Online travel booking

Comments

This is a candidate-led case which means that the candidate has to take the interview from start to finish.

Short Solution

• The agency is making less money on leisure travellers which accounts for the majority of bookings & revenue.
  • Client should benchmark other players in terms of costs/revenue-structure.
  • Client should renegotiate transaction costs.
  • Client should offer more products to leisure travellers to increase revenue/profit per transaction.

Detailed Solution

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

I. Background

Candidate should want to look into revenues first, since lower profits could mean that the company isn't turning as much revenue as its industry peers.

II. Analysis

Next, the candidate should want to understand the revenue breakdown and business segments as well as their profit contribution. With the information given, candidate should calculate profit contribution for each segment.

The candidate should calculate profit per transaction for both segments to see how profits are structured and where the problem lies.

Business segment:

• 40% of total revenues of $10 m with a transaction cost of $9
  • 40%*$10 M=$4 m.
  • Revenue per transaction: $4 m/300,000 bookings=$13.33.
  • Profit per transaction: $13.33-$9=$4.33.
  • Total profits: $4.33*300,000 bookings=$1.3 m.

Leisure segment:

• 60% of total revenues of $10 m with a transaction cost of $9
  • 60%*$10 M=$6 m.
  • Revenue per transaction: $6 m/700,000 bookings=$8.57
  • Profit per transaction: $8.57-$9=$-0.43.
  • Total profits: $-0.43*700,000 bookings=$-0.3 m.

III. Solution

It seems that the agency is earning less in absolute profit from the leisure segment which makes up for the majority of its revenue, whereas the business segment has a higher absolute profit per transaction.

• The agency should benchmark its competitors and mimick them in terms of cost structures & revenue-structures.
• The agency should focus more on the business traveller, since they make more money on those bookings.
• The agency can also see if they can renegotiate transaction costs for the business traveller, since those travellers travel a lot and could thus earn a discount for the agency.
• The agency can also choose to offer the leisure traveller more products to increase the revenue and profit per transaction.

Difficult Questions

• What are some quick-win & short-term solutions the client can implement to increase profit margins?
• Do you think airlines would offer lower transaction costs to business travellers? How can the agency make that pitch strong?