US Airways to Re-paint Its Fleet of 350 Aircrafts

Case Type: math problem; operations strategy.
Consulting Firm: Simon-Kucher & Partners first round job interview.
Industry Coverage: Airlines.

Case Interview Question #00189: Your client US Airways, Inc. is a major airline based in Tempe, Arizona, United States. The airline is an operating unit of US Airways Group (NYSE: LCC) and is the 6th largest airline by traffic and 8th by market value in the country. US Airways operates major hubs in Charlotte, Phoenix and Philadelphia and maintains focus city operations at Ronald Reagan Washington National Airport.

The U.S. domestic airline industry is extremely competitive and airline companies frequently sustain large losses. Consequently, decisions that involve even small outlays of cash are carefully considered.

Question #1: The client US Airways has ugly planes. Should it re-paint them?

Additional Information:

• Most airlines paint their planes to match their corporate logo or as part of a brand image campaign.
• US Airways has updated its brand image/marketing materials, but has not yet painted its planes.
• The client US Airways’ planes are currently painted with a logo/image dating from the mid-1980′s in colors currently considered out-of-date.
• The airline industry is a fixed-cost business. Adding passengers does not increase costs very much. Thus, the client should do whatever is required to fill the planes.
• If customers think the planes are ugly, they will fly an airline with better-looking planes.
• The customer segment that cares about plane appearance is the vacation traveler who travels out of non-hub cities.
• Re-painting planes costs about $500,000 per plane, the expected revenue increase due to painting planes is 1%.
• US Airways’ fleet currently has 350 mainline jet airplanes and total Revenues of $10 billion.

Possible Answer:

The first part of the case requires a cost-benefit analysis. Essentially it is simple math problem. The candidate should attempt to discover the costs and benefits of the action before recommending a solution.

Increase revenue by 1% will lead to a ($10 billion x 1% = $100 million) increase in Revenue, compared to the ($500,000 x 350 = $175 million) cost, the painting expenditure will be recovered in less then two years. Therefore, paint the planes!

Question #2: Since the client US Airways is going to paint its planes, how can the job be accomplished without idling aircraft?

Additional Information:

• Grounding an airplane reduces its utilization, thereby reducing its potential revenue.
• Airlines don’t like grounding planes even if few flights are scheduled, since they are more likely to incur uncompensated costs if problems occur.

Possible Answer:

The candidate ought to point out that planes routinely are grounded for two weeks per year for D-check major maintenance. It so happens that it would take 12-14 days to paint one plane: 2 days to paint and 10-12 days for the drying/curing cycle. Therefore, the planes ought to be painted during the regular maintenance cycle.