Cookie and Privacy Settings

This website uses cookies to enable essential functions like the user login and sessions. We also use cookies and third-party tools to improve your surfing experience on preplounge.com. You can choose to activate only essential cookies or all cookies. You can always change your preference in the cookie and privacy settings. This link can also be found in the footer of the site. If you need more information, please visit our privacy policy.

Data processing in the USA: By clicking on "I accept", you also consent, in accordance with article 49 paragraph 1 sentence 1 lit. GDPR, to your data being processed in the USA (by Google LLC, Facebook Inc., LinkedIn Inc., Stripe, Paypal).

Manage settings individually I accept
Expert Case by Ben

Double trouble

Solved 2.2k times
Double trouble Our client is RedBus, one of several operators of iconic double-decker public transport buses in London. Over the past three years RedBus have experienced declining profitability, as a result of reduced demand for buses due to growth in affordable taxi services, such as Uber. The client is looking to understand the root cause of the issue and discuss ways to improve profitability.
4.5 5 90

Problem Definition

Our client is RedBus, one of several operators of iconic double-decker public transport buses in London. Over the past three years RedBus have experienced declining profitability, as a result of reduced demand for buses due to growth in affordable taxi services, such as Uber.

The client is looking to understand the root cause of the issue and discuss ways to improve profitability.


Comments

This is an interviewer-led case, with the typical set of questions: structuring, brainstorming, exhibit reading and quantitative. The interviewer should guide the candidate through the case.


Short Solution (Expand)

Detailed Solution

Paragraphs highlighted in green indicate diagrams or tables that shall be shared in the “Case exhibits” section.

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

Paragraphs highlighted in orange indicate hints for you on how to guide the interviewee through the case.

Question 1: How would you approach helping RedBus?

Additional information to share on request:

  • Single-decker bus capacity: 30
  • Double decker bus capacity: 60
  • Cost of a ride: £1.50

Suggested approach

First of all, we will need to analyse the financials of RedBus to identify options for improvement.

  • Revenue: Number of passengers x fare per ride; segment passengers by route, are some routes more profitable than others? Are we offering any auxiliary paid services? E.g., private travel

Cost should be split to fixed and variable cost.

Fixed cost:

  • Bus depreciation: Can we move to cheaper buses? Can we extend the useful life of the buses?
  • Maintenance: Can we consolidate maintenance contracts? Can we bring maintenance in-house and save money?
  • Bus insurance: Can we renegotiate contracts?
  • Overheads: Do we have a large corporate office? Can we outsource some functions to save cost?

Variable cost:

  • Fuel: Can we consolidate fuel contracts and negotiate lower wholesale price? Can we switch suppliers? Can we optimise our routes to reduce the number of miles driven?
  • Labour: Can we reduce salaries or other compensation related costs? How is our drivers’ utilisation as compared to industry benchmarks.

Next, we would need to look at the market environment to understand the range of possible options.

  • Competitors: Who are the other players in London? Are they experiencing the same issues? Do they do anything differently?
  • Customers: What is the trend within our customer base in terms of bus usage? What do they care about most? How can we convince them to use buses more?
  • Regulation: What is the regulatory environment for bus operators? Can we ask for subsidies? How much flexibility do we have with route / timetable decisions?

Question 2: What is the breakeven number of passengers for a double decker bus?

Share Exhibit 1 with the candidate.

Proposed solution

An easy warm-up question: It is important to start by deciding on the unit to work with (day, route or mile). If we were to calculate the breakeven amount per route:

  • BE = Cost / Revenue per passenger
  • Cost = 1*20 + 20*1 + 50/10 + 3*20 = 233
  • BE = 105 / 1.5 = 70 passengers

Takeaways: 70 passengers per route sounds like a lot, it means that the bus needs to fill up more than once over one route. Since people are generally travelling in one direction during rush hours (i.e., from home to work or from work to home), and since a full bus cannot pick-up any more passengers, that could be a challenging target, especially outside of rush hours. Bus depreciation is the highest cost component, thus, we should check whether we can reduce the cost of buses or increase their useful life.

Question 3: The client has shared passenger information on 5 of its routes. What can you learn from the information?

Share Exhibit 2 with the candidate.

Key Insights

  • If possible, the client needs to adjust frequency of buses to make routes more profitable
  • Client should try to cancel route D, as it is never profitable
  • Route C is very profitable, but might be running out of capacity during peak hours, therefore its frequency should be increased
  • If the frequency cannot be reduced, the client should consider using smaller busses

Question 4: Unfortunately, the frequency of buses is regulated and RedBus cannot reduce it. However, RedBus is considering acquiring single decker buses to fully operate on some routes, and during off-peak hours on others. Their investment threshold is a 3 year payback period. Should they do it?

