Day: August 16, 2021

A few years ago, the airline Cathay Pacific reported an 80% decrease in its half-year profits. 

Which ONE of the following is the MOST LIKELY reason for this decrease in profits?

Select ONE answer:

1. An effective advertising campaign
2. A strong economic climate
3. Cheaper aviation fuel
4. An increase in competition from other airlines

Show your workings to arrive at your answer, and explain and justify your reasons:

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This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 4

1. Not correct – this would have increased sales of tickets due to more brand awareness and therefore possibly increased profits
2. Not correct – this would lead to more sales and therefore profits because of an increase in demand caused by a growing economy, and thus increase in incomes
3. Not correct – cheaper aviation fuel would have led to a decrease in costs and therefore an increase in profits.
4. Correct – Definition of profits e.g. total revenue – total costs.  More competition from other airlines would result in a greater choice for customers & a downward pressure on prices.  This could have decreased sales/revenue and therefore profits.

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