In 2008, the cost of oil soared and so did the cost of jet fuel (which is refined from crude oil). In response, American Airlines announced in May of that year that it was cutting some routes and reducing the frequency of flights on other routes. (LO4-5) a) Is jet fuel a variable cost or a fixed cost? b) What did American Airlines gain from reducing the number of flights? c) Was the airline more likely to cancel flights that tended to be filled to capacity, or ones that typically flew partly empty? Explain. d) The latest generation of airplanes from Boeing, the 787, uses less fuel than many of the aircraft currently being flown (see “Spotlight: Boeing’s Long-Term Decision”). If American Airlines could replace its aircraft with more fuel-efficient models, would it want to increase or decrease the number of flights? e) Since 2008, oil prices have fallen sharply and so have jet fuel prices. All else being equal, how would that change in prices affect airline profits?
