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Case Scenario-
The client is a major airline company and the CEO wanted to put one more passenger on each of his company’s flights.
Key Questions-
The financial return of one more passenger per flight. Is it worthwhile to do so? What marketing strategy will work to attract these new passengers?
Solutions-
The company should look at the revenue and cost side of bringing one more passenger per flight, as well as the average cost of a ticket. They should also ask if there is enough capacity to put one extra passenger on board each flight from Heathrow to London Stansted.
Candidate should ask about the kind of routes, the market share, and then the price of each of them. In this case, we were talking about the Brazilian market and this airline has only domestic flights. You should adapt the numbers to US domestic airline market or any other you would like.
The company has 100 aeroplanes and estimates that 80% of their planes are used for 1-hour and 20% for 3-hour flights. Depending on the city, we could have more frequent flights than others, but he agreed that I could make this approximation.
We need to make an assumption to work out the number of flights per airplane per day and the interval of time in which an airplane stays on the ground. For this company, the first airplane departs at 6:00 am because the executives must arrive at its clients' offices at 8:00 am.
The idea is based on the assumption that an airline's executives must arrive at their clients' offices at 6:00 am and leave for the client's office at midnight.
The candidate should realize that the cost of one extra passenger is only the marginal cost, which can be ignored. Extra revenue in one month is $3,360,000.
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Frequently asked questions
What is the main goal of the airline case study?
The case study aims to analyze the financial impact of adding one more passenger per flight and determine whether it's a worthwhile strategy. It also explores how marketing can help fill that extra seat on every domestic flight without incurring significant additional costs.
How is the profitability of one more airline passenger calculated?
Profitability is calculated based on marginal cost, which is very low in this case. Since the seat is already available, nearly all revenue from the extra ticket becomes profit. With 100 planes flying daily, the company could earn around $3.36 million in extra revenue monthly.
What assumptions are made in the airline case study?
The analysis assumes 100 aircraft, with 80% doing 1-hour flights and 20% doing 3-hour flights. Planes operate between 6:00 AM to midnight, enabling multiple trips per day. These approximations help in estimating capacity and additional revenue potential from one extra passenger.
Why is marginal cost important in airline consulting?
Marginal cost matters because it represents the cost of adding one more passenger, which is almost zero for airlines. Since the plane is already flying, the extra ticket adds almost pure profit, making even small increases in passenger count very lucrative over time.
What marketing strategy can attract the extra passenger?
The airline should use loyalty programs, dynamic pricing, and targeted digital ads for frequent domestic flyers. Promotions aimed at budget-conscious travelers or last-minute flyers can help fill the remaining seat, ensuring full capacity and maximizing each flight’s revenue.
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