Despite the remarks made by analysts in the Wall Street Journal, United Airlines should hold off making any rash decisions about discontinuing their flights from San Francisco to Washington D.C. they should consider some factors including market structure (Holloway, 2017). They can employ the use of marginal analysis to help them analyze and maximize profits. A marginal analysis details the process of differentiating decisions into a series of acceptable and unacceptable choices (Hirschey, 2016). Marginal analysis is used in business to increase the additional benefits of making a decision compared to the costs incurred by implementing that decision.
Very few markets match economists’ standards for a perfect competition. Given that every marketplace is highly competitive, no business can be expected to make consistent economic profits in the end (Hirschey, 2016). United Airlines should revise their operational costs through analysis of variable and fixed costs. Variable costs are values that differ with varying output such as wages and utilities. Fixed costs are unwavering and include rent, buildings or machinery (Holloway, 2017). Understanding the importance of variable costs in business is useful as the industry can still run in high proportions of variable costs. In retrospect, a high value of non-variable costs will mean the company will have to create more revenue to maximize the value of the firm.
Delegate your assignment to our experts and they will do the rest.
United Airlines management should analyze the exit costs that would be incurred should they decide to discontinue flights to Washington DC (Hirschey, 2016). The exit costs will include moving employees to new locations, liquidation of assets and branches and potential legal issues. Exiting plans would also mean they would have to terminate the long-term contracts with suppliers, and distribution outlets (Holloway, 2017). The management would be wise to take into account the impacts of exiting on the image of the business. Such a magnitude of adverse effects serves as a deterrent to discontinuing the flight pattern.
References
Holloway Stephen. (2017). Straight and Level: Practical Airline Economics London: Routledge ISBN 9781351774222
Hirschey Mark (2016). Managerial economics Cengage Learning Print
