Problem Definition
Skylark Air is a low-cost airline based in Valencia, Spain. It operates 48 Airbus A320neo-family aircraft on short-haul routes between Spain, Portugal, Italy, France and the UK, and carried 16 million passengers last year at an average load factor of 88%. Its average ticket fare is €48, similar to Europe's largest low-cost carriers.
Where Skylark falls behind is ancillary revenue: the money passengers pay on top of the ticket for checked bags, cabin bags, seat selection, food, and products sold through partners such as car hire and hotels. Skylark earns about €17 of ancillary revenue per passenger, compared with about €24 at Ryanair and about €36 at Wizz Air. As a result, Skylark's total revenue is about €1.04 billion and its operating margin only about 4%, well below the leading low-cost carriers.
The CEO has set a target of reaching €24 of ancillary revenue per passenger within two years. At the same time, the EU has agreed a reform of air passenger rights that will apply from around mid-2027. Among other things, it requires airlines to show the cost of a cabin trolley bag in the fare from the start of the booking and to seat young children next to an accompanying adult free of charge. The commercial director is worried that the reform will remove part of today's fee income just as the company is trying to grow it. The CEO has asked your team: How should Skylark redesign its ancillary pricing to increase revenue per passenger, and is €24 per passenger a realistic target?
Exhibit 1Skylark Air Ancillary Revenue per Passenger (Last 12 Months)
| Product | Share of passengers buying | Average price | Revenue per passenger |
|---|---|---|---|
| Checked bag (20 kg) | 20% | €32.50 | €6.50 |
| Cabin trolley bag + priority boarding | 20% | €20.00 | €4.00 |
| Seat selection | 25% | €12.00 | €3.00 |
| Onboard food and drink | 15% | €10.00 | €1.50 |
| Partner commissions (car hire, hotels, insurance) | – | – | €1.00 |
| Changes, name corrections and other fees | – | – | €1.00 |
| Total | €17.00 |
Source: Skylark Air case file
Additional InformationAsk for dataInterviewer’s data
If asked, please share that:
- Skylark sells almost all tickets online: 70% through its own website and app, 30% through online travel agents and metasearch sites
- Its current fare structure has a single "Basic" fare (personal item only) with every other product sold separately (à la carte)
- Skylark prices ancillaries with fixed prices by product; it does not vary prices by route, season or time before departure
- About 15% of passengers travel in family groups with children under 14
- Current operating profit is about €41.6 million (4% of €1,040 million revenue)
Question 1Structuring
How would you structure the problem of increasing Skylark's ancillary revenue per passenger?
Hint · Structuring
Build 3–4 branches that are specific to this client and question, not a generic framework. Check they don't overlap and together cover the problem.
Additional InformationAsk for dataInterviewer’s data
- Share Exhibit 1 if the candidate asks for a breakdown of ancillary revenue
- If asked about customers: Skylark's passengers are mostly leisure travellers (about 80%), with a growing share of people visiting friends and family
Try it first, then checkCheck my answerModel answer
A strong structure has three parts:
1. Revenue drivers by product (share buying x price)
- Bags: checked bags and cabin trolley bags. What share buys, at what price, and how does it vary by route, trip length and season?
- Seats: standard seats and premium seats (extra legroom, front rows)
- Onboard: food and drink, pre-ordered meals
- Partner products: car hire, hotels, insurance, airport transfers
- Fees: changes, name corrections, airport services
2. How ancillaries are sold
- Pricing method: fixed prices vs. dynamic pricing by route, demand and time before departure
- Packaging: à la carte vs. bundles (fare families such as "Basic", "Plus", "Flex")
- Timing: at booking, after booking (emails, app), at check-in, at the airport
- Channel: own website and app vs. online travel agents, where ancillaries are harder to sell
3. Constraints and risks
- Regulation: the EU passenger-rights reform (price display of cabin bags, free family seating, banned fees)
- Customer: perception of "hidden fees", effect on total trip price and ticket demand
- Competition: how Ryanair, Wizz Air, easyJet and Vueling price similar products
- Operations: cabin space for trolley bags, check-in and baggage-handling capacity
Prioritisation: start with bags (~62% of ancillary revenue: €6.50 + €4.00 = €10.50 of €17.00), then bundles, then seats and partner products.
What the interviewer is looking forInterviewer’s viewInterviewer’s view
A good candidate will break ancillary revenue into products, and each product into the share of passengers buying and the price. A strong candidate will add the ways airlines package and sell ancillaries (bundles, timing, channels, dynamic pricing) and the constraints (regulation, customer perception, effect on ticket sales). An excellent candidate will recognise that passengers compare the total trip price, so higher fees can reduce ticket demand, and that the EU reform changes what can be charged.
Push back if the candidate simply lists "raise prices" and "sell more". Ask how they would decide which product to work on first.
So What? cascade:
- Level 1: ancillary revenue per passenger = sum over products of (share buying x price), plus commissions
- Level 2: checked bags and cabin bags already make up over 60% of Skylark's ancillary revenue, so pricing and packaging of bags is the biggest single lever
- Level 3: because the EU reform restricts some fees, Skylark should grow revenue from products passengers value (bundles, better seats, partner products) rather than rely on fees passengers resent
Question 2Numeracy
Skylark tested four checked-bag pricing options on a sample of routes. Using Exhibit 2, which option should it roll out, and what is it worth per year?
