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Hard Market entry

Rush Hour

#Transportation
ProHub Comment

This is a complex market entry case requiring market sizing, demand-supply analysis, and profitability modeling. The candidate must estimate unmet taxi demand at Lagos airport, calculate achievable revenue from excess demand, model comprehensive operating costs (fixed and variable), and determine the optimal number of permits to purchase based on profit potential.

Estimated Time 15 minutes
Difficulty Hard
Source Duke
50 / 100
The authorities of the Lagos Nigeria airport have decided to issue 2,500 new taxi permits for $1,000 each. These permits authorize a taxi to service arriving passengers. Your client has taxi fleets in different US cities but does not have a presence in Nigeria nor has serviced an airport in the past. She has asked you to determine if she should buy those new permits. If so, how many should she buy?

Clarifying Information

  1. Company information: Company is a big player in the US market but doesn’t have footprint outside the US
  2. Industry/competition information: Lagos Airport services is very competitive. Nigeria is densely populated with and the airport is the major airport in Nigeria due to high traffic
  3. Business model – makes revenue off transport services. Company takes a 70% cut on revenue from riders
  4. Airport handles 42 million passengers yearly. There are 5,500 taxis operating in the airport.
  5. On average a taxi takes 60 minutes to drive passenger and return to airport for next pick up.
  6. On average 40% of domestic flights passengers and 80% of international flights passengers use taxis.
  7. 30% of daily demand occurs between 6:00 a.m. and 10:00 a.m., 40% occurs between 6:00 p.m. and 10:00 p.m.
  8. Assume each passenger uses one cab and drivers keep 30% of the fare
  9. On average each taxi requires $8,000 yearly on maintenance.
  10. An average passenger pays $200 cab fare via regulated rates