger airline operating in the southeastern United States. It operates as an independent airline between certain origin/destination pairs but also operates as a contract carrier for Delta out of the Atlanta airport. Airspace currently has a fleet of aging turboprop aircraft with an average capacity of 35 passengers. The aver- age trip length for Airspace is 250 miles. Airspace employs only Airline Pilot Association union pilots. Jim Gray is the vice president of operations for Airspace and is faced with the chal- lenge of minimizing the impacts of fuel and labor costs on Airspace operating profits. The operating cost per seat mile for his fleet of aircraft is approximately $0.12. Mainte- nance costs are 15 percent of operating costs and are higher than the industry average. Pilot wages average $45 per hour. Airspace averages 50 departures per day out of the Atlanta airport. Delta has approached Airspace about increasing the number of departures it offers out of Atlanta. Delta is also asking for a lower fare structure to help boost its profits. Jim knows that his current fleet will not be able to meet an increased demand and is pessi- mistic that he can lower operating costs without significantly reducing fuel costs and increasing pilot productivity. However, he is certain that the future financial viability of Airspace relies on a continued relationship with Delta. 1. What suggestions would you give Jim to help Airspace lower its operating costs? 2. How would you suggest Jim respond to Delta's requests for more flights at a lower cost?

Understanding Business

12th Edition

ISBN:9781259929434

Author:William Nickels

Publisher:William Nickels

Chapter1: Taking Risks And Making Profits Within The Dynamic Business Environment

Section: Chapter Questions

Problem 1CE

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Airspace Airlines is a regional passenger airline operating in the southeastern United States. It operates as an independent airline between certain origin/destination pairs but also operates as a contract carrier for Delta out of the Atlanta airport. Airspace currently has a fleet of aging turboprop aircraft with an average capacity of 35 passengers. The aver- age trip length for Airspace is 250 miles. Airspace employs only Airline Pilot Association union pilots. Jim Gray is the vice president of operations for Airspace and is faced with the chal- lenge of minimizing the impacts of fuel and labor costs on Airspace operating profits. The operating cost per seat mile for his fleet of aircraft is approximately $0.12. Mainte- nance costs are 15 percent of operating costs and are higher than the industry average. Pilot wages average $45 per hour. Airspace averages 50 departures per day out of the Atlanta airport. Delta has approached Airspace about increasing the number of departures it offers out of Atlanta. Delta is also asking for a lower fare structure to help boost its profits. Jim knows that his current fleet will not be able to meet an increased demand and is pessi- mistic that he can lower operating costs without significantly reducing fuel costs and increasing pilot productivity. However, he is certain that the future financial viability of Airspace relies on a continued relationship with Delta. 1. What suggestions would you give Jim to help Airspace lower its operating costs? 2. How would you suggest Jim respond to Delta's requests for more flights at a lower cost?

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