Hint · Numeracy
Write the formula before you plug in numbers, keep units and zeros explicit, and sanity-check the order of magnitude at the end.
Exhibit 2Checked-Bag Pricing Test Results
| Option | Pricing approach | Average price per bag | Share of passengers buying a checked bag |
|---|---|---|---|
| A | Current fixed price | €32.50 | 20% |
| B | Higher fixed price | €39.00 | 17% |
| C | Dynamic price by route, demand and time to departure | €36.00 | 21% |
| D | Lower fixed price | €29.00 | 24% |
For reference: Ryanair's published fee for a 20 kg checked bag bought at booking ranges from about €21 to €60 per flight, depending on route and date.
Source: Skylark Air case file
Additional InformationAsk for dataInterviewer’s data
- Handling and extra fuel for each checked bag cost Skylark about €9
- The test ran for eight weeks on comparable routes; results are representative of the network
- Option C uses dynamic pricing: prices range from about €22 on quiet flights booked early to about €55 on busy flights close to departure
Try it first, then checkCheck my answerModel answer
Step 1: Revenue and contribution per passenger
| Option | Revenue per passenger | Contribution per bag (price − €9) | Contribution per passenger |
|---|---|---|---|
| A | 20% x €32.50 = €6.50 | €23.50 | 20% x €23.50 = €4.70 |
| B | 17% x €39.00 = €6.63 | €30.00 | 17% x €30.00 = €5.10 |
| C | 21% x €36.00 = €7.56 | €27.00 | 21% x €27.00 = €5.67 |
| D | 24% x €29.00 = €6.96 | €20.00 | 24% x €20.00 = €4.80 |
Step 2: Choose Option C (dynamic pricing)
- Highest revenue and highest contribution per passenger
- Option D sells more bags but earns less per bag; Option B earns more per bag but loses too many buyers
Step 3: Annual value vs. today (Option A)
- Revenue: (€7.56 − €6.50) x 16 million = €1.06 x 16M = ~€17.0 million a year
- Contribution: (€5.67 − €4.70) x 16 million = €0.97 x 16M = ~€15.5 million a year
Why dynamic pricing wins: a fixed price is too high for price-sensitive passengers on quiet off-peak flights and too low for passengers on busy peak flights who need a bag anyway. Dynamic pricing lowers the price where demand is weak (more buyers) and raises it where demand is strong (higher price), so both take-up and average price rise.
Risks to manage: passengers may see dynamic bag prices as unfair, so prices should be shown clearly at booking and be cheapest when bought early; the airport price should stay the highest to encourage early purchase.
What the interviewer is looking forInterviewer’s viewInterviewer’s view
A good candidate will compute revenue per passenger for each option. A strong candidate will subtract the cost of carrying the bag and choose on contribution, not revenue. An excellent candidate will explain why dynamic pricing can increase both price and take-up at the same time, and will mention the risks (customer perception, price comparison sites).
So What? cascade:
- Level 1: Option C gives the highest revenue per passenger (€7.56)
- Level 2: Option C also gives the highest contribution, about €15.5 million a year more than today, because it charges more where demand is strong and less where it is weak
- Level 3: the same logic (price by demand, not a single fixed price) should be applied to cabin bags and seats, which multiplies the benefit
Question 3Judgement & Insights
Look at Exhibits 3 and 4. How does Skylark compare with its peers, and what does the EU reform mean for its ancillary revenue?
Hint · Judgement & Insights
Read the exhibit title, axes and units first. Lead with the ‘so what’, then back it with one or two numbers.
Exhibit 3Ancillary Revenue Benchmarks
| Airline (financial year) | Passengers | Ticket revenue per passenger | Ancillary revenue per passenger | Ancillary share of passenger revenue |
|---|---|---|---|---|
| Ryanair (FY to March 2026) | ~208 million | ~€51 | ~€24 | ~32% |
| Wizz Air (FY to March 2026) | ~70 million | ~€45 | ~€36 | ~44% |
| Skylark Air (last 12 months) | 16 million | €48 | €17 | ~26% |
| Global airline industry (2025 estimate) | – | – | – | ~16% of total revenue (range across airlines ~3% to ~62%) |
Sources: Ryanair FY26 results; Wizz Air F26 final results; IdeaWorksCompany global estimate (2025). Figures rounded.
Source: Skylark Air case file
Exhibit 4EU Air Passenger Rights Reform – Measures Relevant to Ancillaries
| Measure | What changes |
|---|---|
| Personal item | Passengers keep the right to one free personal item (40 x 30 x 15 cm) |
| Cabin trolley bag | Airlines must include the cost of a trolley bag in the fare shown at the start of booking; fares without a cabin bag can still be offered |
| Family seating | Children under 14 (as well as pregnant women and passengers with reduced mobility) must be seated next to their accompanying person free of charge |
| Other fees | Fees for correcting name errors, and for printed boarding passes after digital check-in, are banned |
| