Bain 1st Round Case – AirService [NEW]

Information to be shared only under request: 

• The client’s business focuses on providing 4 services:
  • Passenger handling (from entering the airport to boarding the plane)
  • Luggage handling (from registration to loading onto plane)
  • Provision of catered food & drinks
  • Take-off support (e.g., fueling, specific trucks that push the plane)
• Revenues are made through service-provision contracts with airlines and airports.
• Total operating costs have increased by $20M over the past year while revenues have remained unchanged.
• The goal of the client is to reverse the impact of the cost increase within a year.
• The client has allocated an annual budget of only $2M for any turnaround initiative.

Ask clarifying questions and/or present the structure.

Example of an excellent answer (score: 2)

GOAL CLARIFICATION

An excellent candidate would clarify the objective in terms of absolute amount, timeframe and constraints and how the client generates revenues.

STRUCTURE

A great candidate would include in the analysis the following elements:

1. Segmentation of profit sources for the client
2. Identification of areas not performing well in terms of costs
3. Analysis of specific costs for that area
4. Analysis of possible reasons for bad performance in costs
5. Strategy to decrease costs (or increase revenues if cost decrease is not possible)

The candidate might state a hypothesis when presenting the structure.

The candidate might include additional elements, but there should be a rationale related to the objective of the client.

COMMUNICATION

An excellent candidate should present clearly the different areas in a structured way.

Moreover, the candidate should clearly present the rationale for why he/she wants to explore a particular point, connecting the answer to the objective of the client.

Suggested score

An excellent candidate should:

1. Clarify the goal of the client (in terms of time and absolute amount)
2. Include the main elements in the structure as presented above
3. Communicate the structure in a clear way

Recommended score calculation: starting from 2, decrease the score by 0,5 points down to 0 for any of the following:

• The candidate did not clarify the objective in terms of time and absolute amount
• The candidate did not propose approaching the issue by first isolating the problem area, then investigating the root cause, and finally deriving potential solutions
• The candidate included several useless elements in the structure (for example, looking at revenues when costs were stated to be the issue)
• The candidate communicated the structure in a disorganized way or without a clear connection to the goal

Information to be shared only under request:

• The exhibit shows the client’s cost structure over the past 3 years, with Year 3 being the previous year.
• The one-off legal expense in Year 2 was incurred due to a settlement following a multi-year contract dispute; it is not expected to recur moving forward.

Example of an excellent answer (score: 2)

GRAPH ANALYSIS STRUCTURE

A great candidate will state the hypothesis that take-off support is where the cost issue is predominantly coming from. Catering also increased, but less than take-off support. This is based on the following:

Increase in operating cost: $20M (from the prompt)

Change in take-off support costs
= take-off support cost in Year 3 – take-off support cost in Year 2
= (36% * $220M) – (31% * $210M)
= ~$80M - ~$65M
= ~$15M

Change in catering costs
= catering costs in Year 3 – catering costs in Year 2
= (42% * $220M) – (40% * $210M)
= ~$92M – $84M
= ~$8M

Change in passenger & luggage handling costs
= minimal change (eyeballing is sufficient)

NEXT STEPS

An excellent candidate would prioritize analyzing the specific cost items under take-off support first (due to the larger cost difference) to isolate the problem area further.

Suggested score

An excellent candidate should: 

1. Identify take-off support and catering as the main drivers for the increase in cost
2. Identify take-off support as the problem segment
3. Propose next steps related to specific cost items under take-off support

Recommended score calculation: starting from 2, decrease the score by 0.5 points down to 0 for any of the following:

• The candidate spent several minutes analyzing the information in the graph without identifying the key trends
• The candidate did not state a hypothesis on the problem segment
• The candidate did not identify take-off support as the segment with the main issue
• The candidate did not suggest moving to the next steps prioritizing analysis on the specific cost items under take-off support

Information to be shared only under request:

• Take-off support involves refueling the plane, pre-take-off maintenance (e.g., de-icing a plane/runway during snowy weather), as well as ensuring the plane is in position for boarding and subsequent take-off.

Example of an excellent answer (score: 2)

A great candidate would identify the following costs:

1. Fixed costs:
   1. Salaries for crew (e.g., drivers, maintenance)
   2. Support vehicles (e.g., trucks that get the plane into position)
   3. Equipment (e.g., machines for refueling the plane or technology to supervise operations)
   4. Maintenance of vehicles and equipment
   5. Insurance
   6. Financing costs
   7. Allocated share of general & administrative costs
2. Variable costs:
   1. Fuel (for the planes themselves and support vehicles)
   2. Raw materials (e.g., used for de-icing the plane/runway)

The candidate may include additional cost items as long as they make sense in terms of the client business.

