American Airlinks

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Information that can be shared if inquired: 

• American Airlinks only operates in the USA.
• They offer short and long range flights. 80% of flights are short range and 20% long range.
• The company only operates flights with a maximum capacity of 220 seats.
• The average occupancy per flight is 90%.
• Partnership with Balzac Coffee entails a 50% profit split.

First step, the interviewee should investigate about the company.

Information that can be shared if inquired: 

• Non-Alcoholic drinks:
  • Tea
  • Coffee
  • Soft-drinks
  • Water
• Balzac Coffee is the market leader in the USA selling a wide variety of coffees.
• Non-alcoholic beverages served on board are free-of-charge
• The average price per Balzac coffee would be $4. If AA was to charge for the current coffee, the price would be $3. The profit margin for Coffee items would be 20%.
• Demand for the Balzac Coffee is estimated to be 25% below the current demand for coffee due to the fact that currently the coffee is free.
• Putting a price on the current coffee would lead to a decrease of 70% in demand.

Items sold are considered as free or charged items.

This section should help the interviewee get crucial information about which different products are already sold inflight and about the competitive edge of Balzac Coffee.

Information that can be shared if inquired: 

• The company runs 50 daily flights on 365 days per year.
• Flights have 50% business travellers.

The customer part covers the amount of current customers as well as their purchase power.

From Table 2 the potential amount of purchased items per day can be deduced.

Now the interviewee should try to compare selling Balzac Coffee to putting a price tag on its current coffee.

Looking at the data, the interviewee should come up with the conclusion that it would make sense to put a price tag on the coffee in the plane.

• Currently, coffee can be seen as pure costs, therefore any price on coffee would improve on-board revenues.
• This can either be done by simply putting a price on the coffee that is already available on board or via a joint-venture between AA and Balzac Coffee.
• From a profit point of view, it makes most sense to do the joint-venture with Balzac Coffee.
• In addition, the brand on the plane could increase on-board sales as it could affect co-consumption of other things such as desserts together with the coffee.

However, it is important the interviewee specifies the different risks:

Risks:

• People may not want to pay for coffee since they usually get it for free.
• People could be drinking coffee before taking the plane, which would reduce sales.
• The reduction of demand could be greater than estimated and therefore lead to a lower profit.

The important part is to have the interviewee brainstorm and explain his thoughts.

Possible/potential answers:

• Objectives of the venture are not totally clear and communicated to everyone involved.
• Partner has different objectives for the joint venture.
• Different cultures and management styles result in poor integration and co-operation.
• Partner doesn't provide sufficient leadership and support in the early stages.