Question

In Airline fare sales will reduce the yield. You can expect yield per passenger mile to drop 11% for each month of fare sale. Calculate the break-even load factor if CASM is $0.26, regular fare is $0.48 per mile, and you are offering a two-month fare sale.

Answer 1

To calculate the break-even load factor, subtract the CASM from the regular fare to get the revenue per passenger mile. Calculate the reduction in yield per passenger mile during the fare sale. Divide the CASM by the new yield per passenger mile to find the break-even load factor.

Step-by-step explanation:

To calculate the break-even load factor, we need to determine the revenue per passenger mile and the cost per available seat mile (CASM). Given that the regular fare is $0.48 per mile and the CASM is $0.26, we can calculate the revenue per passenger mile as:

Revenue per Passenger Mile = Regular fare - CASM

Revenue per Passenger Mile = $0.48 - $0.26 = $0.22 per mile

Next, we need to calculate the reduction in yield per passenger mile during the two-month fare sale. We know that the yield per passenger mile drops 11% for each month of fare sale, so for the two-month fare sale, it will drop 11% + 11% = 22%.

The new yield per passenger mile during the fare sale is:

New Yield per Passenger Mile = (1 - 0.22) * $0.22 = $0.1716

To calculate the break-even load factor, we can divide the CASM by the new yield per passenger mile:

Break-even Load Factor = CASM / New Yield per Passenger Mile

Break-even Load Factor = $0.26 / $0.1716 ≈ 1.514

Therefore, the break-even load factor is approximately 1.514.