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Exhibit 4 British Airways Average Revenue and Cost per Passenger, 1986 Percent of Revenue UK I Revenue 151.3 166.5 100.0% 32.4 35.7 21.4% 7.8 8.6 5.1% 28.9 31.8 19.1% 8.9 9.8 5.9% Operating expenses Staff Depreciation & amortization Fuel & oil Engineering and other aircraft costs Selling Aircraft operating leases Landing fees and en route charges Handling charges, catering, & other Accommodation, ground equipment & other Subtotal 16.4 18.0 10.8% 3.1 3.4 2.0% 10.6 11.7 7.0% 15.1 16.6 10.0% 17.7 19.5 11.7% 140.9 155.1 93.1% 6.9% Operating profit 10.4 11.4 Source: Case writer calculations, based on British Airways Prospectus, February 11, 1987. > Exhibit 4 in the case shows the average cost per passenger for British Airways. Classify the listed operating expenses per passenger as fixed or variable. (Note: Assume aircraft capacity is fixed. For an aircraft of a given capacity, a cost is fixed if it stays the same regardless of how full the flight is and variable if it depends on the number of passengers on that flight. If you think an expense has both fixed and variable components, classify it as semi-variable). (2 points) Based on your classification of costs in question 4, compute the fixed and variable cost per passenger for British Airways. (For semi-variable costs, assume 50% of the cost per passenger is fixed.) (2 points)

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