High Point Aviation: Operating Breakevens

4 Pages Posted: 30 May 2017

See all articles by Mark E. Haskins

Mark E. Haskins

University of Virginia - Darden School of Business

Abstract

A couple wants to start a small flight charter company to serve the mining, oil, scientific, and wilderness adventure clients of northern Canada but worry that their thin financial base necessitates a sizable scale of flight operations during their first year. If a substantial revenue stream was slow to develop, or expenses were too high, their first year might be their last year—they had no financial slack. The fundamental question is, given their preliminary budget figures for the coming year, what level of revenue-generating flight miles did they need to just break even?

Excerpt

UVA-C-2329

Rev. Oct. 25, 2011

HIGH POINT AVIATION: OPERATING BREAKEVENS

George and Grace Cox had aviation in their blood. They had both learned to fly in their teens and from that moment on had wanted to do nothing else but be around planes, in the air, and spending their days with others who shared their passion. Even though they were still fairly young (in their midtwenties), they had made three major decisions: to get married, to start a small flight charter company, and to serve the mining, oil, scientific, and wilderness adventure clients of northern Canada. After having wrestled with these decisions for what seemed like years, a sweet feeling of relief and excitement settled in. They had a direction. They were in agreement. They could not wait.

Late one night after George had been asleep for a couple of hours, Grace finally gave up—sleep was not in the cards for her that night. Ever the more practical of the two and the more financially concerned, she had a host of financial data rumbling around in her thoughts. The combination of a visit to their banker that morning and the tacos from Sid's Canadian Grill that evening were working in tandem to keep her awake. She knew her indigestion would pass, but she couldn't shake the feeling that their thin financial base necessitated a sizeable scale of flight operations during their first year. If a substantial revenue stream was slow to develop, or expenses were too high, their first year might be their last year—they had no financial slack. The fundamental question she wanted to get a handle on was, given their preliminary budget figures for the coming year, what level of revenue-generating flight miles did they need to just break even? Anything above that would be icing on the proverbial cake.

The Financial Bet

. . .

Keywords: basic budget, fixed costs, variable costs, revenue rate

Suggested Citation

Haskins, Mark E., High Point Aviation: Operating Breakevens. Darden Case No. UVA-C-2329, Available at SSRN: https://ssrn.com/abstract=2974037

Mark E. Haskins (Contact Author)

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States
434-924 -4826 (Phone)

HOME PAGE: http://www.darden.virginia.edu/faculty/haskins.htm

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