Problem Definition
We are an airline major operating out of India. We want to increase the number of passengers on all our flights. Could you please calculate the financial return of adding one more passenger per flight?
We are an airline major operating out of India. We want to increase the number of passengers on all our flights. Could you please calculate the financial return of adding one more passenger per flight?
The case is designed to be presented to the candidate by an interviewer, who plays the role of a represetative of an Indian airline major.
To calculate the financial return or the extra profit, the candidate needs to look at the revenue and costs associated with adding one more passenger per flight.
Revenue could be simplified as a product of average price of a ticket and number of new passengers added.
Therefore the average ticket price would be (50% X $100 + 25% X $100 + 25% X $200) or $125.
We know that number of new passengers would be equal to the number of total flights since we only add one more passenger per flight.
Therefore we should first estimate the number of airplanes owned by the firm and then the number of flights each airplane takes.
This gives us:
To estimate the number of flights per airplane per day, we need to figure out the following:
Assumptions: The total flight time is 15 hours and on ground time per flight is 1 hour.
Total flights:
Total flights = 250 + 100 + 75 = 425 flights per day.
Therefore, the monthly extra revenue would be 425 flights/day X 30 days X $125 or about $1,600,000.
The marginal cost of one additional passenger per flight would be zero since most costs would occur anyways.
Since the marginal cost is zero, the monthly extra revenue is the monthly extra profit. Therefore the financial return of addition of one more passenger per flight would be about $1,600,000 per month.
If the interviewee solves the case very quickly, you can discuss the marketing strategy to attract more passengers with him.