Brief Johnson Air plc is one of the UK’s most established and respected airlines. The company...

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Brief Johnson Air plc is one of the UK&rsquo;s most established and respected airlines. The company prides itself on its exceptional standard of service and has won awards for comfort and style. The company provides long-haul flights to destinations all over the world and in 2019 the company had a 17% share of an increasingly saturated long-haul market. The company has ambitious growth plans and a recent strategic review has concluded that a new subsidiary, Flynow plc, should be established on July 1st 2020 to compete in the rapidly growing but highly competitive low-cost European short-haul market. The company believes it has the knowledge, expertise, capabilities and experience needed to develop a viable alternative offering in the &ldquo;no-frills&rdquo; market. An order has been placed for three ER320 aircraft. Each plane has a capacity of 250 passengers in a single aisle format. Whilst buying new aircraft is expensive, in the long-run costs are lower after recent advances in fuel efficiency and reliability. A discount of twelve per cent on the list price of &pound;70 million per aircraft was negotiated by Andrew Smith Johnson&rsquo;s experienced Commercial Director. Past experience suggests the planes will recover ten per cent of their discounted cost when they are sold at the end of ten years. Johnson depreciate its aircraft on a straight-line basis over expected useful life. The company has also signed a maintenance service agreement with the manufacturer for &pound;9.5 million per annum for all three aircraft. Flynow will fly to smaller, secondary airports which have lower landing charges. A limited number of flights will be available to the most popular airports but these will take place during off-peak hours. Landing fees are expected to average &pound;3 per passenger. After placing hedging contracts for the anticipated annual fuel requirements, fuel will cost &pound;1,700 per hour. A simple fare scheme will charge one-way tickets at half the amount of return trips. However, pricing is dynamic and based on demand. Discounts levels continually decrease as occupancy increases, rewarding early reservations. Thirty percent of seats are offered at the lowest price of &pound;30 and are the first to sell. The prices steadily rise by 10% increments i.e. the next 10 seats are sold for &pound;33 per head. This pattern will increase until the plane reaches the average occupancy level, which is expected to be 80%. The low-cost European short-haul market is a highly competitive market and it is expected that prices will remain at the same level for the first 5 years. At the beginning of year 6, it isforecast that prices will increase by 10% and remain static for the remainder of the life of the aircraft. Discount levels will remain the same throughout the entire life of the aircraft. The company will operate each aircraft for an average of 18 hours per day, 365 days per year. The remaining average 6 hours per day will be used for maintenance and ground crew activities. The flight time to all five of the initial destinations is very similar, at 1.4 hours. To make up for revenue lost in decreased ticket prices, the airline intends to charge for extras, such as priority boarding, allocated seating and additional baggage, which are expected to add a further 20% to each ticket price, both before and after the price rise in year 6. Flynow will &ldquo;hire&rdquo; flight attendants and pilots from Johnson rather than recruit new staff who would need training. Pilots will be charged out at &pound;250 each per flight and two are needed for each flight. Flight attendants are charged at &pound;50 each per flight and regulations require one flight attendant per 50 passengers. These charge out rates will last for 5 years. Thereafter, flight attendant and pilot costs will increase by 5% for the remaining life of the aircraft. Seventy ground crew, have been permanently recruited by Flynow, on average basic salaries of &pound;30,000 with performance related pay expected to be a further 10% on basic salary. The company hopes to disembark passengers, service the aircraft and board passengers efficiently as quick turnaround allows maximum utilization of the aircraft and more flights per day. Ground crew average basic salaries are expected to rise at an annual rate of 1.5% for the next ten years. A website has been launched advertising the company&rsquo;s routes and fares. It is anticipated that 90% of the company&rsquo;s business will be online. Online check-in is encouraged and automated check in machines are available at the airport. Sales, distribution and administrative costs are fixed at &pound;4.6 million per year. To fund the new venture, Johnson Air plc will issue 100m &pound;1 shares in the new company and also take out a loan for the remaining funds needed to purchase the three new aircraft. The loan will have an annual fixed interest rate of 8%. Interest will be paid quarterly with the first payment starting on 31st September 2020. It is expected that, as a new venture, Flynow will be able to take advantage of a government scheme whereby no tax needs to be paid for the first 3 years. The senior management team of Johnson Air plc recognise that their investment in Flynow is high risk, especially in such a competitive market, and have calculated the overall cost of capital for the investment to be 12%. Question: Prepare a schedule of financial figures to used in the investment appraisal. This will be marked using correct figures only for each item.

