The WSJ recently presented data suggesting that United Airlines was not covering its costs onflights...

Question

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 discon- tinue 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 typi- cal
United flight from San Francisco to Washington does not cover these costs. Does this fact imply
that United should discontinue these flights? Explain

Prince · Accepted Answer

It is not advisable for United Airlines to stop operating the San Francisco-Washington routes. One reason is that since 1978, when the airline industry underwent deregulation, "restrictions on the routes that airlines might run and on the fees, they charged have been eliminated." The majority of airlines have adopted a hub-and-spoke route a
angement. Additionally, they had the freedom to set their own prices in order to remain profitable and competitive. One of the most significant innovations was the introduction of a hub, which serves as a transfer or centre airport for passengers to reach their final destination. A hub is utilised by one or more aeroplanes to concentrate passengers’ traffic & flight operations at a particular airport. Planes travel along spokes to reach hubs.” When taking a connecting flight, passengers prefer the amenities offered by the hub operation, such as simpler and more...

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...

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