Some of the best case interview questions sound almost trivial. "What is one more passenger per flight worth to us?" is one of them. This management consulting case study walks through the assumptions an interviewer expects you to make, and the one insight that decides the answer.
Case Scenario
The client is a major airline company and the CEO wants to put one more passenger on each of his company’s flights.
Key Questions
What is the financial return of one more passenger per flight? Is it worthwhile to do so? What marketing strategy will work to attract these new passengers?
Working Through the Case
The company should look at the revenue and cost side of bringing one more passenger per flight, as well as the average cost of a ticket. It should also ask whether there is enough capacity to put one extra passenger on board each flight.
The candidate should ask about the kind of routes, the market share, and then the price of each of them. In this case, we were talking about the Brazilian market and this airline has only domestic flights. You can adapt the numbers to the US domestic airline market or any other you would like.
The company has 100 aeroplanes and estimates that 80% of its planes are used for one-hour flights and 20% for three-hour flights. Depending on the city, some routes have more frequent flights than others, but the interviewer agreed that this approximation was acceptable.
We need to make an assumption to work out the number of flights per aeroplane per day and the interval of time an aeroplane stays on the ground. For this company, the first aeroplane departs at 6:00 am because executives must arrive at their clients' offices by 8:00 am, and the last flights run until around midnight.
The Answer
The candidate should realise that the cost of one extra passenger is only the marginal cost, which is small enough to be ignored. On these assumptions, the extra revenue in one month is $3,360,000.
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