Expert case by Ian

Chinese Chess - Airline Business During COVID-19

Style:

Topics:

Capacity change , Operations strategy , Organizational behavior , Profitability analysis , Growth strategy , Competitive response

Rating:

4.3

(100+ Ratings)

5.7k

Times solved

Intermediate

Difficulty

4.3

100+ Ratings

Case Prompt

Sky China, a government-backed Chinese airline, has recently seen profits plummet due to COVID-19. Profits are down 80% in the months of February and March, but are showing early signs of a rebound in April.

They've brought you in to first investigate what can be done immediatedly to prevent hemorrhaging cash and surive in the short-term. They are also looking to see how the current situation can be viewed as an opportunity, and what can be done to prepare for the future.

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Note for Interviewer

Here the interviewee should investigate the possible options for reducing costs. They should do this of their own accord. If the interviewee is struggling, prompt them to thinking about what needs to be done immediatedly with the company. They should consider what is faster in preventing a profitability fall (cut costs or increase revenues). Once they understand that the most pressing matter is costs, ensure that they brainstorm the largest costs for airlines companies.

Once you're satisfied with their brainstorming of costs, share diagram 1 to illustrate the cost drivers.

Note for Interviewer

Try to get the candidate to estimate the reduction in costs for the above items. They should also think about whether the reductions are short-term (temporary) fixes or long-term fixes.

Provide Exhibit II if the candidate asks about fuel prices.

You should provide the below information verbally to the candidate:

(Short Term) Labor costs can be cut by 90% by furloughing employees, forcing leave, and reducing pay
(Long Term) Fuel costs can be cut 50% through futures contracts (current prices are 20% of trend, but futures would incorporate expected rises)
(Long Term) Leasing costs can be cut through the purchase of planes through capital received by government – new monthly costs (which include amortization) is 25% of current rate
(Short Term) Marketing costs can be cut 90%
(Short Term) Fees can be cut 50%

Note for Interviewer

This is a quick brainstorming exercise with the candidate. You should prompt the candidate about what Sky China should do when restarting operations.

A strong candidate will understand there are both short term options and long-term options. Additionally, they will understand that short-term options relate mostly to domestic operations (protect 80% core business), while long-term options relate to international operations (expand 20%).