The problem
An airline is considering a route forecast to generate £900,000 in annual contribution after variable flight costs. Launching the year-round service would add £1.1 million in annual fixed cash costs. Summer demand is strong, so the team proposes operating only during summer instead.
All case facts and figures in this exercise are illustrative.
Your task
Recommend what to do about the annual proposal. Explain what you need to establish before approving a seasonal alternative, then update your answer as its costs and aircraft options are supplied.
Worked solution
Close the annual decision first
Assume the £900,000 is already after the route's variable operating costs and the £1.1 million is additional cash cost caused by launching the annual service. The annual result is:
£900,000 − £1,100,000 = a £200,000 loss.
Your initial recommendation can be direct:
“I recommend against the year-round launch because it loses £200,000 under the current forecast. Strong summer demand makes a seasonal service worth evaluating, but we need a separate cost and aircraft plan before approving it. The key questions are which annual commitments we can avoid and whether this is the best use of the aircraft during summer.”
The cost definition matters. If the £1.1 million were merely an allocation of existing corporate overhead that would remain without the route, it would not represent the same incremental decision. Establish that distinction when the number enters the case.
Compare the route's incremental economics with alternative uses of the aircraft and its effects on the wider network. The worked figures here are illustrative.
Build a separate summer cash case
Asked for a complete summer plan, the interviewer supplies Exhibit 1: a four-month seasonal proposal. The final row calculates the contribution remaining after the stated commitments and launch costs:
| Seasonal item | Amount |
|---|---|
| Contribution after variable flight costs | £700,000 |
| Additional seasonal aircraft, crew and airport commitments | (£500,000) |
| One-off launch and exit costs | (£100,000) |
| Incremental result before aircraft opportunity cost | £100,000 |
Under these terms, the seasonal service generates positive incremental cash. That establishes more than “summer demand is good,” but it still leaves an allocation question.
Check that the £500,000 represents commitments the airline can actually obtain for four months. A year-long aircraft lease, minimum airport contract or crew obligation might survive after the last summer flight.
If the annual £1.1 million commitment remains unavoidable once the route launches, the same seasonal contribution would instead leave:
£700,000 − £1,100,000 − £100,000 = a £500,000 loss.
A shorter flying season reduces flight activity. It does not automatically shorten the contracts supporting it.
Check your reasoning
A four-month airline service forecasts £600,000 contribution after variable flight costs. Launch and exit cost £50,000. Supporting aircraft and crew contracts cost £900,000 for a full year and cannot be shortened or used elsewhere once this route is launched.
What is the seasonal service’s incremental result?
Charge the route for the aircraft's best alternative
Return to Exhibit 1, with £500,000 seasonal commitments and a £100,000 result, rather than the alternative year-long commitment scenario. The interviewer now adds that the same scarce aircraft could earn £180,000 elsewhere over that summer, after the alternative’s relevant costs. Assume both options have the required slots and crew.
The new route's £100,000 result is £80,000 worse than the alternative. I would keep the aircraft on the better use unless the client identifies and values an additional benefit that closes the gap.
If the aircraft would otherwise sit idle and the alternative truly contributes zero, the £100,000 seasonal result becomes attractive under a positive-cash objective. The recommendation changes because the opportunity cost changes.
This is a common closing mistake: “The route is profitable, therefore launch it.” A constrained fleet makes the comparison matter. Positive contribution is not sufficient when another feasible use generates more.
For another investment decision that depends on counting the relevant cash flows, see warehouse investment example.
Include connections without counting revenue twice
The interviewer may add that the route feeds passengers into the airline's wider network. That could improve the decision, but ask for the incremental network contribution.
A connecting ticket's full fare is not pure additional benefit. Other flight legs incur costs. Some seats may have sold to other passengers. Some travellers might have used the airline through another route anyway.
Keeping the £180,000 alternative in the comparison, the interviewer adds a network-analysis result: £90,000 of incremental contribution after those effects, not already included in the £700,000 seasonal figure. The seasonal option’s total becomes £190,000, exceeding the alternative by £10,000.
That is a narrow advantage. Your closing answer should identify the £10,000 margin and the assumption most likely to erase it, such as a small demand shortfall or a higher seasonal contract price. Do not describe it as an overwhelming case merely because the direction has turned positive.
Try the calculation
A seasonal route earns £120,000 incremental cash after all relevant costs. The same scarce aircraft could earn £170,000 elsewhere over the same period. The new route also creates £40,000 incremental network contribution, after displacement and connecting-flight costs; this is not included in its £120,000.
How far below the alternative is the new route? Enter the shortfall as a positive amount.
Turn the open questions into a launch decision
The route-planning owner needs a seasonal demand and fare forecast. Fleet and airport teams need to confirm the aircraft, slots and contract terms. Finance needs one comparison that includes the alternative aircraft use and avoids double-counting network contribution.
Set a decision date before the airline must make the commitments. Approve only when the feasible seasonal plan clears the client's economic requirement; otherwise retain the better aircraft use.
If the interviewer asks for a recommendation before the seasonal terms arrive, give the decision you can make now: reject the annual launch and withhold approval for the uncosted summer proposal. Name the specific evidence needed to change that position.
Practise changing your answer as the facts change
Give three short recommendations in sequence: the £200,000 annual loss; the £100,000 seasonal result with an idle aircraft; and the same seasonal result with a £180,000 alternative.
The key is to update the action, not just the arithmetic. Then practise Regional Airline Route Launch in the final-synthesis library, keeping the aircraft's next-best use visible in your final answer.
Final recommendation drill
Would your recommendation convince an MBB interviewer?
Regional Airline Route Launch
Practise Regional Airline Route Launch aloud and review feedback on your reasoning.