Hi,

I think you should ask some questions to ask the objectives (ex. required profitability, alternatives -i.e. buying new vs buying old vs leasing etc-, time horizon, type of airline, market, etc).

Then, given the information you now have, I think that you should structure the problem and see whether what you find out meets the requirements/objectives.

The answer will then be a number/range from 0 to X, supported by the analysis.

Cheers!

Agreed with the macro steps suggested in other replies. More specifically in terms of objectives/thresholds I would try to be more specific to interviewer and propose a couple of contextually relevant objectives and talk about $/seat/mile, load factors (seats occupied/seats available) needed to be able to be profitable/be able to afford planes.

hope it helps,

andrea

Agreed with the macro steps suggested in other replies. More specifically in terms of objectives/thresholds I would try to be more specific to interviewer and propose a couple of contextually relevant objectives and talk about $/seat/mile, load factors (seats occupied/seats available) needed to be able to be profitable/be able to afford planes.

hope it helps,

andrea

Hi Anonymous,

I would proceed as follows:

Step 1: Clarify the objective. Does the client want to increase revenues, decrease costs, increase profits, or other?

Step 2: Assuming the most complete scenario - profitability optimization: calculate the point where marginal revenues for the additional airplane are equal to marginal costs. There are several elements that could have an impact on that:

• Revenues
  • External
    • Customers issues (eg expected growth in demand)
    • Competitors issues (eg ability to increase their market share against us)
    • Supplier issue (eg availability to provide in the required time the planes)
  • Internal
    • Our expected actions on price (eg introduce price discrimination thanks to more routes)
    • Our expected actions on volume (eg future marketing campaign, new distribution channels, new routes, etc)
• Costs
  • External
    • Customers issues (eg new requests in terms of functionalities on new routes which implies new costs)
    • Competitors issues (eg lobby against us with regulator to increase costs of labour for new destinations)
    • Supplier issue (eg increase in costs for new planes compared to budget)
  • Internal
    • Elements influencing cost per unit (eg ability to negotiate with supplier so far that we increase size)
    • Elements influencing number of units (eg economies of scale so far that we grow)

Step 3: Check capabilities. Do we have the money and other resources required to do the investment (or disinvestment)

Step 4: Consider risks. Anything that could go wrong with the previous mentioned elements.

Best,
Francesco

(edited)