Clearway Airlines

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Break-Even Analysis

Break-even analysis a�empts to determine the volume of sales necessary for a manufacturer to

cover costs or to make revenue equal costs. It is helpful in se�ng prices, es"ma"ng pro#t or

loss poten"als, and determining the discre"onary costs that should be incurred. The general

formula for calcula"ng break-even units is

Break-Even Units = Total Fixed Costs / ( Unit Selling Price − Unit Variable Cost )

1. Use the formula to calculate how many cups of co�ee an airport café would need to sell to

break even if �xed costs are $6,000, a cup of co�ee costs $0.50 to make, and each cup sells

for $3.00.

For airlines, costs are mainly #xed, variable cost is negligible, and break-even is calculated for

load factor instead of units. The formula for calcula"ng break-even load factor is:

Break-Even Load Factor = Cost per Available Seat Mile / Yield per Passenger Mile

2. Given total opera&ng cost of $1.6 million and 8.5 million available seat miles, calculate the

cost per available seat mile (CASM).

3. What is the break-even load factor if CASM is $0.21 and the fare is $0.35 per mile? For this

calcula&on, the yield is the same as the fare.

4. In Airline fare sales will reduce the yield. You can expect yield per passenger mile to drop

about 10% for each month of fare sale. Calculate the break-even load factor if CASM is

$0.21, regular fare is $0.35 per mile, and you are o�ering a two-month fare sale.

Con"nued on next page...

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5. What impact might a 4% increase in compensa&on have on the break-even load factor for

an airline?

  • Break-Even Analysis
  1. Student or Team Name: Lauren Moya
  2. Question 1: 2400 cups of coffee = $6,000/ ($3.00- $2.50) 2,400 cups of coffee would need to be sold to break even
  3. Question 2: $0.19 = $0.188 = $1.6 mil / 8.5 mil Break even load factor is 0.19 rounded
  4. Question 3: $0.60 = $0.21 / $0.35 In this case the break even load factor is $0.60
  5. Question 4: $0.60 * 0.20 = $0.12 break even point was calculated in the previous question and 10% sale for two months would be 0.20 which when multiplied equals 0.12
  6. Student or Team Name_2: Lauren Moya
  7. Question 5: If there was an impact that cause a 4% increase then the fixed value had to be adjusted and the break even point needs to be recalculated to show an accurate break even point.