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Year  1  2  3  4  5  6  7  8  9  10    Revenue from ticket sales          138,321,308          138,321,308          138,321,308          138,321,308          138,321,308          152,153,439          152,153,439          152,153,439          152,153,439          152,153,439    Revenue from add on services             27,664,262             27,664,262            27,664,262            27,664,262            27,664,262             30,430,688             30,430,688            30,430,688            30,430,688            30,430,688                            Total Revenue          165,985,570          165,985,570          165,985,570          165,985,570          165,985,570          182,584,127          182,584,127          182,584,127          182,584,127          182,584,127                            Landing Fee               8,447,400               8,447,400               8,447,400               8,447,400               8,447,400               8,447,400               8,447,400               8,447,400               8,447,400               8,447,400    Depreciation             16,632,000             16,632,000            16,632,000            16,632,000            16,632,000             16,632,000             16,632,000            16,632,000            16,632,000            16,632,000    Fuel Cost             33,507,000             33,507,000            33,507,000            33,507,000            33,507,000             33,507,000             33,507,000            33,507,000            33,507,000            33,507,000    Annual Maintenance Charge               9,500,000               9,500,000               9,500,000               9,500,000               9,500,000               9,500,000               9,500,000               9,500,000               9,500,000               9,500,000    Salaries to Pilots               7,039,500               7,039,500               7,039,500               7,039,500               7,039,500               7,391,475               7,391,475               7,391,475               7,391,475               7,391,475    Salaries to Flight Attendants               2,815,800               2,815,800               2,815,800               2,815,800               2,815,800               2,956,590               2,956,590               2,956,590               2,956,590               2,956,590    Salaries to Ground Crew               2,310,000               2,344,650               2,379,820               2,415,517               2,451,750               2,488,526               2,525,854               2,563,742               2,602,198               2,641,231    Selling & Admin Expenses               4,600,000               4,600,000               4,600,000               4,600,000               4,600,000               4,600,000               4,600,000               4,600,000               4,600,000               4,600,000                            Total Operating Expenses            84,851,700            84,886,350            84,921,520            84,957,217            84,993,450            85,522,991            85,560,319            85,598,207            85,636,663            85,675,696                            EBIT            81,133,870            81,099,220            81,064,050            81,028,353            80,992,120            97,061,136            97,023,808            96,985,920            96,947,464            96,908,431                            Interest on loan               6,784,000               6,784,000               6,784,000               6,784,000               6,784,000               6,784,000               6,784,000               6,784,000               6,784,000               6,784,000                            PBT            74,349,870            74,315,220            74,280,050            74,244,353            74,208,120            90,277,136            90,239,808            90,201,920            90,163,464            90,124,431

Brief Johnson Air plc is one of the UK’s most established and respected airlines. The company...

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Year	1	2	3	4	5	6	7	8	9	10
Revenue from ticket sales	138,321,308	138,321,308	138,321,308	138,321,308	138,321,308	152,153,439	152,153,439	152,153,439	152,153,439	152,153,439
Revenue from add on services	27,664,262	27,664,262	27,664,262	27,664,262	27,664,262	30,430,688	30,430,688	30,430,688	30,430,688	30,430,688

Total Revenue	165,985,570	165,985,570	165,985,570	165,985,570	165,985,570	182,584,127	182,584,127	182,584,127	182,584,127	182,584,127

Landing Fee	8,447,400	8,447,400	8,447,400	8,447,400	8,447,400	8,447,400	8,447,400	8,447,400	8,447,400	8,447,400
Depreciation	16,632,000	16,632,000	16,632,000	16,632,000	16,632,000	16,632,000	16,632,000	16,632,000	16,632,000	16,632,000
Fuel Cost	33,507,000	33,507,000	33,507,000	33,507,000	33,507,000	33,507,000	33,507,000	33,507,000	33,507,000	33,507,000
Annual Maintenance Charge	9,500,000	9,500,000	9,500,000	9,500,000	9,500,000	9,500,000	9,500,000	9,500,000	9,500,000	9,500,000
Salaries to Pilots	7,039,500	7,039,500	7,039,500	7,039,500	7,039,500	7,391,475	7,391,475	7,391,475	7,391,475	7,391,475
Salaries to Flight Attendants	2,815,800	2,815,800	2,815,800	2,815,800	2,815,800	2,956,590	2,956,590	2,956,590	2,956,590	2,956,590
Salaries to Ground Crew	2,310,000	2,344,650	2,379,820	2,415,517	2,451,750	2,488,526	2,525,854	2,563,742	2,602,198	2,641,231
Selling & Admin Expenses	4,600,000	4,600,000	4,600,000	4,600,000	4,600,000	4,600,000	4,600,000	4,600,000	4,600,000	4,600,000

Total Operating Expenses	84,851,700	84,886,350	84,921,520	84,957,217	84,993,450	85,522,991	85,560,319	85,598,207	85,636,663	85,675,696

EBIT	81,133,870	81,099,220	81,064,050	81,028,353	80,992,120	97,061,136	97,023,808	96,985,920	96,947,464	96,908,431

Interest on loan	6,784,000	6,784,000	6,784,000	6,784,000	6,784,000	6,784,000	6,784,000	6,784,000	6,784,000	6,784,000

