Cost Analysis Essay Example | Topics and Well Written Essays - 750 words

Cost Analysis - Essay Example 6 Works cited 8 1. How much do US Airways profits fluctuate due to fuel volatility? The quarterly report of 2013 of US Airways shows that, as compared to 2012, the net income earned by the company in the second quarter of 2013 has decreased, which has further lowered the Earnings per Share (EPS) available to the shareholders. The reason for this decrease in profits can be apportioned to the volatility in prices of fuel. As mentioned in the quarterly report of 2013, on a daily basis the prices of Brent crude oil had fluctuated between $110 per barrel to $97 per barrel in the month of April, and in the quarter end the price was found to be $102 per barrel. Although the U.S. airline Industry is facing moderate fuel prices in the second quarter of 2013, but in the 1st quarter of 2012, the industry faced higher volatility and uncertainty which have affected the business. The uncertainty in the prices of fuel has caused disruptions in the supply of aircraft fuel and has adversely affected the operating results and liquidity of the company. 2. Â  Why is fuel volatility bad for profits? Do a cost analysis alone, and then do a full profit maximizing analysis. Volatility in the prices of fuel has serious affects on profits of the company. The volatility results in ups and downs in dividends and share prices which adverse affects global growth. Volatility in the prices of fuel also affects output, operations and cash flow, which in turn affects profitability. The cost of express and mainline fuel was $1.13billion in the second quarter of 2013, which was 4.6% or $55million lower as compared to the second quarter of 2012. The company is trying to maintain a low cost structure, but it is dependent on two factors, the health of the economy and the price of fuel. The mainline costs per available seat mile excluding special items, fuel and profits have decreased by 0.4%, i.e. 0.04cents, from 8.25cents in the second quarter of 2012, to 8.21cents in the second quarter of 2013. I n such a situation, the company can attempt to maximize its profits by an attempt to minimize its risks by adopting risk control measures. Systematic risk is not under the control of the company, but the company may try to overcome unsystematic risks with the help of strategic decisions. 3. What is Express Operation’s operating cost per ASM? What is its operating cost per RPM? What is the difference between these two numbers? Cost per Available Seat Miles (CASM) is a measure of unit cost used commonly in the airline industry. It is expressed in cents to manage each seat mile offered. It is computed by dividing various measures of operating revenue by ASM (Available Seat Miles). Cost per ASM is used to compare costs of different airlines or of the same airline across different time periods. A lower CASM makes it easier for an airline to make profit, but does not guarantee profitability. Revenue Passenger Mile (RPM) is created when a passenger pays to fly one mile and is consid ered to be the basic measure of airline passenger traffic. RPM can be considered to be the basic amount of production created by an airline. RPM can be calculated by multiplying the number of filled seats by the number of miles flown. Over an airline’s system ASM can be compared to RPM to determine the total passenger load factor. RPM is frequently compared to ASM, as ASM determines the total number of passenger miles that could be produced to verify the amount of revenue