SYMBIOSIS INSTITUTE OF

MANAGEMENT STUDIES

Section 1-C

The AIRLINES Case Study

SUBMITTED BY:
Nandita Singh (1)
Natasha Batra (2)
Neha Gulati (4)
Mrinal Manna (40)
Nikhil Singh (47)
Pranay Kapoor (56)
 1.Calculation the following :

i. Revenue
ii. Cost Incurred
iii. Profit
iv. Profitability
v. Break Even Point(B.E.P.)

For both strategies for the full plane, for each class and per
passenger in each class, assuming that plane is 80%
loaded.

A) UNDIFFERENTIATED STRATEGY

REVENUE

No. of Seats, A= 300

Average Load Factor, B=0.8
Average no. of seats occupied, C=X*L=240
Charge per Seat, D=$250

Revenue=C*D = $60000

EXPENSE

Fixed Cost = $50,000

Variable Cost per Passenger = $20
Total Variable Cost = No. of passengers * $20
= 240 * $20
= $4,800
Total Expense = $50,000+$4,800 = $54,800

PROFIT

Profit= Revenue - Expense

=$60,000-$54,800
= $5,200

PROFITABILITY

Profitability by Revenue= (Profit / Revenue) * 100

= ($5,200/$60,000) * 100
= 8.66%
 Profitability by Cost= (Profit / Total Cost) * 100
= ($5,200/$54,800) * 100
= 9.45%

BREAK EEVEN POINT (BEP)

Contribution/unit, C = Price per ticket – Variable Cost per ticket

= $250-$20
= $230
Fixed Cost, FC = $50,000
BEP (in units) =FC/C = $50000/$230 =217.39
= 218 seats
BEP (in sales) =FC/PV ratio = BEP (in units) * Price per ticket
=$54500

B) DIFFERENTIATED STRATEGY

REVENUE

BUSINE ECONO
FIRST SS MY
NO OF
A PASSENGERS 24 72 144
PRICE PER $1,00
B SEAT 0 $500 $250
REVENUE(A* $24,0 $36,00 $36,00
C B) 00 0 0

TOTAL REVENUE = $24,000 + $36,000 + $36,000

= $96,000

EXPENSE

FIRS BUSINES
T S ECONOMY
$7,5
A FIXED COST 00 $17,500 $30,000
VARIABLE $2,4
B COST 00 $2,880 $2,880
C TOTAL $9,9 $20,38 $32,880
 COST(A+B) 00 0

TOTAL EXPENSE = $9,900 + $20,380 + $32,880 =

$63,160.

PROFIT/PROFITABILITY

BUSINES
FIRST S ECONOMY
$24,00
A REVENUE 0 $36,000 $36,000
B EXPENSE $9,900 $20,380 $32,880
$15,0 $15,62
C PROFIT(A-B) 00 0 $3,120
D NO OF PASSENGERS 24 72 144
PROFIT/PASSENGER(C/ $587.
E D) 5 $217 $21.67
PROFITABILITY by 58.75
F revenue % 43.38% 8.67%
151.5
G PROFITABILITY by cost 1% 76.64% 9.45%

TOTAL PROFIT= TOTAL REVENUE- TOTAL EXPENSE

=$ 96,000 - $63,160
= $ 32,840

OVERALL PROFITABILITY by revenue

= (PROFIT / REVENUE) * 100
= ($32,840 / $96,000) * 100
= 34.2%

OVERALL PROFITABILITY by cost

= (PROFIT / REVENUE) * 100
= ($32,840 / $63,160) * 100
= 52%

2. List down all benefits of segmentation to all

possible stakeholders and who all could be the
beneficiaries?
A) Benefits of Segmentation to stakeholders

CUSTOMERS

Customer satisfaction is achieved if the customers get their choice

and preferences.
Customers get the value for their money.

SUPPLIERS AND VENDORS

•
Travel agents: Better commission due to increase in customer
base.
• Caterers: Opportunity to provide superior quality food and
beverages.
EMPLOYEES

• Better wages, therefore they are more satisfied.

• Clarity in job description, resulting in better performance.

SHAREHOLDERS

• Higher dividends
• Increases faith in management
• Brand loyalty

B) Other Beneficiaries

• Government
• Service Industry
• Business travellers- They get personalized service, comfort and
convenience.
• Company- The profits of the company has increased a lot due to
segmenting the market.

3. Is any segment subsidizing for any other segment?

If so who to whom? If not. Why not?

No, segment is subsidizing for any other segments.

They are receiving services commensurate for the price they
paying.
 4. What do you mean by absolute and relative satisfaction?
Do you think there is a possibility that any class may feel
relatively dissatisfied although absolutely

Absolute satisfaction of segment:

In this case there is no external comparison but the comparison is

only between what the customer/buyer expected to get and what
he got after buying. This occurs when the perceived and delivered
value match from the point of the view of the customer.

Relative satisfaction:
In this case customer/buyer compares the value he gets with what
the others have got.
For relative satisfaction, a customer should perceive same
value/cost ratio as that of another customer in the other high
value and high service segment.

Relative dissatisfaction although absolutely satisfied:

This occurs when the customer is fully satisfied with the services
received according to his perception, but is relatively unsatisfied
vis-à-vis the other high value and high service segments.
In this case, we don’t think any class feels relatively dissatisfied as
the price paid are in proportion to the services provided for every
class.

However there is a possibility that the first class and business

class have relative dissatisfaction if the service quality and
differential benefits go down.

Prevention of relative dissatisfaction:

Management should ensure that the price paid by the customer is

in proportion to the services and values provided. Value/Cost ratio
across various segments would remain same.

5. When can segmentation go wrong? How to avoid

segmentation from going
wrong? What precautions to take?
 Segmentation can go wrong when the following factors are
misread:

Geographic & Demographic variables:

• Purchasing power, size and characteristics of the segment
are interpreted wrongly.
• Small and heterogeneous segments.
• There can be an overlapping in the segments making them
in-differentiable from each other. As in this case, there might
be customers who are capable of paying for business class
but want to travel in economy class.

Psychographic Variables:
• Wrong approach in targeting heavy, medium and low users.
• Improper selection of services to be provided to suit the
lifestyle and personality of the customer.

Behavioral Factors:
• Services provided should be based on frequency and
urgency to the customers.
• Loyalty and user-status of the customers should form the
basis of the services.

The management can avoid wrong segmentation in this

case by:
• Clearly defining the size of each class in terms of no. of seats allocated
to each class.
• Services provided in each class should be at par with the prices paid.
• Ascertaining the profit earned from the seats allocated in each class.

Segmentation bases for airlines:

Geographical: Metros, Urban areas

Demographics: - High Income

- Business class in Occupation

Psychographics - Life Style

 - First & Business Class – People conscious of status, comforts and
facilities.
- Executive Class – Fliers who want low cost travel at faster rate.

Behavioral

- Business and first class will remain loyal if they get the required
luxuries they expect.

Economy class will remain loyal if they get reasonable travel fare.

Cases with varying ticket prices:

• $250,$350,$1000

Net Profit - $22040

Profitability – 25.87%

• $250,$750,$1000

Net Profit - $50840

Profitability – 44.60%

• $250,$500,$750

Net Profit - $26840

Profitability – 29.82%

• $200,$500,$1000

Net Profit - $25640

Profitability – 28.87%

How do you think the airlines could decide to arrive at the

right prices at the right time? If not at the right time whether
it would be desirable or undesirable?
 Maintain a balance between pricing and profitability.
 Maintaining the branding & “Novelty Status” of the Business &
First Classes.
 Using a Market Survey approach for the right pricing in order to
achieve maximum occupancy.