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Bain Medium Profitability

International Airlines

#Transportation #Airlines
ProHub Comment

This is a classic profitability case requiring candidates to identify a specific business segment (freight) as the source of declining margins. The case tests both quantitative analysis (calculating the $120k loss per flight) and strategic thinking about business model optimization. Candidates must distinguish between belly freight and freighter operations and recognize that recent expansion of freighter capacity was strategically misaligned.

Estimated Time 15 minutes
Difficulty Medium
Source Chicago Booth
50 / 100
One of our clients, a leading international airline, has come to Bain with a problem. Over the last three years they have noticed that while their business has been doing well, their profitability seems to be stagnant. They have come to us to try to determine what the issue is and how they can correct the problem.

Clarifying Information

  1. The airline has two main lines of business: passenger and freight.
  2. Provide Exhibit 1 only when asked about business segments (product mix or profit trends).
  3. The firm operates globally.
  4. There are two main types of freight: belly freight, which is carried in the bays of the planes that are operating as passenger jets, and freighter freight, which is carried on specially-designed freighters.
  5. With the exception of live animal freight, which is an inconsequential portion of this airline’s overall business, all types of freight can be carried on either freighters or passenger planes.
  6. Passenger planes typically have about 35% of the room for freight as compared to freighters.
  7. The cost per ton of belly freight (i.e. the incremental cost to the airline) is approximately 20% that of freighter freight.
  8. The time to deliver belly freight is approximately 10% longer than that of freighter freight.
  9. The destinations served are actually greater with belly freight flights than with freighter freight.
  10. They operate out of the same airports, although separate personnel are required to operate freighter freight flights.
  11. If belly freight or freighter freight capacity goes unoccupied, it’s non-revenue generating (i.e. nothing else is carried in that space).
  12. International Airlines has quadrupled their number of freighters from 3 to 12 over the past 3 years. Further they have added new freighter flights. This has led to the usage of the freighters’ capacity on each flight to drop from 85% to 35%.
  13. At the same time, the number of passenger flights has doubled and the number of destinations served via passenger flights has increased by 1/3. Belly freight capacity usage however has dropped from 85% to 60%.
  14. The total cost for a freighter freight flight averages $400,000 per flight and for passenger flights they are $600,000 (regardless of the freight carried).