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AirService
Topic Difficulty Style
Operations strategy Beginner Candidate-led (usual style)
Profitability analysis

Your client AirService is the service provider for a number of airports.

The management realized a decrease in profits that is linked to

increasing costs.

How would you help them?

Comments

The case is split into two parts.

The first part describes more qualitative problems and includes open
questions to force the interviewee into thinking about the problem and
possible solutions.

The second part deals with quantitative calculations based on the previous
part. The interviewee should conduct his own calculations and solve the
questions.

Short Solution

AirService has bought too many trucks. Therefore the occupancy rate is lower
per truck, resulting in increasing costs per unit.

AirService should sell trucks or enter new markets.

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

Paragraphs highlighted in blue can be verbally communicated to the

interviewee.

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

I. What activities does AirService perform?

The interviewee should learn about the activities of the client to

understand the case.

Upon interviewee request: AirService has three main activities in the

airport:

1. Client handling (from entering the airport to boarding the plane)

2. Luggage handling (from registration to loading onto plane)
3. Provision of drinks & food, fuel, and take-off support (specific trucks

that push the plane)

II. What are the costs for AirService?

The interviewee should come up with a structured answer covering the 3

main activities described above. A structured answer includes assumptions
about the respective processes and steps involved in each of the activities.

Client Handling

Step 1 = registration at counter (costs associated: staff + equipment)

Step 2 = security (costs associated: staff + equipment for controls)
Step 3 = boarding (costs associated: staff)
Step 4 = transport to plane (costs associated: drivers + bus + staff)

Luggage Handling

Step 1 = counter (costs associated: staff)

 Step 2 = conveyor belt (costs associated: none)
Step 3 = transport to plane (costs associated: staff + trucks + gas for
truck)
Step 4 = load on the plane (costs associated: staff)

Provision of Supplies and help-to-take-off

Step 1 = supply (costs associated: product costs + trucks + staff)

Step 2 = fuel delivery (costs associated: product costs + trucks + staff)
Step 3 = help to take off (costs associated: staff + specific trucks)

After having identified the costs associated to each activity, the

interviewee should ask for numbers to focus on a certain area. Instead
provide upon request diagram 1 first. The interviewee should dig deeper
and be "rewarded" with diagram 2.

So, main costs arise in the Supplies activity of AirService. The main costs are
the specific trucks required for take-off. Following the pareto principle, the
focus should therefore be cast on the trucks.

III. Focus on the specific trucks for take-offs: what are the
costs?

The interviewee should come up with at least 4 answers. Possible answers:

Cost of the truck

Maintenance
Gas
Drivers

IV. Focus on the specific trucks for take-offs: how to

reduce them?

The interviewee should come up with a structured answer and at least 3

answers per type of costs.

Possible answers:

Cost of the truck

Reduce purchase cost

 Buy less trucks
Rent instead of purchase
Increase lifetime of trucks

Gas

Reduce distance driven (route optimization)

Decrease purchasing price of gas
Increase load per truck (economies of scale)

Drivers

Decrease number of drivers

Reduce wages
Limit absenteeism
Optimize productivity of drivers (no spare time during shifts)

At this point the interviewee will ideally ask you for numbers regarding the
respective points of analysis. There is no additional information nor are
there numbers available, how the costs have developed over time.

The gas price, labor costs per worker, absenteeism and passenger number
have remained constant. Let the interviewee think about potential other
variables that could be interesting. Provide upon request the information
that the number of trucks has increased to 25 units due to good relations
with the truck manufacturer resulting in a significantly lower purchasing
price compared to other competitors in other, structurally similar markets.

Interviewee should conclude that occupancy rate of the trucks must therefore
be lower or many trucks remain unused and drivers have more spare time
during their shifts. It looks like AirService has too many trucks. In order to
quantify and test this hypothesis, we will look into numbers in the next section.

V. How many specific trucks are required for the activities

of AirService?

Assumptions given to interviewee:

5 airports
100.000.000 passengers in total per year
 Market share: 20% of total passengers

The number of trucks required depends on the number of take-offs. Let’s

determine the number of take-offs for each airport.

The interviewee must split the question into several logical and simple steps
to have a structured answer.

Number of passengers served / airport

= Total passengers * market share / number of airports

= 100.000.000 * 20% / 5

= 4.000.000 passengers / airport

How many passengers on average per plane? This is an assumption to be

made by the interviewee:
Assume 200 passengers per plane

Number of take-offs / year

= Total passengers / airport / year / number of passengers / plane

= 4.000.000 / 200

= 20.000 take-offs / year

Number of take-offs / day

= take-offs / year / number of days

= 20.000 / 350 (for simplicity)

≈ 60 take-offs / day (for simplicity)

Number of take-offs / hour

= take-offs / day / number of hours

= 60 / 20

=3

The candidate should state an assumption, how long it takes for one
 particular truck to handle all the processes it is involved in. Although there
is no right answer to this question, let's assume in the following it takes a
full hour per take-off. It can furthermore be assumed that the take-offs are
distributed equally during the day, so there are no peaks

3 take-offs per hour → So at least 3 trucks required per airport.

In total 3 trucks * 5 airports = 15 trucks.

VI. Conclusion

We have identified that the trucks are the main costs for AirService. We are
considering trucks first (pareto principle).

AirService currently has too many trucks. Minimum amount of trucks to

perform activities is 15, while AirService has 25. With the overcapacity, they
can either enter new markets (we learned, there are) or try to sell their least
productive trucks to the competitors.

Possible ways to reduce the costs relative to these trucks are:

Sell trucks (short term)

Enter new markets and increase occupancy rate (medium-term)
Buy less trucks (long term)
Leasing trucks instead of buying (long term)