Analyzing Managerial Decisions: United Airlines

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Running head: United Airlines Analyzing Managerial Decisions: United Airlines Brandon McGhee Saint Leo University MBA 540 The WSJ recently presented data suggesting that United Airlines was not covering its costs on flights from San Francisco to Washington D.C. The article quoted analysts saying that United should discontinue this service. The costs per flight (presented in the article) included the costs of fuel, pilots, flight attendants, food, etc. used on the flight. They also included a share of the costs associated with running the hubs at the two airports, such as ticket agents, building charges, baggage handlers, gate charges, etc. Suppose that the revenue collected on the typical United flight from San Francisco to Washington does not cover these costs. Does this fact imply that United should discontinue these flights? Explain. 1. The first step in evaluating admission director, Susan Hansen’s, analysis is her argument that data from competing colleges indicating tuition increase led to increased student enrollment and thus created an upward sloping demand curve. The idea of an upward sloping demand curve appears to be counterintuitive when according to (Brickley, 2009), the demand curve slopes downward because consumers typically buy more if the price is lower. This would mean student enrollment would be expected to increase if tuition was lowered not raised in accordance with Hansen’s proposal. However, the opposite was observed based on data from other colleges, which provided the basis for Hansen’s analysis, that a 60% increase in tuition would lead to a similar increase in enrollment and result in a 40% increase in tuition based revenue. Upon initial assessment, it appears Hansen’s analysis violates the law of demand, yet her evaluation is supportable. By utilizing price elasticity of demand, graphical and mathematical

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