Airline Route Optimization Analysis

This assignment delves into a financial analysis of The Flying Airline's potential change in route structure. It examines the impact on revenue, expenses (including flight crew, fuel, meals, and services), and overall profitability. The analysis compares the existing operational structure with a new structure that involves flying to Fiji, highlighting the increased costs associated with landing fees and additional meal services. The assignment concludes by advising against the route change due to the adverse effects on returns and profitability.

Management Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
SITUATION 2.................................................................................................................................1
(A) Analysation of changing factors in respect of profitability..................................................1
(B) Should the factors should be considered ?............................................................................3
CONCLUSION................................................................................................................................3
REFERENCES................................................................................................................................4

INTRODUCTION
Management amounting is a system provides a format of storing the financial and
accounting information in legal and systematic manner. Analysation of project plans and find
best options by forecasting of plans are also one of the essential work of management accounting
(Meaning of management accounting, 2017). Basically forecasting is the part of decision making
process and management accounting also plays vital role in forecasting method. As per above
scenario The Flying airline wants to restructure its operations because of some challenging
situations.
SITUATION 2
(A) Analysation of changing factors in respect of profitability
Jenna Elfman who is the manager of The Flying Airline company, wants to adapt new
operation structure with its existing structure. As per current situation company is operating
flights from Sydney to Hawaii. Now the managers want to change the structures of operations
and wants to make a stoppage in Fiji to earn extra profits. As per managers the new route would
be able to attract new passengers and would help to generate extra income.
Variable factors affect the net profitability (Kucukvar and et. al., 2014). There are some
variable cost changes found in adopting new structure which are creating challenging situation
for management. Below are some analysis done to bifurcate the existing structure and new
structure of company.
Evaluation of profit with the existing structure of The flying Airline
Particulars Amount($)
Revenues
Passenger revenue 240000
Cargo revenue 80000
Total Revenue 320000
Less: expenses and cost
Flight crew cost -2000
Fuel -21000
Meals and services -4000
Aircraft maintenance -1000
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Net profit 292000
Evaluation of profit as per changing structure
Particulars Amount($)
Revenues
Passenger revenue 251000
Cargo revenue 80000
Total Revenue 331000
Less: expenses and cost
Flight crew cost -3400
Fuel -26000
Additional landing cost in
Fiji -5000
Meals and services -4900
Aircraft maintenance -1000
Net profit 290700
Variations and changes analysis between existing and new operation structure
Particulars Amount($) Amount($) Variances %change
Revenues
Passenger revenue 240000 251000 11000 4.58%
Cargo revenue 80000 80000 0 0.00%
Total Revenue 320000 331000 11000 3.44%
Less: expenses and cost
Flight crew cost -2000 -3400 -1400 70.00%
Fuel -21000 -26000 -5000 23.81%
Additional landing cost in Fiji -5000 -5000 0.00%
Meals and services -4000 -4900 -900 22.50%
Aircraft maintenance -1000 -1000 0 0.00%
Net profit 292000 290700 -1300 -0.45%
As per above analysis it is seen that the profit from existing structure is $292000 and
after caning the structure of operation the profit will be $290700. there is a decrease in amount of
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profit. After analysing the scenario it is considered that the Passenger revenue will be increased
from $240000 to $251000 from existing to new structure. There is a variation of $11000 shows
positive results whereas the cargo revenues would not be impacted that is the reason no any
change in cargo revenue. Gross revenue shows the increased results as $320000 in respect
existing structure and $331000 from new structure.
Apart from it expenses and cost were also analysed. Flight crew cost of increased from
$2000 to $3400 which shows the variation of $1400. there is 70% increased change from
existing structure. Fuel cost also get increased where the cost of fuel was $21000 in present
structure, increased up to $26000. variation is $5000 and 23.81% consumption of fuel get
increased as per new structure. There was no any additional cost was exist in existing operation
but after changing the route company would have to pay additional cost per flight to land in Fiji.
It will increase the cost up to $5000. Meals and services would also increase from $4000 to
$4900. The variation of $900 increased the ratio of cost from existing structure up to 22.50%.
Aircraft expenses will remain unchanged.
(B) Should the factors should be considered ?
Evaluation of profit between two projects is one of the technique used in management
accounting (Irwin and et. al., 2011). Estimation of manger is right that new operation structure
will increase the amount of passengers but along with it will bring additional variable factors. the
Overall the changing plan of structure shows adverse results in respect of returns and profits.
Criteria of variable expenses will increase by changing the route. Managers have to look after on
the net profit and return rather then gross revenue. In long term as the consumption rate of fuel
and variable cost increase the net profit will be decreases. Overall analyse indicates that the
managers should not change the existing structure cause new structure contains extra variable
cost which will reduce the rate of returns and profitability.
CONCLUSION
Management accounting is considered as managerial accounting. As per above scenario
existing structure of The Flying Airline is evaluated in respect of adapting new structure. Profit
analysation is done as financial grounds.
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REFERENCES
Books and Journals
Irwin, B. J. and et. al., (2011). Applying structured decision making to recreational fisheries
management. Fisheries. 36(3). 113-122.
Kucukvar, M. and et. al., (2014). Stochastic decision modeling for sustainable pavement
designs. The International Journal of Life Cycle Assessment. 19(6). 1185-1199
Online
Meaning of management accounting, 2017. [Online]. Available
Through:<https://www.myaccountingcourse.com/accounting-dictionary/management-
accounting>.
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