ASSIGNMENT ON

STRATEGY OF MODERN AIRLINE

BY
ANURAG TIWARI
AMBREEN HUSAIN
CHANDRIE BISWAS
ESHA KUMAR
KRITIKA SUKLA
Calculate the profits, profitability, revenues and costs incurred in
both strategies and also the break even analysis of each situation?
Given data
Average load factor 80%
Undifferentiated strategy
Highest price $250/passenger
Variable cost $20/passenger
Fixed cost is $50000
STRATEGY -1
Revenue 250 * 240=60000
Variable cost 20*240=4800
Fixed cost =50000
Total cost =54800
Profit = 5200
Profitability =8.7%
Profit per passenger =21.7
Break even capacity = 217
 STRATEGY 2
Given data
Average load factor 80%
Differentiated strategy--economy, business and
first class
Plane economy- $250/passenger
business class-$500/passenger
first class - $1000/passenger
Fixed cost is $55000
TOTAL NO OF SEATS OCCUPIED=240
LET THE NO OF 1st CLASS PASSENGERS=x
SO NO OF BUSINESS CLASS PASSENGERS=3x
NO OF ECONOMY CLASS PASSENGERS=6x
THEREFORE
CLASS NO OF SEATS
ECONOMY 144
BUSINESS 72
1st 24
240
WHOLE PLANE
FIXED COST=$55000
VARIABLE COST =$8160
TOTAL COST=$63160
TOTAL REVENUE=$96000
TOTAL PROFIT=$32840
PROFITABILITY (ON REVENUE)=34.2%
PROFIT PER PASSENGER=$136.83
BBREAK EVEN POINT= 150 PASSENGER/ SEATS
ECONOMY CLASS
FIXED COST =$30000
VARIABLE COST= $2880
TOTAL COST=$32880
TOTAL REVENUE=$36000
TOTAL PROFIT=$3120
PROFITABILITY=8.67%
PROFIT PER PASSENGER=$21.7
BREAK EVEN POINT= 130 PASSENGERS/SEATS
BUSINESS CLASS
FIXED COST=$17500
VARIABLE COST= $2880
TOTAL COST=$20380
TOTAL REVENUE=$36000
TOTAL PROFIT=$15620
PROFITABILITY=43.3%
PROFIT PER PASSENGER=$216.9
BREAK EVEN POINT=38 PASSENGERS
FIRST CLASS
FIXED COST=$7500
VARIABLE COST=$2400
TOTAL COST =$9900
TOTAL REVENUE=$24000
TOTAL PROFIT=$14100
PROFITABILITY=58.75%
PROFIT PER PASSENGER=$587.5
BREAK EVEN POINT=8 PASSENGERS
1) List all benefits of segmentation to all
stakeholders of the airlines?

1.CUSTOMERS

- Wide array of services to customers.

- services and facilities in accordance to price.
- better benefits and services.
- customer satisfaction and comfort.
2. SHAREHOLDERS
- Profit margin increases there by market value of
shares increases.
- Higher dividend to shareholders.
3. GOVERNMENT
Revenue of government increase through taxes
and duties.
4.TRAVEL AGENTS
Increased sales results in an increased
commission of agents and tour operators.
•

2) Who all could be beneficiaries?

Consumer (BETTER SERVICE, SPECIALIZED STAFF, ON TIME PERFORMANCE)

Government (TAXES)
Insurance industry(INCREASE IN PREMIUM)
Plane manufacturing industry &
contractors
Transport industry (BUSES AND TAXIS)
Hospitality industry (HOTELS AND
RESTAURANTS)
Catering industry
Frequent flyer increase.
Plane manufacture’s profit
increases.
3.Do you think any segment is subsidizing
for any other segment ? If so whom to
who ? And if not why? What do you
understand by relative and absolute
satisfaction ? Do you think that there is a
possibility that any class may feel relatively
dissatisfied although absolutely satisfied.
When would that happen? How would
mgmt prevent it?
Absolute satisfaction is individual
satisfaction. It comes from comparing the
price one pays with service one gets.

Relative dissatisfaction comes when

there is no equal distribution of price and
benefits.
YES , THE ECONOMY CLASS MAY FEEEL ABSOLUTELY
SATISFIED AS THEY ARE GETTING THE SERVICES
AND VALUE WORTH THE COST THEY ARE PAYING.
BUT THEY CAN FEEL RELATIVELY DISSATISFIED
BECAUSE this Airlines was having a single price
strategy and now without lowering the price,
services are differentiated.
That will happen when segment variables aren’t
properly defined and customer’s benefits are not
sought before segmentation.
 Management can provide some extra
facilities to the economy class such as free
drinks, better quality food and head phone
for listening music.
Management can also rethink the price
for economy class.
When segmentation can go wrong? how to
avoid segmentation from going wrong? What
precautions to take?