Interactive interview briefing pack


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Wright Airways
Briefing pack
2
Agenda


Profitability data
3
Management’s perspective

I haven’t used consultants before, but I’ve called in Bain to help me
think about the future growth of my business

Wright Airways.
We’ve been operating short
-
haul flights in Europe now for 10 years.
-
cost carriers and margins squeezed. I think the Open Skies
agreement presents a great opportunity for Wright Airways to enter
the long
-
haul market.
However, I want an outside perspective on the profitability of three
new route options, how I can reduce costs on the existing routes,
and what my immediate priorities should be
.”
Willy Wright, CEO of Wright Airways
4
Wright Airways: Group Overview
Willy Wright
CEO
Simon Smith
Commercial
Jimmy Jones
Flight
Operations
Tom Tucker
Engineering
Billy Bernard
Ground
Operations
Daniel Davies
CFO
Alan Anderson
CIO
Holly Hall
People
& Org
Effectiveness
Eve Evans
General
Counsel
Martin Marks
Investments
& Alliances
Operations
Commercial
G&A
5
Wright Airways revenues have grown over the last 5 years
Note: *Operating profit margin = (Revenue

operating costs) / revenue
Source: Wright Airways management accounts
%
pt
change
-
3%
6
Wright Airways revenue in 2007 was 449M
Source: Wright Airways management accounts
Overall
5%
Areas represent
split of revenues
7
Wright Airways overview
Note: Costs/revenues are per round trip
*Includes landing fees, fuel, crew and aircraft insurance
Schedule
0700
1100
1400
1800
0650
1400
1950
0835
1800
Fleet
B
-
737
MD
-
83
A320
F
-
50
Landing fees
(origin/destination)
9/12 per
passenger
6/6 per
passenger
9/6 per
passenger
Costs per flight:

Fuel

Crew

Aircraft insurance
3,000
4,000
800
5,000
4,000
800
7,000
5,000
800
Total cost per seat*
75
82
110
London

Paris
Manchester

Frankfurt
London

Madrid
8
Fuel is the biggest cost item for all Wright Airways
aircraft…

Maintenance costs can
be reduced by
simplifying the fleet
-
reducing complexity
is
priceless
.”
Jimmy Jones

Low cost carriers make
all their money from
cheaper landing fees,
service/crew and having
no high
-
cost business
class
.”
Simon Smith
Number
of
seats
9
… and cost of fuel has grown dramatically since 2004
“Big airlines are hedging,
and this has saved them
up to 30% in fuel costs
due to recent price
hikes.”
Simon Smith
10
The EU
-
US Open Skies Agreement opened up London
Heathrow to full competition in 2008…
11
…causing some airlines to experience declining
profitability on popular destinations
12
routes is growing at ~6% pa
Source: International Air Transport Association
Total
13
14
with a wide range of offerings
Pre
-
flight
On arrival

Access
to business class lounge
-
Complimentary services (E.g., airport lounge spas)
-
Food & beverage

Dedicated check
-
in counters

Priority
boarding

Access
to arrival lounges

Dedicated immigration
queues
On board

Enhanced
in
-
flight entertainment

Larger baggage allowance

Flat
-
bed seats

Business class dining

Personalized service
15
Agenda


Profitability data
16
Roger Miller, the partner on this project, has given the
team the following advice
Note:
*
Load factor = (Revenue paying passengers) / (Available seats)

I’ve just spoken to Willy and he wants us to model profitability based on the
B
-
777 standard seat configuration. He also said his team has some great
cost data
, so let’s just use that.
In
terms of revenue, Willy wasn’t sure on
load factors
*
, but I think there are
some good analyst reports out there that should help us make some solid
assumptions. From previous experience, I would expect these to be 60
-
70%
for economy and 50
-
70% for business. I suggest we take the average of key
, British Sprint and Springbok Airways) to
get to
number of trips per day and ticket price.
Overall
, we would expect margins of 15
-
25% for a profitable long
-
haul
route
.”
Roger Miller
,
Partner, Bain & Company
17
There are three aircraft that can handle
the
transatlantic route
Note: *Standard seat configuration
Boeing 777
Boeing 747
A
-
340
Range
9,695km
13,450km
14,800km
Typical cruising
speed @35,000
ft
905km/h
913km/h
896km/h
Wingspan
60.9m
64.4m
60.3m
Number of seats*
Economy
Business
250
50
350
100
300
50
Purchase price

135M
150M

140M
18
Analyst views on load factor for key routes

Load factors on the London
-
New York route are good in economy and
business, with All American and
operating at about 70%, and
British Sprint slightly lower at 65%. 70% is seen as the standard
benchmark
.”
James Smart
,
Finance
Inc

The London
-
Jo’burg
route is becoming more popular with business
travellers, but the business class load factor on Springbok Airways is about
10% lower than on the popular long
-
haul US routes (e.g. New York). The
load factor for economy is the same as for NY
.

Matthew Forbes
,
Airline Analytics 2008

The London
-
Dallas route is quite quiet with relatively low load factors on all
the major operators (All American,
in both economy and
business. The average would be about 60% and 50% respectively
.

Rebecca Smith
,
Fund Securities
Inc
19
Source: Airline Analytics 2008
Economy
Business
All American
British Sprint
Springbok Airways

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