Question 1: E ( Revenue and Cost )

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!

Question 2: C ( 2006 and 2009 )

Profit Margin equals Operating Income / Revenue. This is a plain calculation

question. However, you should not hand-calculate those numbers (too much
time). Do calculations with your eyes. The calculations in this question are
easy enough for your eyes to go to work.

Question 3: C ( Economy downturn )

Use the elimination method:

A. Cost has nothing to do with Revenue
B. Fares have decreased
D. It is true that the number of passengers carried has reduced, but that is
only one side of the coin. Revenue made up of # passenger carried and $
fare prices.
E. We have no clue that passengers don't like our service. In fact, in the case
introduction, CFA has been said to have an unique culture.

C. It is C the answer because:

o The case states in its beginning that the client is facing the economy
downturn. So this downturn happen for real!

o The downturn really affect revenue in both # passenger carried

and $ fare prices. So this downturn affect revenue 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.

An increase in seat usage from 76.0% to 79.3% will accommodate over 3

millions more passengers which is enough to cover the 88 millions of
passengers in 2010.

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 )

1 - Different types of fuels used by the client?

2 - Prices paid by client for fuels
3 - World oil - gasoline market
4 - Profitability, going concern of client's fuel supplier
5 - Fuel cost per seat per mile of different air-crafts
6 - Fuel usage volume by the client

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:

o A fuel cost increase from $2.51 to $3.00 is about 20%

o That translates to $736 millions ( 3.68 bil * 2 /10)

o That decreases Profit to the ~ $250 millions level

Question 9: E ( two types of air-crafts )

 A. SouthEast Air has a very young but expensive fleet while Cheap Fly Air's
fleet has consistently been criticized to be a little old.
B. SouthEast focuses on serving the south east area, where Cheap Fly Air
doesn't have a lot of connections.
C. SouthEast Air operates two major aircrafts: B737 and B717. B717 fleets of
SouthEast Air will help Cheap Fly Air save cost on those small and short
routes.
D. Cheap Fly Air has a strong on-flight culture whereas SouthEast does not.
E. The all B737 fleet of Cheap Fly Air saves them on maintenance cost.
SouthEast Air maintenance cost is higher due to its more complex fleet.

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.