Spill and Contribution
Wolverine Airlines has provided the following suggested fleetings for markets A-B, B-C, and A-C in Tables 1-4. Use the information in the tables to calculate the spill costs associated with each fleeting. Calculate the operational cost, spill cost and contribution for each fleeting.
Step 1: Pull the information out of the tables so you can see the whole picture:
We have 2 flights: Flight 1 and Flight 2
Flight 1: 100 pax traveling, fares per are $250.00
Flight 2: 150 pax traveling, fares per are $300.00
Flight 1 & 2 combined: 125 pax traveling, fares per are $450.00
We have 4 Fleets:
Fleet 1: operates A320 on flight 1 and 2
Fleet 2: operates A320 on flight 1, B757 on flight 2
Etc.
First we need to calculate the operating costs:
Fleet 1, which operates on both flights costs: 10,000 for flight 1 and 15,000 for flight 2. Add those to total the operating costs.
Do the same for fleets 2-4.
To calculate the Spill Cost we are looking for the revenue lost when the flight cannot accommodate the passenger demand. As the Spill figures are given, we only need to calculate the loss:
So for Fleet 1, 75 pax traveling A-C are spilled. Take the fare cost of that leg ($450) and multiply it by 75 = then do the same for leg B-C at 50 pax spilled (50 x 300) and add the figures together = $48,750.00
Contribution is the profit, or maximum potential revenue, minus the spill cost and operating costs....
So for Fleet 1 again, to find the max potential revenue we need to multiply the number of passengers booked on all flights by the fares:
A-B leg = 100 pax, no spill x $250 = $25,000
A-C leg = 125 pax booked – 75 pax spill = 50 pax total x $450 fare = $22,500
B-C leg = 150 pax – 50 pax spill = 100 pax total x $300 fare = $30,000
Total max potential revenue is then: $22,500 + $30,000 + $25,000 = $77,550.
Add Spill cost and operating costs for Fleet 1 = $25,000 + $48,750 = $73,750.00
Now subtract Spill and operating costs from the max potential revenue = $3,750.00
…. Okay, now it's your turn. ;)
We have 2 flights: Flight 1 and Flight 2
Flight 1: 100 pax traveling, fares per are $250.00
Flight 2: 150 pax traveling, fares per are $300.00
Flight 1 & 2 combined: 125 pax traveling, fares per are $450.00
We have 4 Fleets:
Fleet 1: operates A320 on flight 1 and 2
Fleet 2: operates A320 on flight 1, B757 on flight 2
Etc.
First we need to calculate the operating costs:
Fleet 1, which operates on both flights costs: 10,000 for flight 1 and 15,000 for flight 2. Add those to total the operating costs.
Do the same for fleets 2-4.
To calculate the Spill Cost we are looking for the revenue lost when the flight cannot accommodate the passenger demand. As the Spill figures are given, we only need to calculate the loss:
So for Fleet 1, 75 pax traveling A-C are spilled. Take the fare cost of that leg ($450) and multiply it by 75 = then do the same for leg B-C at 50 pax spilled (50 x 300) and add the figures together = $48,750.00
Contribution is the profit, or maximum potential revenue, minus the spill cost and operating costs....
So for Fleet 1 again, to find the max potential revenue we need to multiply the number of passengers booked on all flights by the fares:
A-B leg = 100 pax, no spill x $250 = $25,000
A-C leg = 125 pax booked – 75 pax spill = 50 pax total x $450 fare = $22,500
B-C leg = 150 pax – 50 pax spill = 100 pax total x $300 fare = $30,000
Total max potential revenue is then: $22,500 + $30,000 + $25,000 = $77,550.
Add Spill cost and operating costs for Fleet 1 = $25,000 + $48,750 = $73,750.00
Now subtract Spill and operating costs from the max potential revenue = $3,750.00
…. Okay, now it's your turn. ;)
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