Suggested score

An excellent candidate should: 

1. Take time to think of the costs
2. Identify at least 6 cost items
3. Structure the cost items and communicate them clearly
4. Present cost items that are tailored to the situation of the client

Recommended score calculation: starting from 2, decrease the score by 0.5 points down to 0 for any of the following:

• The candidate did not take time to think of the costs
• The candidate did not provide a structure to brainstorm costs
• The candidate provided few costs / costs that are too generic / costs that are not tailored to take-off support
• The candidate did not present the cost items clearly

Information to be shared only under request:

• The number of flights the client serves has not changed significantly over the past year as an expected increase in flights did not materialize.
• The client had initially fully-paid off its fleet so only the additional trucks required financing.
• The additional trucks were procured at a lower price than the previous batch due to a special discount from the manufacturer.
• Annual cost per driver is inclusive of insurance and other benefits such as pension contributions.

Example of an excellent answer (score: 2)

INFORMATION REQUEST

An excellent candidate would ask for information on how the brainstormed costs have changed over the past year, in order to determine the specific cost to further analyze.

GRAPH ANALYSIS STRUCTURE

A great candidate will state the hypothesis that the client has purchased too many trucks (increasing its fleet by 50%) and expanded the number of associated support staff (i.e., drivers) without the demand to justify said increase. 

NEXT STEPS

An excellent candidate would move to analyze how the client can address this cost increase.

Suggested score

An excellent candidate should: 

1. Ask for information on how the brainstormed costs have changed proactively, in order to obtain the information in Exhibit 2
2. Identify that the client has expanded its fleet and drivers by too much
3. Propose next steps related to deriving solutions for the overexpansion of the fleet

Recommended score calculation: starting from 2, decrease the score by 0.5 points down to 0 for any of the following:

• The candidate did not ask for information on how brainstormed costs have changed (without being prompted)
• The candidate spent several minutes analyzing the information in the exhibit without identifying the key trends
• The candidate did not state a hypothesis on the root cause
• The candidate did not suggest moving to the next steps analyzing potential solutions

Example of an excellent answer (score: 2)

The candidate should realize that:

• The client will only realize 10 months of lease revenue due to the 2 months taken to secure clients.

Approach:

1. Monthly leasing revenues = number of trucks leased * monthly revenue per truck = 20 * $40,000 = $800,000
2. Months with revenue = 12 months – time taken to secure clients = 12 months – 2 months = 10 months
3. Total leasing revenues = monthly leasing revenues * months with revenue = $800,000 * 10 = $8M
4. Total profit impact = total leasing revenues – annual lease management costs = $8M - $0.5M = $7.5M

While this generates a positive profit impact and is within the operating budget, it falls short of the target of $20M in a year. Therefore, it will be necessary to also look into potential savings in driver costs as well as investigate other areas (e.g., catering costs) for additional cost saving opportunities as a next step.

Suggested score

An excellent candidate should: 

1. Take time to structure the approach
2. Communicate the structure to follow before starting computations
3. Perform the computations correctly
4. Contextualize the profit in terms of the target

Recommended score calculation: starting from 2, decrease the score by 0.5 points down to 0 for any of the following:

• The candidate did not set up the right analysis
• The candidate did not communicate the approach before beginning with the computation
• The candidate made mistakes in the computation
• The candidate did not contextualize the final profit figure

Example of an excellent answer (score: 2)

The candidate should:

1. Recap the objective
2. Provide an answer-first approach to the question asked
3. Mention risks and the next steps to take

RECAP OF THE OBJECTIVE

“Our client asked us to help reverse the impact of a $20M cost increase within a year.”

ANSWER-FIRST APPROACH TO THE QUESTION

“Based on our analyses, the increase was due to a 50% overexpansion in the plane-moving fleet. Our preliminary recommendation is that they should proceed with leasing the trucks not currently utilized. This is because: 

• The expected profit impact in the next 12-months is $7.5M, thereby meeting 37.5% of our goal;
• The annual lease management cost only takes up 25% of the allocated budget; and
• The client can potentially repossess the fleet in the future if/once demand picks up."

RISKS AND NEXT STEPS

“Nonetheless, there are some key risks associated with such a move, the main ones being:

• The expected leasing demand might not materialize
• We have limited knowledge/know-how on running a leasing business and this might distract management from the core business

Therefore, taking into account the goal of the client, we would like to analyze additional elements before making a final recommendation, such as: 

• Conducting a more rigorous risk analysis and coming up with mitigation strategies for the identified risks
• Double check the business case and potentially develop worst-, base-, and best-case scenarios
• Investigate further areas of cost reduction, such as truck drivers and catering costs, to reach our goal of $20M”

Suggested score

An excellent candidate should: 

• Recap the objective of the case
• Briefly highlight the root cause
• Recommend proceeding with the truck leasing idea, with reasons
• Mention possible risks and propose next steps related to exploring other cost-reduction opportunities

Recommended score calculation: starting from 2, decrease the score by 0.5 points down to 0 for any of the following: 

• The candidate did not have an answer-first approach
• The candidate presented the conclusion in a disorganized way
• The candidate did not provide reasons why the client should proceed with the truck leasing idea
• The candidate did not conclude the recommendation proactively with the next steps