market sizing: Avg price of flight ticket in a country? How to calculate?

Market sizing
New answer on Dec 31, 2021
3 Answers
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Kiga asked on Aug 26, 2019

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Ivan replied on Aug 30, 2019

A few thoughts on this:

  • Price differs by airline: full service carrier vs. low cost airline
  • Price differs by flight duration: short flight vs. long-haul flight
  • Price differs by booking class: first class, business class, coach
  • Price is dependent from available alternatives (trains etc.) and geography
  • Price is connected to free disposable income and willingness-to-pay

Calculation scheme:

  • Let's assume any European country.
  • Price indicated as round-trip tickets.
  • European flights:
    • Coach:
      • 50 EUR for low-cost airlines (Ryanair)
      • 150 EUR for full service carriers (Lufthansa, BA)
    • Business:
      • Let's assume low-cost airlines do not have business class.
      • 300 EUR
    • No first class on European flights
  • Medium/long-haul flights:
    • Coach:
      • Low-cost airlines: 600 EUR
      • Full service carriers: 1,200 EUR
    • Business:
      • Full service carriers: 5,000 EUR
    • First:
      • Full service carriers: 10,000 EUR
  • Let's talk about proportions:
    • Percentages by Coach/business/first:
      • European flights: Assume an average jumbo jet has 40 rows, 5-6 rows are dedicated for business travellers. Which leads to:
        • Economy: 85%
        • Business 15%
        • First 0%
      • Medium flights:
        • same as above
      • Long-haul flights: Consider 777,787,A380: 600 passengeer seat capacity on average per flight. 40-60 passengers in the business class (10%). 5% in the first class. Which leads to:
        • Economy: 85%
        • Business 10%
        • First 5%
  • European flights are dominated by low-cost airlines, therefore:
    • Average coach price will slightly above the price for the low-cost airlines, e.g. 80 EUR
    • Low cost carriers provide no business class, therefore the business class ticket will cost on average 300 EUR
    • The average price on European flights will be therefore: 80 * 0.85 + 300 * 0.15 = 68 + 45 = 113 EUR
    • Sanity check: average price on German railways is between 50-200 EUR
  • Medium and long-term flights are more dominated by full service carriers
    • Average coach price will be somewhere between 600 and 1,200 EUR. More on the upper bound: 1000 EUR
    • Business class ticket will cost on average 5000 EUR
    • First class: 10000 EUR
    • Which leads to 1000 * 0.85 + 5000 * 0.1 + 10000* 0.05 = 850 + 500 + 500 = 1850 EUR
  • Consider now the split between European and medium/long-haul flights. Local flights have significantly higher frequency at the airports, therefore we assume 70% of flights are European flights. Which leads to 113 * 0.7 + 1850 * 0.3 = 79.1 + 555 = 634.1 EUR
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Ian
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replied on Dec 31, 2021
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Hi there,

Providing some market sizing thinking for anyone revisiting this Q&A:

Remember that there's rarely a "best" answer with market sizing. What's important is that you break down the problem the way it makes sense to you. Importantly, break it down so that the assumptions you make are the ones you're most comfortable in.

For example, do you know all the major brands? Great go with that. Do you understand all the segments of that country's population (either age or wealth or job breakdown)? Go with that. Do you know the total market size of the tourism (or hotel) industry? Then break it down that way.

Some tips:

  1. Just like in a case, make sure you understand the question - what are you really being asked to calculate
  2. Decide whether a top-down or bottom-up approach is best
  3. Figure out what you know you know, and what you know you don't know, but could estimate
    1. This helps you determine how to split out buckets
  4. Stay flexible - you can start with a "high-level" market sizing, but gauge your interviewers reaction....if it looks like they want you to do more...then go along level deeper in terms of your splits
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riiupw updated an answer on Dec 15, 2019

Hello! What is the best way to get from Turkey to the UK? Of course, I am going to fly by plane, but which is the best airline to choose? Do I need a visa there? By the way, where is it better to stop? renting an apartment or book a hotel? in any case, I will need a <a href=https://postcodefinder.net/england/london>London postcode map</a>, can anyone advise me a good one?

(edited)

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