Share Exhibit 3 with the candidate.

Guide candidate to use Exhibit 1 for missing data. If needed, explain that the bus price is the required investment to purchase a single-decker bus.

Suggested solution

The candidate should calculate the difference in cost per trip of a single decker vs. a double decker bus, and calculate how many trips are required to payback the investment.

  • Cost per trip = (Depreciation per mile + fuel per mile) * number of miles per trip + insurance cost per trip + labour cost
  • Cost per trip = (420k / 300k + 0.5) * 10 + 10,500 / 350 / 10 + 20 * 1 = £61
  • Difference against a double-decker = 105-61 = £44 per trip
  • Number of trips to payback the investment = 420k / 44 = ~9,500
  • Number of annual trips per route = 10 * 350 days = 3,500

Takeaways: Replacing some double deckers with single deckers does make sense, as the payback for investment is less than 3 years as required. The client can further improve their payback period if they are able to sell some of their double deckers to other operators. One risk to consider is the potential revenue impact due to lower capacity, hence we need to be careful when selecting routes / times to operate with a single decker.

Question 5: After looking at the cost side, RedBus would like to evaluate some ideas for increasing revenues.

Suggested structure with sample ideas

  1. Get more passengers
    • Advertise the bus service – e.g., position as a greener, cheaper option
    • Re-design route to serve a larger population or shorten travel time
    • Offer benefits to frequent users (e.g., loyalty programme)
  2. Increase income per passenger
    • Increase fare if possible from regulatory perspective
    • Sell drinks / food on board
    • Provide paid WiFi service
  3. Generate revenue via auxiliary services
    • Offer buses for private hire for corporates
    • Increase advertising space inside and outside the bus
    • Gather and monetise usage data

There is no right or wrong answer to brainstorming question. However, you should expect the candidate to generate at least 5 reasonable ideas and communicate them in a structured manner. Ask "what else?" if the candidate generates too few ideas.

Final Question: We are meeting with the CEO of RedBus, what would you tell her?

I would recommend RedBus to start operating single decker buses on some of their routes to improve profitability, for the following reasons:

  • Cost per route of a double-decker is £105, which requires 70 passengers in order to break even
  • Some routes, like D, never reach 70 passengers, others are losing money during off-peak hours
  • RedBus could acquire single decker buses for £420k, which will cost £61 to operate and will pay back the investment in less than 3 years

As a next step, I would recommend looking at options to dispose of some of the double decker buses to further improve the payback period, as well as ways to attract more passengers to the buses, for example by launching a loyalty programme.

Questions on this case
2 REGARDING QUESTION 4
Book a coaching with Luca

100% Recommendation Rate

25 Meetings

1,962 Q&A Upvotes

USD 179 / Coaching

Hello John, I will try to make it clear for you. Consider this question as a comparision of 2 alternatives. The first big assumption is regarding the revenues: you are gonna use the single decker b... (read entire answer)

2 the capacity of the double decker bus
Book a coaching with Ben

100% Recommendation Rate

12 Meetings

124 Q&A Upvotes

USD 169 / Coaching

Hi Yan, Thank you for the question. Please note that people get on and off the bus during the journey, so the total number of people using the bus on one journey can well be above 60. However,... (read entire answer)

2 Question
Book a coaching with Ian

100% Recommendation Rate

90 Meetings

5,534 Q&A Upvotes

USD 239 / Coaching

Hi there, I'm a bit confused by your question. It looks like you do multiply by 10 (see image below).

Related BootCamp article(s)

CAGR - Compound Annual Growth Rate

Learn everything you need to know about CAGR (Compound Annual Growth Rate) for your case interview ✔ Definition ✔ Formula ✔ Examples ✔ Applications

Growth Strategy

Growth questions are among the most common questions in consulting case interviews: gather the necessary Information about volume and price to find the best growth lever

Profitability Case

Learn to crack Profitability Framework Consulting Cases, which are the number 1 reason for real consulting projects and hence are an important case type.

1 Q&A Quiz
4.5 (90 ratings)
4.5 5 90
Show all questions on this case (3)
Case exhibits

Exhibit 1 - RedBus Financial and Operational Metrics


Exhibit 2: Number of passengers by route and time of day


Exhibit 3 - Single decker bus economics

  • Other costs are the same as for a double decker bus
  • Assume buses operate 350 days per year