Case

Canada Bus Operator

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Problem Definition

We are a Canada bus transport service operating between major cities. We have been losing money for the past 5 years. Our new CEO thinks that we need to aggressively cut costs in order to return to profitability. We also suspect the over-operated routes as well as the new routes to be the cause of the loss. How do you suggest we should face this problem?


Comments

The case is designed to be presented to the candidate by an interviewer, who plays the role of a representative of a Canada Bus transport operator.


Short Solution (Expand)


Detailed Solution

Paragraphs highlighted in blue can be verbally communicated to the interviewee.

I. Background

The following information could be provided to the interviewee if requested:

  • The company is in a tight cash position
  • Fuel is the major cost for any bus transport operator
  • Due to insufficient monetary resources, the firm has not been able to upgrade to latest machines, infrastructure, etc
  • The firm has substantially invested (real estate) in terminals
  • Routes can be classfied into three types: short, medium or long. More than 50% of the revenue comes from long routes
  • The last CEO focussed a lot on top line. For instance he started the "anywhere pickup" plan

II. Solution

The candidate should use the profitability framework and focus more on costs.

Costs can be classified as fixed and variable.

  • Fixed costs: Buses, terminals, salaried employees, etc

  • Variable costs: Fuel, contractual employees, maintenance, etc

Suggestions:

  • Unprofitable routes should be identified and scrapped or scaled back
  • Bus route fleet optimization could be performed to improve efficiency
  • Fuel contracts for protection against fuel price fluctuations
  • Lease new equipment to improve fuel efficiency and decrease maintenance costs, downtime
  • Instead of "anywhere pickup", freeways could be utilized to improve schedules

Additionally, extra service offerings could be realigned with customer needs. For example, seats with extra legroom could be charged for.

III. Concluding Observations

The company should scrap the unprofitable routes, perform bus route fleet optimization and lease new equipments to improve fuel efficiency and to decrease maintenance costs.


Difficult Questions

Question 1: How would you identify unprofitable routes?

Answer 1: Passenger load factor, or load factor could be calculated to measure the capacity utilization of the bus transport service

Question 2: If the company figures out multiple new routes which maybe profitable, how would you suggest we go about starting services on the new routes?

Answer 2: The company should compare the following:

  • Operating costs per route
  • Competition
  • Kind of potential customers that use these routes and if they are likely to be the riders of the company's buses
  • Whether the company's infrastructure could support the new routes
Related consulting question(s)
Business situation framework
Francesco updated the best answer on Mar 27, 2018 - 1 answer
#1 Expert for Coaching Sessions (2.100+) | 1.000+ Reviews with 100% Recommendation Rate | Ex BCG | 6 Years Coaching Experience
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Hi Elisey, I would personally not recommend to use a single framework for all the so-called business situations (M&A, Entry, New product, Operations etc). Although this would help to more easil... (more)

Questions around profitability issue tree
Vlad gave the best answer on Apr 03, 2017 - 2 answers
McKinsey / Accenture / Got all BIG3 offers / More than 300 real MBB cases / Harvard Business School
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Hi, 1) You proactively ask in the beginning, even before drawing the structure (something like "What kind of products / revenue sources do we have) and then split the structure into price, qty,... (more)

In an issue tree for profitability framework, where do you factor in questions about market etc.?
Sidi gave the best answer on Aug 13, 2018 - 1 answer
McKinsey Engagement Manager & BCG Consultant | Interviewer at McK & BCG for 7 years | Coached 80+ candidates secure MBB offers
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Hi Kay, this is indeed one of the fundamental things that you need to learn in order to rigorously disaggregate the value drivers of a business. The driver tree allows you to identify the numerical d... (more)

Which case topics to focus on first? Market entry, M&A, profitability analysis...?
Vlad gave the best answer on Feb 26, 2018 - 4 answers
McKinsey / Accenture / Got all BIG3 offers / More than 300 real MBB cases / Harvard Business School
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Hi, I would start with either market sizing or with profitability cases since they are much easier: 1) In market sizing cases I would try to understand the basic approach: How to structure... (more)

What should be framework for following: Client is a regional retail chain. They want to reduce their supply chain cost. 
Francesco gave the best answer on Aug 01, 2017 - 3 answers
#1 Expert for Coaching Sessions (2.100+) | 1.000+ Reviews with 100% Recommendation Rate | Ex BCG | 6 Years Coaching Experience
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Hi Aditya, I would suggest you the following points to start the structure: Identify the main revenue streams of the client Understand which revenue stream has an abnormal cost compared to... (more)

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