Case Interview Practice Case #1: Airline Profitability
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- Опубліковано 16 лип 2020
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This is a case interview practice case that you can do on your own without a case interview partner. This case is a profitability case, one of the most common types of first-round interviews at consulting firms such as McKinsey, BCG, Bain, LEK, Deloitte, and Accenture.
In this consulting practice case, you'll develop a case interview framework, solve quantitative problems, and answer qualitative business before delivering a case recommendation.
This case comes from Hacking The Case Interview’s comprehensive online course. If you find this case interview exercise helpful, check out our full case interview course.
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Looks as though you mention 'Economy Class' from NE Airlines twice upfront. I believe you intended to mention Business Class as being the more premium option with better amenities.
thank you!
6:38 you cant just count a $0.3 increase without counting how many economy seats would fit in the 200 sq ft, the more correct way to answer is
20sqft * 10 seats = 200 sqft total area
divided by 6qft required for 1 economy seat = 33 new seats.
33 seats * 70% * $150 * 20% margin = $693 per plane
- $640 if it was business = $53 increase in profit if business was swapped into economy
so it should be $53 instead of $60
Absolutely
Yeh yeh
Yes well spotted, that was bugging me it was oversimplified but you nailed it
Excellent
70% capacity means there would be 65.1 people which doesn't make sense, so you got 3 extra dollars from a 0.1 person.
For me I won't conclude this way, because with just 60$ increase in profit, I don't see how this can cover the cost of removing seats. I would rather recommend to keep the business seats, and try to make a strategy on decreasing the price for shot term period ( need some quantification) and improve the business class service as long term strategy (also need some metrics here to see whether the company can afford it) in order to increase sells
That's what I would recommend too. I think the potential risks of losing business class plus switching and adapting planes are too important. I would first try as you say, study how we can develop business class service offering in par with competitors, complementing with information from market sizing and growth size.
I thought I am the only one who had the opposite recommendation. I was more inclined to look at bumping up the service like adding some snacks which does not seem to cost a lot from a get go. I would be interested to see the overall cost and profit margin analysis if the airline decided to stregthen the business class ameneties then increase the ticket price.
I'm thinking the same thing. If you reduce the 10 Business seats to 5 seats, but make them reclining (at 40 sq feet/seat) and increase the price per seat to $800, wouldn't that be cheaper for the airline, and possibly increase the avg margin per ticket, than removing the Business seats to add Economy seats? Also, it would help retain Business class customers and bump up B-class utilization to 90-100% at the same time
Thanks for a vid! I have one comment: When outfitting the business class space with economy, you can only fit 33 seats in 200 sq ft, with 2 sq ft leftover. Thus, the potential profitability increase is $53.
yeahhh i thought the same.
I think a missed opportunity on the framework was to include other potential means of revenue that business class seats can generate such as extra baggage fees which could impact profitability per ticket
Thanks for the great video! If its not too much to ask, could you (or anyone who has done these cases) let me know which of the practice cases on your channel is the most challenging one? I get that different people have different competencies but if there was a practice case which stands out from the rest in terms of difficulty, I'd definitely like to try it out
Great knowledge! Thanks! I would not have clear cut recommendation. Decision should be made after further analysis on factors influencing both keeping and not keeping business class - would be the recommendation
One question I have is what would be some example clarifying questions that we should ask the interviewer before we begin creating our framework for this case? Thank you!
I still wonder market size and growth for business class. Does the BC seat reduction also happen to other companies. That data will speak louder to conclusion and recommendation.
Very helpful
thank you
Overall great video for a student like me. If I had to challenge the solution, however - I could ask that:
Considering that $60 is only a 3% increase (additional / existing profit) - does it really outweigh the risks that you mapped out? I find that conclusion very strange and hence, the recommendations are still rather flawed.
I understand that the scope of the question is only to see whether business class seats should be removed or not - but I do think there is something missing from the case. Perhaps, I would benchmark that 3% increase to other possible actions (adding value to business class blabla)
sameeee
samee
Good example
0:39 fare: the money paid for a journey on public transport 交通費: business class and economy class
0:46 business class: more seat room, more amenities and premium service.
1:26 whether they should give up their business class offering.
3:04
This is cool found a new hobby
Is it usual to do profit /square foot for airlines?
My initial method for this solution 6:13 was so much more convoluted and I feel very silly having not come up with this method on my own haha
I did:
($1260*560 total sq ft)/(360 previous sq ft) = $1960 - (prior total profit per plane, $1900) = $60. It's still right but it was like taking 3 left turns to make a right turn
As long as you get the right answer, that should be fine! Finding shortcuts is just a nice bonus
correct me if i'm wrong. The economy class itself is 70% utilized and if this class itself is not fully filled then how can we recommend adding more of these seats.
exactly. Thats the biggest logical flaw these business people seems like they dont want to talk about
Great example!
I think the way in which you asked the question is slightly confusing, you could have just asked it simpler, 'what is the margin for both classes given the utilisation stats"
I disagree, I think that Northeast Airlines should keep the business class. $1260 from economy, per plane, plus $640 from business, per plane= $1900 profit. Whereas without the business class, that's $1260 from economy plus $60 from the new economy part of the plane.
Please tell me if I'm right or wrong and why.
That 60 was additional profit
If still there is a demand for economy class expand it and increase the price of economy class or can generate revenue through business class by extra baggage fess as told :)
The company was able to fill only 70 percent of the already existing economy class then how will increasing those seats help the company generate more revenue they are not even able to sell al the tickets of economy before. keeping business class is profitable because atleast assurity is there that on an average 40 percent seats tickets are sold.
70% of (x+y) seats is more profitable than 70% of x seats + 40% of y seats
@@ataur31394, There may be the scenario that "Y" people try to avoid economy class as they would prefer business class then overall there are more vacant seats. Please correct me if I am wrong Thanks
Seems kind of crazy that they want a recommendation within 5 minutes, I just think it sounds drastic to completely replace a whole Business Class section with Economy because of a 10% decrease in utilization. Ok, looking at the numbers it's more profitable, but like he mentions, you need to consider the cost of doing all that work to replace the seats. It's going to change the whole perception and constitution of this airline, they are basically rebranding as a budget bare-bones airline. There is so much more analysis that needs to be done. I wouldn't feel comfortable making any reccomendation, simply saying, these are some very basic numbers for an initial idea. But it's good just for a quick brain exercise.