PBT	74,349,870	74,315,220	74,280,050	74,244,353	74,208,120	90,277,136	90,239,808	90,201,920	90,163,464	90,124,431
										0 0 Add a comment Know the answer? Add Answer to: Brief Johnson Air plc is one of the UK’s most established and respected airlines. The company... Your Answer: Post as a guest Your Name: What's your source? Earn Coin Coins can be redeemed for fabulous gifts. Log In Sign Up Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free. Similar Homework Help Questions A regional airline sells 200 tickets to New York City for an average price of $ 175 one way. Half of the people on the f... A regional airline sells 200 tickets to New York City for an average price of $ 175 one way. Half of the people on the flight will purchase a meal for $7. The airline’s employee costs per flight include $500 each for the pilot and copilot, and $200 for each flight attendant. The law requires airlines to have at least one pilot, copilot, and flight attendant for each flight. Fuel for the flight is expected to cost $10,000, and the... 06 Question (8 points) See page 246 A regional airline sells 200 tickets to New York... 06 Question (8 points) See page 246 A regional airline sells 200 tickets to New York City for an average price of $ 175 one way. Half of the people on the flight will purchase a meal for $5. The airline's employee costs per flight include $500 each for the pilot and copilot, and $200 for each flight attendant. The law requires airlines to have at least one pilot, copilot, and flight attendant for each flight. Fuel for the flight... Air Frisco owns a single jet aircraft and operates between San Francisco and the Fiji Islands Air Frisco owns a single jet aircraft and operates between San Francisco and the Fiji Islands. Flights leave San Francisco on Mondays and Thursdays and depart from Fiji on Wednesdays and Saturdays. Air Frisco cannot offer any more flights between San Francisco and Fiji. Only tourist-class seats are available on its planes. An analyst has collected the following information: Seating capacity per plane 360 passengers Average number of passengers per flight 200 passengers Flights per week 4 flights Flights per... Profits have been decreasing for several years at Pegasus Airlines. In an effort to improve the... Profits have been decreasing for several years at Pegasus Airlines. In an effort to improve the company's performance, consideration is being given to dropping several flights that appear to be unprofitable. A typical income statement for one such flight (Flight 482) follows: Ticket revenue (100 seats 80% occupancy * $325 ticket price) Less: Variable expenses ($26 per person) $26,000 2,080 100.0% 8.0 Contribution margin 23,920 92.0% Less: Flight expenses: Salaries, flight crew Flight promotion Depreciation of aircraft Fuel for aircraft... Profits have been decreasing for several years at Pegasus Airlines. In an effort to improve the... Profits have been decreasing for several years at Pegasus Airlines. In an effort to improve the company’s performance, consideration is being given to dropping several flights that appear to be unprofitable. A typical income statement for one such flight (Flight 482) follows: Ticket revenue (150 seats × 80% occupancy × $675 ticket price) $ 81,000 100.0 % Less: Variable expenses ($54 per person) 6,480 8.0 Contribution margin 74,520 92.0 % Less: Flight expenses: Salaries, flight crew 10,100... Profits have been decreasing for several years at Pegasus Airlines. In an effort to improve the... Profits have been decreasing for several years at Pegasus Airlines. In an effort to improve the company’s performance, consideration is being given to dropping several flights that appear to be unprofitable. A typical income statement for one such flight (Flight 482) follows: Ticket revenue (150 seats × 80% occupancy × $575 ticket price) $ 69,000 100.0 % Less: Variable expenses ($46 per person) 5,520 8.0 Contribution margin 63,480 92.0 % Less: Flight expenses: Salaries, flight crew 8,600 Flight promotion 3,450... Relevant Costing Problems Air Frisco owns a single jet aircraft and operates between San Francisco and the Fiji Islands Relevant Costing Problems Air Frisco owns a single jet aircraft and operates between San Francisco and the Fiji Islands. Flights leave San Francisco on Mondays and Thursdays and depart from Fiji on Wednesdays and Saturdays. Air Frisco cannot offer any more flights between San Francisco and Fiji. Only tourist-class seats are available on its planes. An analyst has collected the following information: Seating capacity per plane 360 passengersAverage number of passengers per flight 200 passengersFlights per week 4 flightsFlights per... Profits have been decreasing for several years at Pegasus Airlines. In an effort to improve the company's performance, the company is thinking about dropping several flights that appear to be unp... Profits have been decreasing for several years at Pegasus Airlines. In an effort to improve the company's performance, the company is thinking about dropping several flights that appear to be unprofitable A typical income statement for one round-trip of one such flight (flight 482) is as follows Ticket revenue (170 seats x 408 occupancy x $220 ticket price) Variable expenses ($19.00 per person) Contribution margin Flight expenses: $14,960 100.0 1, 292 13, 668 8.6 91.48 Salaries, flight crew Flight promotion... Alb-Air is a low-cost airline that employs an average of 1,000 flight attendants on its aircraft.... Alb-Air is a low-cost airline that employs an average of 1,000 flight attendants on its aircraft. 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Brief Johnson Air plc is one of the UK’s most established and respected airlines. The company...

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