Possible error on figure 4?

Question

On figure 4 of this question, we are told that the fixed costs are $ per plane per year:

The startup must pay satellite operators an annual satellite fee. (50K)
In addition, the startup must pay the operator for every megabyte downloaded in-flight. (0.1 / MB)
The airline charges a yearly licensing fee. (75K)
The investment costs include amortized acquisition and installation costs. (25K)

We calculate that the total fixed costs are 50K + 75K + 25K = 150K.

However, in the solution, we are told to find the fixed cost per plane to be 150K / 600 (where 600 is the number of planes in its fleet) = $250 per plane.

Is this not a contradiction? To me, this shows that the metric in table 4 is NOT per plane per year.

Answer 1

Dear,

Thanks for the question. After reviewing the case, I believe the confusion can be clarified as follows:

The total fixed costs per plane are $150,000
When we break down these fixed costs on a per-flight basis, it amounts to $250 per flight ($150,000/600).

The case instructions state that each plane completes 600 flights over the years, indicating that they operate more than once per year, which is a reasonable assumption.

Therefore, it is essential to determine whether you intend to conduct the break-even analysis on a per-flight or per-plane basis. The solution provided in the case follows the former approach, focusing on calculating the required number of customers for each flight.

This involves:

Calculating the fixed cost per flight, which is $250, as demonstrated earlier
Assuming an average data consumption of 100 MB per customer per flighy
Assuming that the revenue per customer on each flight remains constant at $15.

I hope this clarification addresses any concerns. I think it's only a matter of understanding that “flight” is a different concept of “plane”.

If you have any further questions or require additional clarification, please do not hesitate to reach out to me via direct message.

Best,

Antonio

Answer 2

Hi there!

I see Antonio already gave you a great answer. If you have any follow-ups, let us know.

Aside from this, here are a few other cases to look into:

https://www.preplounge.com/en/management-consulting-cases/interviewer-led-mckinsey-style/intermediate/mbb-second-round-codewave-employee-turnover-challenge-304

https://www.preplounge.com/en/management-consulting-cases/candidate-led-usual-style/advanced/mbb-first-round-soy-technologies-303

https://www.preplounge.com/en/management-consulting-cases/interviewer-led-mckinsey-style/intermediate/element-mobile-expands-into-refurbished-phones-mbb-2nd-round-302

Best,
Cristian