Case Statement:
Your client is an airport leasing company which has recently hired a new CEO who's set a bold target to triple the company's growth over the next five years. The company has brought in McKinsey to provide suggestions for achieving this ambitious goal. How to go about it?
I: Your client is an airport leasing company which has recently hired a new CEO who's set a bold target to triple the company's growth over the next five years. The company has brought in McKinsey to provide suggestions for achieving this ambitious goal. How to go about it?
C: Can you give me some details about the client? What is exactly meant by an airport leasing company? Has there been any stagnation or specific trends in the company's recent growth?
I: Think of an Airport leasing company like Adani, GMR etc. which leases Govt. owned land and runs and maintains the airport. The company's growth has been steady; the new CEO wants to boost it threefold.
C: Does the company already have experience in managing airports, and which airports are they looking to grow?
I: They are currently operating four airports in major metro cities such as Mumbai and Chennai, and the expansion plan is centered around these four locations.
C: To tackle this case, I'd propose structuring it in terms of revenue and cost management. Between these two, which one should I look at first?
I: You can only look at the Revenue side.
C: Alright, within revenue, we can segregate Revenue Generated from Core and Non-Core streams, which would allow us to dive into specific areas with clarity. I will start with analyzing Core revenue first. Core Revenue is primarily generated through airlines. It encompasses gate leasing and facilities like kiosks.
I: How can you increase the revenue from Gate Leasing?
C: We can increase revenue in this segment by boosting footfall for airlines, increasing airline contracts prices or increasing the utilization of gates. The revenue equation would be: Number of gates * Contract Price * Utilization.
I: Assume that all gates are running at full capacity. How will you increase Revenue in such a case?
C: In case all gates are running at full capacity, we can consider negotiating with airlines for more competitive pricing because increasing the number of gates is a long term action which is a little difficult to accommodate in the given time period and there are often constraints basis the airport size also.
I: How will you negotiate with the airlines for a higher price?
C: We can negotiate with them by incentivizing them by offering improved facilities and increased visibility.
I: Sounds good. You can now proceed with Non-Core Revenue part.
C: Moving on to non-core revenue, we can classify it into revenue generated within the airport premises and outside the airport premises. For Revenue generated inside the Airport, we can look at income from parking, shop rents, advertisements and restaurants. Anything specific you want me to look at?
I: Yes, we can look at income from Shops.
C: Okay, we can further classify the shops into occupied and unoccupied. Looking at occupied shops, we can either increase the number of occupied shops or by increasing the shop rent.
I: How will you negotiate increasing the shop rent?
C: We can negotiate an increased shop rents by increasing their visibility by increasing advertisements both inside and outside the airport.
I: Okay, and what about unoccupied shops?
C: Coming onto Unoccupied shops, we have to look at the location of the unoccupied shops basis where their location is in the airport. If the shops are near the boarding gates of premium airlines, we can pitch luxury brands opening up their shops. If the shops are near the boarding gates of low-cost airlines, we can pitch shops offering affordable products. If the shops are near the boarding gates of international flights, we can pitch brands that sell handicraft products etc.
I: This looks good. We can close the case now.
Background Information:
Company – An Airport leasing company like Adani, GMR etc which lease Govt. owned land and run and maintain the airport
Company Background – Company currently operates four airports in major metro cities such as Mumbai and Chennai
Case recommendations:
For increasing revenue from gate leasing, we can boost footfall for airlines, increase airline contract prices or increase the utilization of gates. If the utilization of gates is 100%, we can look at negotiating a higher contract price from the different airlines.
To increase revenue from occupied shops, we can either increase the number of occupied shops or increase the shop rent.
To increase revenue from unoccupied shops, we have to look at the location of the unoccupied shops based where there location is in the airport. If the shops are near the boarding gates of premium airlines, we can pitch luxury brands to open up their shops. If the shops are near the boarding gates of low-cost airlines, we can pitch shops offering affordable products.
Case tips:
It is important to be MECE whenever defining the Revenue and Costs for the Airport leasing company so as to make sure that no component is missed out.
