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PIA Case Sukkar

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3 views5 pages

PIA Case Sukkar

Uploaded by

afshanamin
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Formulas Used in the Islamabad-Sukkur Route Analysis

Here are all the formulas and calculations used in the profitability analysis of
the Islamabad-Sukkur route:

1. Basic Operational Metrics

Load Factor

Load Factor = Average Passengers ÷ Seating Capacity

Load Factor = 115 ÷ 300 = 38.33%

Available Seat Kilometers (ASK)

ASK = Seating Capacity × Distance

ASK = 300 × 1,000 = 300,000 seat-kilometers

Revenue Passenger Kilometers (RPK)

RPK = Average Passengers × Distance

RPK = 115 × 1,000 = 115,000 passenger-kilometers

2. Revenue Calculation

Total Revenue = RPK × Revenue per PKM

Total Revenue = 115,000 × Rs 6.86 = Rs 788,900

3. Variable Cost Calculations

Fuel Cost

Fuel Consumption = Distance ÷ Fuel Efficiency

Fuel Consumption = 1,000 km ÷ 0.132 km/gallon = 7,575.76 gallons

Fuel Cost = Fuel Consumption × Fuel Price

Fuel Cost = 7,575.76 gallons × Rs 210 = Rs 1,590,909.09

Other Variable Costs

From case Exhibit 5, variable costs per RPK were calculated as:

Aviation Charges per RPK = Total Aviation Charges ÷ Total RPK

Aviation Charges per RPK = 11,921.7M ÷ 15,657M = Rs 0.76 per RPK


Repairs and Maintenance per RPK = Total R&M ÷ Total RPK

Repairs and Maintenance per RPK = 7,630.3M ÷ 15,657M = Rs 0.49 per RPK

Passenger Services per RPK = Total Passenger Services ÷ Total RPK

Passenger Services per RPK = 3,693.9M ÷ 15,657M = Rs 0.24 per RPK

Applied to this route:

Aviation Charges = Rs 0.76 × 115,000 RPK = Rs 87,400

Repairs and Maintenance = Rs 0.49 × 115,000 RPK = Rs 56,350

Passenger Services = Rs 0.24 × 115,000 RPK = Rs 27,600

Total Other Variable Costs = Rs 87,400 + Rs 56,350 + Rs 27,600 = Rs


171,350

Total Variable Costs

Total Variable Costs = Fuel Cost + Other Variable Costs

Total Variable Costs = Rs 1,590,909.09 + Rs 171,350 = Rs 1,762,259.09

4. Contribution Margin Calculation

Contribution Margin = Total Revenue - Total Variable Costs

Contribution Margin = Rs 788,900 - Rs 1,762,259.09 = -Rs 973,359.09

5. Fixed Cost Allocation

Route ASK as Percentage of Total PIA ASK = Route ASK ÷ Total PIA ASK

Route ASK as Percentage of Total PIA ASK = 300,000 ÷ 21,219,000,000 =


0.00141%

Allocated Fixed Costs = Total PIA Fixed Costs × Percentage

Allocated Fixed Costs = Rs 48,159,600,000 × 0.00141% = Rs 679,050.36

6. Route Profitability
Route Profit/(Loss) = Contribution Margin - Allocated Fixed Costs

Route Profit/(Loss) = -Rs 973,359.09 - Rs 679,050.36 = -Rs 1,652,409.45

7. Break-Even Analysis Formulas

Break-Even Load Factor

Variable Cost per ASK = Total Variable Costs ÷ ASK

Variable Cost per ASK = Rs 1,762,259.09 ÷ 300,000 = Rs 5.87

Revenue per ASK = Revenue per PKM (assuming constant pricing)

Revenue per ASK = Rs 6.86

Contribution per ASK = Revenue per ASK - Variable Cost per ASK

Contribution per ASK = Rs 6.86 - Rs 5.87 = Rs 0.99

Break-Even ASK = Allocated Fixed Costs ÷ Contribution per ASK

Break-Even ASK = Rs 679,050.36 ÷ Rs 0.99 = 685,909.45

Break-Even Load Factor = Break-Even ASK ÷ Total ASK

Break-Even Load Factor = 685,909.45 ÷ 300,000 = 228.6%

Break-Even Number of Passengers (For Variable Costs Only)

Break-Even RPK = Total Variable Costs ÷ Revenue per PKM

Break-Even RPK = Rs 1,762,259.09 ÷ Rs 6.86 = 256,889.08

Break-Even Passengers = Break-Even RPK ÷ Distance

Break-Even Passengers = 256,889.08 ÷ 1,000 = 256.89 ≈ 257 passengers

8. Alternative Scenario: Smaller Aircraft

New ASK = Reduced Seating Capacity × Distance

New ASK = 120 × 1,000 = 120,000


New Load Factor = Average Passengers ÷ Reduced Seating Capacity

New Load Factor = 115 ÷ 120 = 95.8%

New RPK remains the same = 115,000

New Revenue remains the same = Rs 788,900

Adjusted Fuel Consumption = (New Capacity ÷ Original Capacity) × Original


Fuel Consumption

Adjusted Fuel Consumption = (120 ÷ 300) × 7,575.76 = 3,030.30 gallons

New Fuel Cost = Adjusted Fuel Consumption × Fuel Price

New Fuel Cost = 3,030.30 × Rs 210 = Rs 636,363.64

New Other Variable Costs remain the same = Rs 171,350

New Total Variable Costs = New Fuel Cost + New Other Variable Costs

New Total Variable Costs = Rs 636,363.64 + Rs 171,350 = Rs 807,713.64

New Contribution Margin = Revenue - New Total Variable Costs

New Contribution Margin = Rs 788,900 - Rs 807,713.64 = -Rs 18,813.64

9. Alternative Scenario: Required Fare Increase

Required Revenue = Total Variable Costs

Rs 1,762,259.09 = 115,000 × Required Price per PKM

Required Price per PKM = Total Variable Costs ÷ RPK

Required Price per PKM = Rs 1,762,259.09 ÷ 115,000 = Rs 15.32


Price Increase Percentage = (Required Price - Current Price) ÷ Current Price
× 100%

Price Increase Percentage = (15.32 - 6.86) ÷ 6.86 × 100% = 123%

These formulas and calculations provide a comprehensive financial analysis


of the route and demonstrate why it's currently unprofitable and what
changes would be necessary to improve its financial performance.

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