Case Interview Practice Case #1: Airline Profitability

This is a case interview practice case that you can do on your own without a case interview partner. This case is a profitability case, one of the most common types of first-round interviews at consulting firms such as McKinsey, BCG, Bain, LEK, Deloitte, and Accenture.

In this consulting practice case, you'll develop a case interview framework, solve quantitative problems, and answer qualitative business before delivering a case recommendation.

This case comes from Hacking The Case Interview’s comprehensive online course. If you find this case interview exercise helpful, check out our full case interview course.

[Jordan-xdbv]

6:38 you cant just count a $0.3 increase without counting how many economy seats would fit in the 200 sq ft, the more correct way to answer is

20sqft * 10 seats = 200 sqft total area
divided by 6qft required for 1 economy seat = 33 new seats.
33 seats * 70% * $150 * 20% margin = $693 per plane
- $640 if it was business = $53 increase in profit if business was swapped into economy

so it should be $53 instead of $60

[ryanmcdonald]

Looks as though you mention 'Economy Class' from NE Airlines twice upfront. I believe you intended to mention Business Class as being the more premium option with better amenities.

[gigabots]

Thanks for a vid! I have one comment: When outfitting the business class space with economy, you can only fit 33 seats in 200 sq ft, with 2 sq ft leftover. Thus, the potential profitability increase is $53.

[minanihad]

For me I won't conclude this way, because with just 60$ increase in profit, I don't see how this can cover the cost of removing seats. I would rather recommend to keep the business seats, and try to make a strategy on decreasing the price for shot term period ( need some quantification) and improve the business class service as long term strategy (also need some metrics here to see whether the company can afford it) in order to increase sells

[judyl.]

0:39 fare: the money paid for a journey on public transport 交通費: business class and economy class
0:46 business class: more seat room, more amenities and premium service.
1:26 whether they should give up their business class offering.
3:04

[Elosuaify]

I think a missed opportunity on the framework was to include other potential means of revenue that business class seats can generate such as extra baggage fees which could impact profitability per ticket

[buatyoutube]

I still wonder market size and growth for business class. Does the BC seat reduction also happen to other companies. That data will speak louder to conclusion and recommendation.

[nW-rujt]

Great knowledge! Thanks! I would not have clear cut recommendation. Decision should be made after further analysis on factors influencing both keeping and not keeping business class - would be the recommendation

[anjalifrancis]

One question I have is what would be some example clarifying questions that we should ask the interviewer before we begin creating our framework for this case? Thank you!

[samuelputrab.]

Overall great video for a student like me. If I had to challenge the solution, however - I could ask that:

Considering that $60 is only a 3% increase (additional / existing profit) - does it really outweigh the risks that you mapped out? I find that conclusion very strange and hence, the recommendations are still rather flawed.

I understand that the scope of the question is only to see whether business class seats should be removed or not - but I do think there is something missing from the case. Perhaps, I would benchmark that 3% increase to other possible actions (adding value to business class blabla)

[SnowFaceChamcham]

My initial method for this solution 6:13 was so much more convoluted and I feel very silly having not come up with this method on my own haha
I did:
($1260*560 total sq ft)/(360 previous sq ft) = $1960 - (prior total profit per plane, $1900) = $60. It's still right but it was like taking 3 left turns to make a right turn

[quantran]

with the existing infrastructure for business class, the airline can easily add-on entertainment system which creates a safe margin towards budget airlines. Furthermore, 60$ profit increase means less convincing than rather keep business class and try not to loose current customers to competitors.

[Justin_hrl]

Thanks for the great video! If its not too much to ask, could you (or anyone who has done these cases) let me know which of the practice cases on your channel is the most challenging one? I get that different people have different competencies but if there was a practice case which stands out from the rest in terms of difficulty, I'd definitely like to try it out

[pavanelisetty]

correct me if i'm wrong. The economy class itself is 70% utilized and if this class itself is not fully filled then how can we recommend adding more of these seats.

[lars]

Is it usual to do profit /square foot for airlines?

[lungilemahlangu]

I think the way in which you asked the question is slightly confusing, you could have just asked it simpler, 'what is the margin for both classes given the utilisation stats"

[YaseminAkay]

I disagree, I think that Northeast Airlines should keep the business class. $1260 from economy, per plane, plus $640 from business, per plane= $1900 profit. Whereas without the business class, that's $1260 from economy plus $60 from the new economy part of the plane.

Please tell me if I'm right or wrong and why.

[raghavbansal]

The company was able to fill only 70 percent of the already existing economy class then how will increasing those seats help the company generate more revenue they are not even able to sell al the tickets of economy before. keeping business class is profitable because atleast assurity is there that on an average 40 percent seats tickets are sold.

[SHIVAJI_NARASIMHA]

If still there is a demand for economy class expand it and increase the price of economy class or can generate revenue through business class by extra baggage fess as told :)

[stephanieblack]

Seems kind of crazy that they want a recommendation within 5 minutes, I just think it sounds drastic to completely replace a whole Business Class section with Economy because of a 10% decrease in utilization. Ok, looking at the numbers it's more profitable, but like he mentions, you need to consider the cost of doing all that work to replace the seats. It's going to change the whole perception and constitution of this airline, they are basically rebranding as a budget bare-bones airline. There is so much more analysis that needs to be done. I wouldn't feel comfortable making any reccomendation, simply saying, these are some very basic numbers for an initial idea. But it's good just for a quick brain exercise.