Your client AirService is the service provider for a number of airports.
The management realized a decrease in profits that is linked to increasing costs.
How would you help them?
The case is split into two parts.
The first part describes more qualitative problems and includes open questions to force the interviewee into thinking about the problem and possible solutions.
The second part deals with quantitative calculations based on the previous part. The interviewee should conduct his own calculations and solve the questions.
Short Solution (Expand) (Collapse)
I. What activities does AirService perform?
- Client handling (from entering the airport to boarding the plane)
- Luggage handling (from registration to loading onto plane)
- Provision of drinks & food, fuel, and take-off support (specific trucks that push the plane)
II. What are the costs for AirService?
- Step 1 = registration at counter (costs associated: staff + equipment)
- Step 2 = security (costs associated: staff + equipment for controls)
- Step 3 = boarding (costs associated: staff)
- Step 4 = transport to plane (costs associated: drivers + bus + staff)
- Step 1 = counter (costs associated: staff)
- Step 2 = conveyor belt (costs associated: none)
- Step 3 = transport to plane (costs associated: staff + trucks + gas for truck)
- Step 4 = load on the plane (costs associated: staff)
Provision of Supplies and help-to-take-off
- Step 1 = supply (costs associated: product costs + trucks + staff)
- Step 2 = fuel delivery (costs associated: product costs + trucks + staff)
- Step 3 = help to take off (costs associated: staff + specific trucks)
So, main costs arise in the Supplies activity of AirService. The main costs are the specific trucks required for take-off. Following the pareto principle, the focus should therefore be cast on the trucks.
III. Focus on the specific trucks for take-offs: what are the costs?
The interviewee should come up with at least 4 answers. Possible answers:
- Cost of the truck
IV. Focus on the specific trucks for take-offs: how to reduce them?
Cost of the truck
- Reduce purchase cost
- Buy less trucks
- Rent instead of purchase
- Increase lifetime of trucks
- Reduce distance driven (route optimization)
- Decrease purchasing price of gas
- Increase load per truck (economies of scale)
- Decrease number of drivers
- Reduce wages
- Limit absenteeism
- Optimize productivity of drivers (no spare time during shifts)
Interviewee should conclude that occupancy rate of the trucks must therefore be lower or many trucks remain unused and drivers have more spare time during their shifts. It looks like AirService has too many trucks. In order to quantify and test this hypothesis, we will look into numbers in the next section.
V. How many specific trucks are required for the activities of AirService?
- 5 airports
- 100.000.000 passengers in total per year
- Market share: 20% of total passengers
The number of trucks required depends on the number of take-offs. Let’s determine the number of take-offs for each airport.
The interviewee must split the question into several logical and simple steps to have a structured answer.
Number of passengers served / airport
= Total passengers * market share / number of airports
= 100.000.000 * 20% / 5
= 4.000.000 passengers / airport
Assume 200 passengers per plane
Number of take-offs / year
= Total passengers / airport / year / number of passengers / plane
= 4.000.000 / 200
= 20.000 take-offs / year
Number of take-offs / day
= take-offs / year / number of days
= 20.000 / 350 (for simplicity)
≈ 60 take-offs / day (for simplicity)
Number of take-offs / hour
= take-offs / day / number of hours
= 60 / 20
3 take-offs per hour → So at least 3 trucks required per airport.
In total 3 trucks * 5 airports = 15 trucks.
We have identified that the trucks are the main costs for AirService. We are considering trucks first (pareto principle).
AirService currently has too many trucks. Minimum amount of trucks to perform activities is 15, while AirService has 25. With the overcapacity, they can either enter new markets (we learned, there are) or try to sell their least productive trucks to the competitors.
Possible ways to reduce the costs relative to these trucks are:
- Sell trucks (short term)
- Enter new markets and increase occupancy rate (medium-term)
- Buy less trucks (long term)
- Leasing trucks instead of buying (long term)
More questions to be added by you, interviewer!