## Problem Definition

Dubai Airport has decided to counter the chaos in the airport taxi service by commencing a bidding process to assign airport taxi services to 3 operators only. After years of cheating passengers, black-market drivers and unlicensed cabs, the airport has had enough of the problems and is now taking action.

They are retracting all existing permits and are issuing 2,100 new permits to the three largest operators in the country.

Our client is a local Big-three taxi operator with a 3,000 car fleet, but he is not servicing the airport yet. He has a spare capacity of 500 taxis and he is considering applying for 500 new permits, but he doesn’t know if he will get a **positive return** on his investment.

He asked us to help him **determine **if he should **pursue **applying for the permits or not.

## Comments

Since this is a **candidate-led** case, the candidate should drive the case from start to finish.

## Short Solution (Expand)

## Detailed Solution

The following framework/structure provides an overview of the case:

### I. Background info

Provide some additional information to help the interviewee **understand the situation** and the problem and see if candidate starts explaining the profit framework structure.

- Taxi operator has
**500 taxis.** **Investment target is 20% ROI over a period of 1 year.**

### II. Profit

#### Calculating revenue:

When asked on data to calculate revenue, interviewer can provide following data verbally.

- Airport has
**84 m passengers**per year. **20%**goes into Dubai using a taxi, remaining 80% are transit passengers.- Between 12.00 AM (midnight) and 6.00 AM,
**50%**requires a taxi (this takes into account multiple passengers sharing a taxi). - Between 6.00 AM and 12.00 AM (midnight), the other
**50%**requires a taxi (this takes into account multiple passengers sharing a taxi). - Night fares are
**$80**. - Day fares are
**$70.** - Taxis operate
**24/7**- assume no need for fuel, maintenance or traffic-jams. - Every trip takes
**60 minutes**to leave the airport and get back.

Now we can calculate revenue:

- Daily revenue of one taxi is: (6*$80)+(18*$70)=$1,740.
- Annual revenue of 500 taxis are: (500*$1,740)*365=$317.5 m.

Supply: **2.100 taxis per hour** in daytime and night (we assume non-stop driving taxis with 1h per ride)

Demand:

- Night: 50%*20%*84,000,000=8,400,000 passengers per year -
**3,835**passengers per hour; (8,400,000/365/6hours) - Daytime: 50%*20%*84,000,000=8,400,000 passengers per year -
**1,278**passengers per hour; (8,400,000/365/18hours)

**Result:** During daytime the utilization is actually at 61% (1,278/2,100) which is quite below 100%. This could change the overall result a lot.

#### Calculating cost:

When asked on data to calculate cost, interviewer can provide following data verbally.

- Drivers get
**50%**of the revenue instead of a salary. - Operating costs are
**$5,000 per cab per year**. - License costs are
**$250,000 per cab**paid in advance as a**one-time fee**.

Now we can calculate costs:

- Total payroll is 50%*$317.5 m=$158.8 m.
- Operating costs are $5,000*500=$2.5 m.
- Total license costs are $250,000*500=$125 m.

### III. ROI

We can now calculate ROI. Our target is **20%.**

Total earnings over 1-year period: $317.5 m-$158.8 m-$2.5 m=$156.2 m.

ROI: (($156.2 m-$125 m)/$125 m))*100%=24.96%. So our return is an estimated **25% for the first year. **Thereafter it will increase to 125% since license costs are not recurring.** **

25% return>20% so taxi-operator should continue with the investment.

## Difficult Questions

- What additional check should we perform to verify if our estimated earnings are realistic?