Professional Documents
Culture Documents
APM Case Study (RegionFly
APM Case Study (RegionFly
5
Classification of Costs and Route
Allocations
In terms of the current
Classification of Cost Route Type
strategy, the route costs
reported by the cost Flight Support Expenses 1000 Variable Cost
system, appears to be in- Sales Expenses 2000 Variable Cost
line and are appropriate
Maintenance Expenses 3000 Variable Cost
because they are spread
across based on the Fees and tax 4000 Fixed Cost
variable direct cost Depreciation 5000 Fixed Cost
among the routes and
has a direct relationship Other Expenses 6000 Fixed Cost
with each other. Airport Expenses 7000 Variable Cost
6
Variable Cost Analysis –Glossary of VC Accounts
Wages and Fringe Benefits of repair and Wages and Fringe Benefits of Air Traffic and
maintenance workers, related equipment, ground service personnel, baggage handles,
repair, oil and repair expenses gate and cargo agents
7
Route Specific Operating Profit Margin - 2012
45.00%
40.57%
41.41%
40.00%
35.00%
32.48%
30.00% 32.96%
25.00%
20.00% 24%
15.00%
10.00% 14%
5.00%
0.00%
Route #1 Route #2 Route #3 Route #4 Route #5 Route #6 Route #7
At the Beginning of 2013, route 2 & route 4 are dropped, as they did not meet the profit threshold of 25%
8
Variable Cost Analysis - Dropping Route 2 & 4
Variable Costs over the years Share of Variable cost across four accounts
2,000,000
1,688,251
1,618,375 2011
1,500,000
1,171,764
2012
1,253,190
1,000,000
2013
500,000
Decrease in
2014
Variable Cost
-
2011 2012 2013 2014
- 250,000 500,000 750,000 1,000,000
9
Proforma (2015) - Budget Analysis – No additional routes
are dropped
Allocated
Route Revenue VDC Revenue 4,164,340
OH
Route# 1 1,273,941 205,474 584,003
Variable DC 722,205
Route# 3 901,845 154,203 438,279
Allocated
Route Revenue VDC Revenue
OH
Route# 1
Variable DC
Route# 3
Route# 5 Allocated OH
Route# 6
Operating profit
Route# 7
33% 26%
20.00%
15.00%
10.00%
We assumed the average of two years for the
5.00%
variable cost and the same % as prior year for
fixed cost to calculate the 2015 OH cost. 0.00%
1 3 5 6 7
12
Takeaway Recommendation
RegionFly has been constantly losing its profitability in From the cost and profitability perspective we
the market. recommend not to drop Route 7.
Although cutting costs has been helping the company If the situation continues for the next year, we can
to bridge few of its issues, these measures are not revisit the strategy on dropping Route 7 next year
helping them to a greater extent. It would be beneficial to know if any of the fixed
After looking at their 2014 results, it was quite costs such as operating lease payments, rental
evident that, the strategic initiatives on dropping spaces, depreciation cost of the aircrafts involved in
routes has not helped the struggling airlines. route 7 can be reclassified as variable cost, in order
to give a better analysis.