An airline transportation consultant offers the CEO of BlueStar, a struggling new commercial airline company, the following advice concerning the airline’s high operating costs in the current quarter:
“You don’t have enough aircraft to operate efficiently. However, at some point in the long run, you
will have the opportunity to add aircraft to your fleet in order to reduce your total costs and still
carry the same passenger load.” Does this advice make any sense? In the long run, how can
BlueStar’s total costs fall by adding more aircraft to its fleet? Must BlueStar experience economies
of scale for the consultant’s advice to be correct?