West Coast Airlines Operating Income and Charter Analysis
This paper analyzes the operating income of West Coast Airlines (Westcoast Air) on its one-way flights to Fiji under multiple pricing and capacity scenarios. Using a cost breakdown that separates variable costs (fuel, food and beverage, commissions) from fixed costs (aircraft lease, ground services, flight crew), the paper demonstrates that the airline is losing money on every flight under both its current pricing structure and a reduced-fare scenario. The analysis then evaluates a charter deal offered by Travel International, showing that the charter arrangement generates a positive operating income per flight. The paper concludes that Westcoast Air should accept the Travel International offer, as it improves overall operating income and may reduce per-flight losses on regular routes by increasing average passenger load.
- Overview of Operating Income Framework: Defines operating income in context of leased aircraft
- Current Flight Losses and Reduced-Fare Scenario: Quantifies per-flight losses under two pricing scenarios
- Fixed Lease Cost as the Core Structural Problem: Identifies lease structure as root cause of losses
- Travel International Charter Deal Analysis: Evaluates charter offer profitability and trade-offs
- Combined Operating Income and Strategic Recommendation: Combines own-flight and charter figures for final recommendation
✍️ How to write this paper — guide, tools & examples ▾
What makes this paper effective
- The paper grounds its analysis in concrete numerical scenarios, comparing current-pricing losses with reduced-fare losses to isolate the root cause of unprofitability.
- It distinguishes clearly between fixed and variable costs, correctly identifying the aircraft lease as a fixed cost being absorbed inefficiently across too few flights.
- The recommendation to accept the Travel International deal is logically supported by both the standalone charter operating income and the secondary benefit of redistributing regular passengers across fewer flights.
Key academic technique demonstrated
This paper demonstrates incremental cost-benefit analysis in a managerial accounting context. By holding some variables constant (total flights, lease costs) and changing others (pricing, passenger volume, cost responsibility), the author isolates the marginal impact of each decision — a foundational technique in financial decision-making and airline revenue management.
Structure breakdown
The paper opens with a definition of operating income and its applicability to a lease-based airline model. It then presents two flight-loss scenarios with supporting figures, diagnoses the fixed lease as the structural driver of losses, and pivots to the charter deal as a partial remedy. The conclusion synthesizes own-flight and charter figures into a combined operating income statement and offers a strategic recommendation, following a logical problem-diagnosis-solution arc.
Overview of Operating Income Framework
Operating income is typically defined to include all operating expenses other than depreciation and taxes (Investopedia, 2011). Because the aircraft are leased rather than owned, there is no depreciation for West Coast Airlines to take into consideration. The operating income calculation therefore focuses on revenue against variable costs — including fuel, food and beverage, and commissions — and fixed costs such as the aircraft lease, ground services, and flight crew.
Current Flight Losses and Reduced-Fare Scenario
Under its current pricing structure, West Coast Airlines is losing $31,012.50 on every one-way flight to Fiji. The cost components include variable fuel, food and beverage per passenger, commissions, the fixed lease, ground services, and flight crew wages.
If the company lowers the ticket price in order to generate an increase in passenger volume, the operating income figures change as follows: variable fuel costs total $14,000, the fixed lease remains at $53,000, and the resulting operating income is –$28,924 per one-way flight. In other words, Westcoast Air loses $28,924 per one-way flight under the lower-price, higher-volume scenario — an improvement over the baseline, but still a substantial loss.
References
Investopedia. (2011). Operating income. Investopedia. Retrieved February 8, 2012, from http://www.investopedia.com/terms/o/operatingincome.asp
No author. (2012). Break-even point. AccountingCoach.com. Retrieved February 8, 2012, from http://www.accountingcoach.com/online-accounting-course/01Xpg01.html
Create your account
Always verify citation format against your institution’s current style guide requirements.