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The case states in its beginning that Cheap Fly Air wants to improve its
profitability. And through basic profitability information, we see that both
Revenue and Cost have been fluctuating. It is not a problem of just revenue
or cost. It is both!
o The case states in its beginning that the client is facing the economy
downturn. So this downturn happen for real!
Question 4: A(0)
Even though more passengers were carried, CFA did it by increasing the seat
usage, not through acquiring new planes.
This question is a typical "not hard but fast" question where you can well do
it if you have time. Practice will help you get better with these kind of
questions.
Question 5: D ( 1 and 3 )
1 - Fuel Cost
2 - Salaries
3 - Capacity (measured by # of customers carriable x # mile flown)
4 - Aircraft Cost (depreciation + rentals)
It is tempting to chose Fuel and Salaries since they are the two biggest costs.
However, Salaries and all other cost are in fact driven by Capacity. So the
best answer would be Fuel Cost and Capacity.
Note: this case is based on Southwest Airlines, and they stated it in their
annual reports that Fuel Cost and Capacity are really the two main cost
drivers.
Question 6: C ( Landing )
This is a plain calculating question. And again, this question can be done with
your eyes.
Question 7: A ( 2 and 6 )
2 and 6 directly drive fuel cost. All others are sub driver of 2 and 6.
Question 8: B ( $250 m )
This is more like a word problem rather than just plain calculation. Here is
how I would want to do this question in the fastest way to me:
All options from A through D will help both airlines once the M&A happens.
But for E, the M&A does not specifically solve that "complex fleet" problem. It
is not that after the M&A, SouthEast Air 's fleet becomes less complex.
A. With the new fleet joined (brought by the M&A), CFA fleet will be newer
while SEA fleet will be less expensive.
B. With more connections (brought by the M&A), both airlines get more from
existing customers base.
C. With some smaller planes (brought by the M&A), CFA can operate better.
D. With the culture help from CFA (brought by the M&A), SEA fixes one of its
problems.