Avia Airlines’ business planning department has responded to the recent losses experienced by its main passenger routes by proposing a new commuter route between the two cities. The logic of the argument, however, is flawed, as the assumption that the commuter route will be more profitable is not well supported

First, the argument assumes that the losses experienced by the main passenger routes will be offset by the anticipated profits of the commuter route. There are several problems with this assumption. First, it presupposes that the same passengers who purchased the main routes will also purchase the commuter route. Avia Airlines is only licensed to operate passenger flights within the borders of Texas, and so it will be subject to limitations on the number of seats it can sell on each of its routes. If Avia Airlines cannot sell enough seats on its main routes, it is likely that the new commuter route will also be unable to turn a profit. Moreover, even if Avia Airlines could sell enough seats on the main routes, the fares on those routes may still be too low to attract passenger traffic. If the same passengers who purchased one route also purchase the other, Avia Airlines may not reap the profits it anticipates, because the same passengers will already have a seat on the other route

Second, Avia Airlines’ assumption that the main routes will be more profitable than the commuter route assumes that the losses will be caused by competition with other airlines. However, if that were the case, Avia Airlines would have little to gain from establishing a new commuter route. If competition exists on Avia’s main routes, it is highly unlikely that establishing a new route will improve the company’s profitability. If, however, the main routes are not competitive, the need for a new route may help Avia Airlines to capitalize on the growing demand for air travel. Third, the assumptions that Avia Airlines’ passenger traffic will increase and that passenger traffic on the main routes will be competitive are not supported by the evidence provided in the memo. The memo cites statistics from the Texas Department of Transportation indicating that Beaumont and Fletcher are the two fastest growing cities in Texas. However, the statistics do not indicate whether the two cities’ populations are increasing at similar rates, nor whether Beaumont and Fletcher’s economies are similarly expanding. If, for example, Beaumont’s population is growing faster than Fletcher’s, and Beaumont’s economy is more robust than Fletcher’s, it is likely that Beaumont’s economy will provide more travelers for the main routes. Alternatively, if Beaumont’s economy is weaker than Fletcher’s, passengers may avoid the main routes in favor of smaller airlines, which offer lower prices. In addition, because Avia is operating in Texas, it is likely the routes it has launched are competing with other airlines. If Avia’s main route is competing with other airlines, it is unlikely that the route will be more profitable than routes that operate solely within Texas, since such routes are not competing against other airlines. Thus, Avia Airlines’ assumption that the losses on its main routes are caused by competition with other airlines is unsubstantiated. The memo’s assumption that the traffic on the main routes will increase and that competition between Avia and other airlines exists is also unsupported by evidence

The conclusion of the memo, that Avia should establish a commuter route, is also flawed, because the logic is not sound. Avia Airlines’ business is predicated on passenger traffic, and the memo assumes that Avia will lose out on revenue if its main routes become unprofitable. However, Avia Airlines has several options if its main routes become unprofitable. First, Avia Airlines could attempt to add more seats to its flights. As Avia Airlines is a charter airline, it is less constrained by the number of seats it can sell on each flight than is Avia Airlines’ main competitors, so this strategy might be successful. However, if Avia Airlines is unable to raise the number of seats on its flights, it could simply restructure its routes. Avia Airlines could, for example, increase the frequency or length of flights, or it could reduce the number of routes. These strategies, however, could also result in fewer passengers, which could in turn result in lower revenues

Avia Airlines’ plan to establish a commuter route between Beaumont and Fletcher is flawed. Although the memo makes several assumptions about the profitability of the new route, it fails to demonstrate that those assumptions are correct. Consequently, Avia Airlines’ logic is flawed and its conclusion is unsubstantiated.