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Medium Profitability Cost Reduction Operations

Sardine Airlines

#Transportation
ProHub Comment

This case requires candidates to identify SG&A as the primary profit driver issue, decompose it into components (marketing, rent, customer service, salaries), and recognize regulatory constraints around maintenance. The key is balancing cost-cutting with operational risks and regulatory compliance (FAA oversight).

Estimated Time 26 minutes
Difficulty Medium
Source Duke
10 / 100
Sardine Airlines is an ultra low-cost carrier with flights throughout the continental United States. They have hub airports in Oakland, California; Tulsa, Oklahoma, and Hartford, Connecticut. Sardine Airlines is facing increased pressure from other low cost carriers such as Cattle Car Air and Soul Airlines. Sardine Airlines has faced declining profit for the past year. Sardine’s CEO, Penny McPincher, has asked your team for advice on how to reverse the profitability trend.

Clarifying Information

  1. Sardine Airlines competes primarily on having the lowest cost fares and offering minimal service
  2. Due to its business model Sardine Airlines has a culture of cost savings that can be passed to the customer
  3. Sardine Airlines is trying to grow profit margin to 20% (INTERVIEWER GUIDANCE: net income/total revenue)
  4. If the interviewee asks about revenues/costs give them Exhibit 1, Statement of Operations
Mock Interview
Interviewer

Sardine Airlines is an ultra low-cost carrier with flights throughout the continental United States. They have hub airports in Oakland, California; Tulsa, Oklahoma, and Hartford, Connecticut. Sardine Airlines is facing increased pressure from other low cost carriers such as Cattle Car Air and Soul Airlines. Sardine Airlines has faced declining profit for the past year. Sardine's CEO, Penny McPincher, has asked your team for advice on how to reverse the profitability trend.

You

Thanks. Before analyzing, I'd like to clarify a few key questions...

Interviewer

Good question. Let me provide some background information...

You

Based on this, I suggest analyzing from these dimensions...

AI Score
Structure Analysis Communication Business Sense Quantitative
Practicing...
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Practice this case with AI Mock Interview

Sardine Airlines, a low-cost carrier, faces declining profits despite revenue growth. Candidates must analyze financial statements to identify that SG&A expenses are rising as a percentage of revenue (from 15% to 20%), then recommend specific cost reductions in call center operations and headquarters rent while avoiding cuts in maintenance or marketing.

Key Insights:

  1. Identify SG&A as the primary profit driver by comparing expense ratios year-over-year
  2. Decompose SG&A into components and prioritize by absolute and relative growth (marketing $24M, customer service $52M, rent $40M)
  3. Recognize regulatory constraints—FAA memo indicates maintenance cost increases are necessary and non-negotiable
  4. Calculate specific savings opportunities: overseas call center ($38M) and headquarters relocation ($34.4M)
  5. Balance cost reduction with risks of reduced service quality and one-time transition expenses