The case states in its beginning that Cheap Fly Air wants to improve improve its proftability. And through basic proftability inormation, we see that both Revenue Rev enue and Cost have ha ve been uctuating. t is not a problem o !ust revenue or cost. t is both"
C ( 2006 and 2009 )
#roft $argin $argin e%uals &perating ncome ' Rev Revenue. enue. This is a plain calculation %uestion. (owever, you should not hand)calculate those numbers *too much time+. o calculations with your eyes. The calculations in this %uestion are easy enough or your eyes to go to wor-.
C ( Economy downturn )
se the elimination method/ A. Cost has nothing to do with Revenue 0. Fares have decreased . t is true that the number o passengers carried has reduced, but that is only one side o the coin. Revenue made up o # passener carried and ! "are prices. 1. 2e have no clue that passengers don3t li-e our service. n act, in the case introduction, CFA CFA has been said to have an uni%ue culture. C. t is C the answer because/ o
The case states in its beginning that the client client is acing the economy downturn. 4o this downturn happen or real" The downturn really really a5ect revenue revenue in both # passener carried and ! "are prices. 4o this downturn a5ect revenue or real"
1ven though more passengers were carried, CFA did it by increasing the seat usage, not through ac%uiring new planes. An increase in seat usage rom 67.89 to 6:.;9 will accommodate over ; millions more passengers which is enough to cover the 8. This %uestion is a typical ?not hard hard but ast? %uestion where you can well do it i you have time. #ractice #ractice will help you get better with these -ind o %uestions.
Question %: 1 2 3
& ( 1 and 3 )
- Fuel Cost - Salaries - Capacity (measured by # of customers carriable x # mile own) - !ircraft Cost (depreciation " rentals)
t is tempting to chose Fuel and 4alaries since they are the two biggest costs. (owever, 4alaries and all other cost are in act driven by Capacity. 4o the best answer would be Fuel Cost and Capacity. @ote/ this case is based on 4outhwest Airlines, and they stated it in their annual reports that Fuel Cost and Capacity are really the two main cost drivers.
C ( 'andin )
This is a plain calculating %uestion. And again, this %uestion can be done with your eyes.
$ ( 2 and 6 )
1 - i$erent types of fuels used by t%e client& 2 - 'rices paid by client for fuels 3 - orld oil - asoline mar*et - 'ro+tability, oin concern of clients fuel supplier . - Fuel cost per seat per mile of di$erent air-crafts / - Fuel usae 0olume by t%e client = and 7 directly drive uel cost. All others are sub driver o = and 7.
* ( !2%0 m )
This is more li-e a word problem rather than !ust plain calculation. (ere is how would want to do this %uestion in the astest way to me/ o
A uel cost increase rom =.B> to ;.88 is about =89
That translates to 6;7 millions * ;.7< bil = '>8+
That decreases #roft to the D =B8 millions level
E ( two types o" air+cra"ts )
! Sout%ast !ir %as a 0ery youn but expensi0e eet w%ile C%eap Fly !irs eet %as consistently been criticied to be a little old 4 Sout%ast focuses on ser0in t%e sout% east area, w%ere C%eap Fly !ir doesnt %a0e a lot of connections C Sout%ast !ir operates two ma5or aircrafts6 4737 and 4717 4717 eets of Sout%ast !ir will %elp C%eap Fly !ir sa0e cost on t%ose small and s%ort routes C%eap Fly !ir %as a stron on-i%t culture w%ereas Sout%ast does not 8%e all 4737 eet of C%eap Fly !ir sa0es t%em on maintenance cost Sout%ast !ir maintenance cost is %i%er due to its more complex eet All options rom A through will help both airlines once the $EA happens. 0ut or 1, the $EA does not specifcally solve that ?comple eet? problem. t is not that ater the $EA, 4outh1ast Air 3s eet becomes less comple. A. 2ith the new eet !oined *brought by the $EA+, CFA eet will be newer while 41A eet will be less epensive. 0. 2ith more connections *brought by the $EA+, both airlines get more rom eisting customers base. C. 2ith some smaller planes *brought by the $EA+, CFA can operate better. . 2ith the culture help rom CFA *brought by the $EA+, 41A fes one o its problems.