Case Interview Question #00225: The client Virgin Blue Airlines is a large airline that serves 28 cities in Australia, with Brisbane Airport as its hub. Virgin Blue operates two major business units: a commercial passenger commuter service and a package delivery service within Australia using a fleet of 75 narrow-body Boeings and Embraers.
This case specifically focuses on the client’s package delivery service. The client Virgin Blue Airlines currently has the largest market share of air freight, but its business base and profitability are both eroding. You have been hired to identify and discuss relevant issues in determining why the client is experiencing these problems, and develop a performance enhancement plan. If time permits explain the plan in details.
- Air Freight Market:
- Growth: declining over last five years.
- Market share: 53 percent for client, down from 60 percent one year ago, 75 percent 5 years ago.
- No major competitor, small air freight delivery makes up rest of market.
- Delivery Freight Market (only give if requested):
- Growth: increasing by 5-7 percent over last five years.
- Made up of air, ground, and rail segments.
- Client Virgin Blue has 17 percent of delivery market, down from 30 percent one year ago, 60 percent five years ago.
- Customer Base:
- Australian market: five major cities (Sydney, Melbourne, Canberra, Brisbane, Adelaide) within 500 miles of each other accounting for 80 percent of business.
- Two major customer segments: Professional business customers and personal – mostly small packages (under 5 pounds).
- 80/20 rule: 20 percent of customers account for 80 percent of business.
- Medium/large companies are major users of delivery services.
- Trucking companies now dominate delivery market: 20 percent five years ago, 40 percent two years ago, 60 percent today.
- Truck delivery companies service the five-city radius.
- Schedule: 5PM package drop-off (no pick-up); arrival within two or three business days.
- Prices comparable for similar service.
- Virgin Blue’s fleet of 75 commercial jets travel once or twice daily to each major city in Australia.
- Packages placed in cargo holds of plane (negligible incremental costs additional loading time).
- 75 planes operate at 100 percent capacity.
- Three freight planes carry packages overnight (fully owned by client).
- Freight planes operate at 65 percent capacity.
- No efficient distribution system – packages organized by destination and sit on dock until loaded on plane.
- Because of two or three day delivery schedule promised to customers, packages can sit on dock overnight or for a few days before being shipped.
- Cost/Price Analysis (only give as requested):
Client Truck (average competitor) Price $10 (under 5 lbs) $10 (under 5 lbs) Service 2-3 day delivery 2-3 day delivery Cargo space/day 10,000 sq. ft 4,000 sq. ft Package Size 5 packages/sq. ft 5 packeges/sq. ft Variable Cost/day $250,000 $150,000