BizModelling

Case of PRARIES Airlines

Team BizWizards

Deepak Himani Valecha Shekhar Mandal
PRAIRIE AIRLINES : AN OVERVIEW
ABOUT THE AIRLINE
Operating in US Domestic Airline Industry
Low Cost Carrier
Operating in 202 routes across 39 Cities
PROBLEM STATEMENT
Scale Up and Expand Operations
Identify Profitable Routes
Locate the major cities for maintenance HUB
METHODOLOGY
Preliminary Analysis
Regression using Random Effect Model
Interpretation
Recommendations
ASSUMPTIONS
Cost /Km is constant
The route list for the given cities is exhaustive
The Airline wants to scale up and expand its operations in the
given 39 cities only
ABOUT THE DATA
No. of Cities : 39
No. of Routes : 202
Data Available for four years
Attributes Given : Distance , Passenger , Concentration ratio
Linear relation of Passenger and Concentration ratio with FARE
Non Linear Relation of Distance with Fare
Low Multicollinearity
Hetereoscedasticity
600
610
620
630
640
650
660
670
680
690
700
710
1997 1998 1999 2000
Avg Passenger
Avg Passenger
Descriptive Graphs
0
200
400
600
800
1000
1200
1400
1600
1800
2000
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FARE IN DIFFERENT ROUTES OVER YEARS
1997 1998 1999 2000
0
500
1000
1500
2000
2500
3000
1
3
7
7
3
1
0
9
1
4
5
1
8
1
2
1
7
2
5
3
2
8
9
3
2
5
3
6
1
3
9
7
4
3
3
4
6
9
5
0
5
5
4
1
5
7
7
6
1
3
6
4
9
6
8
5
7
2
1
7
5
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3
F
a
r
e

Distance
Distance vs Fare
Key Attributes Affecting AIRFARE


Methodology: Random Effect Model

Lfare =
0
+
1
*y
98
+
2
*y
99
+
3
*y
00
+

4
*lpassen -
5
*concern +
6
*
ldistsq

Distance square accounts for the non
linear trend being followed in
distance and fare

Fare has been increasing over the
years

Passengers are the
Most significant
factor




Distance ( +ve)
Concentration
(+ve)
Passengers
( -ve)
Most Profitable
Routes based on
Average
Revenue/KM
Growth in Avg
Revenue/Km
Total Revenue
0
1000
2000
3000
4000
9
6
3
9
6
4
1
0
6
7
1
1
2
3
9
6
0
1
1
1
5
1
1
0
9
1
0
5
7
9
6
9
9
9
4
Revenue Per KM (in $/KM)
Profit
0%
50%
100%
150%
200%
250%
300%
350%
9
5
3
1
0
4
6
1
1
2
7
9
5
4
1
0
3
8
9
9
4
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4
1
0
8
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1
1
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1
3
2
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2
2
1
1
2
4
1
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7
1
0
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5
1
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3
1
1
0
1
1
0
6
3
9
7
6
Growth in Revenue/KM
Growth in Profit
0
2,000
4,000
6,000
8,000
10,000
9
5
2
9
6
3
1
1
2
2
9
6
4
9
6
0
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7
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2
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0
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1
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1
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5
4
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1
1
1
4
1
1
1
0
1
1
2
3
Total Revenue
Total Rev
MOST PROFITABLE ROUTES (1/2)
(Total No. of Routes: 202)
Route Id Route Name
963 "NEW YORK, NY" To "WASHINGTON, DC"
952 "NEW YORK, NY" To "SAN FRANCISCO, CA"
1123 "SAN JOSE, CA" To "SANTA ANA, CA"
975 "OAKLAND, CA" To "SANTA ANA, CA"
1109 "SAN DIEGO, CA" To "SAN JOSE, CA"
953 "NEW YORK, NY" To "SAN JOSE, CA"
1108 "SAN DIEGO, CA" To "SAN FRANCISCO, CA"
969 "OAKLAND, CA" To "ONTARIO, CA"
974 "OAKLAND, CA" To "SAN DIEGO, CA"
994 "ONTARIO, CA" To "SACRAMENTO, CA"
MOST PROFITABLE ROUTES (2/2)
(Total No. of Routes: 202)
Flights connecting to NEWYORK, Oakland ,San Diego and San Jose
are highly profitable due to high Revenue/KM
Based on Total Revenue, Revenue/ KM and Growth in
Revenue/KM, Below is the list of profitable routes
Distance Revenue
Average Rev/KM
Revenue Growth
HIGH PERFORMING CITIES
(Total No. of Cities : 39)
CITY Distance Passenger Revenue Avg Rev/KM Frequency Growth
"NEW YORK, NY" HIGH HIGH HIGH HIGH HIGH ABOVE AVERAGE
"SAN FRANCISCO, CA" HIGH HIGH HIGH HIGH HIGH HIGH
SEATTLE HIGH HIGH HIGH AVERAGE HIGH HIGH
WASHINGTON HIGH HIGH HIGH HIGH HIGH HIGH
AVERAGE 45225 KM 27570 $4.3 Millions 81/KM 10.3 19%
% of TOTAL 26.80% 31.80% 42.50% 21.30%
Benchmark : AVERAGE
HIGH : Twice of Average ( Distance, Passenger, Revenue)
>120% of Average (Avg Rev/KM, Frequency, Growth)
Frequency of Flight Revenue Growth
HIGH PERFORMING CITIES
(Total No. of Cities : 39)
Competitive Rivalry
- Less Product
Differentiation
-Same Supplier
- No brand loyalty by
customers.

Bargaining power of
Buyers(customers)
- Low Switching Cost

Bargaining power of
Suppliers of aircraft
eqpuipment
- High Switching cost
- High Brand Value of
Suppliers
Threat of Substitutes
-other LCC and FSC
- Road
- Rail
- Marine
Threat of New Entrants
- High Capital
- Low Growth rate
- Strict Regulations
Porters 5 Forces Analysis
- Aggressive Fuel price hedging
- Operation enhancements at profitable routes
- Only one kind of aircraft to reduce engineering cost
- No Travel Agent only direct booking
- Paid meals, Snacks and Beverages
- Fast turnaround unload a flight, cleaning and
reloading
- Fixed timetables, a unionizes 24/7 shift operating
highly skilled workforce
- Time Value Relationship for seats(earlier the
booking more will be the discount).
- Frequent Flyer program for regular travellers to
retain their loyalty
- Dedicated Promotions
-Special Tariff plans for off and festive seasons




Recommendations
THANK YOU!!!

QUESTIONS