Balance of Fixed and Variable Costs

British Airways (BA) has a high fixed cost and low variable cost due to large number of routes internationally. The variable cost of it increases at slower rate than the increase in sales revenue (British Airways, 2013). It is because the variable cost will occur for each route in the same manner regardless the number of passengers. The variable cost of the BA includes refreshment, fuel, maintenance, selling costs etc. On the other hand, fixed cost includes depreciation, aircraft lease, wages, lending fees etc.  The firm first tries to cover its fixed costs of operations as after covering the fixed costs, each dollar of revenue will increase the organizational profitability due to less increment in variable cost in the comparison of the growth in sales revenue (Hankins & Baker, 2004).

Use of Technology to Change the Balance

The airline firm has higher advertising costs as the fixed cost in order to attract more customers. The firm can use e-marketing techniques such as social media, email marketing that will be effective to reduce its advertising cost and to change the balance between fixed and variable cost. It consequently will cause an increase in organizational profitability. At the same time, it may also use the technology in its operations that will reduce the need of staff and will cause a decline in the wages cost of the firm (Guilhon, 2001). It will also be effective to change the balance of high fixed and low variable cost that will be effective for the firm to achieve the competitive advantage. BA can also use the technology in aircrafts that will be effective to reduce the depreciation and maintenance cost associated with aircrafts and will change the balance between fixed cost and variable cost. It will enable the firm increase overall profitability.

References

• British Airways. (2013). Retrieved from: http://www.britishairways.com/travel/about-british-airways/public/en_gb#
• Guilhon, B. (2001). Technology and Markets for Knowledge: Knowledge Creation, Diffusion, and Exchange Within a Growing Economy. USA: Springer.
• Hankins, R.V. & Baker, J.J. (2004). Management Accounting for Health Care Organizations: Tools and Techniques for Decision Support. USA: Jones & Bartlett Learning.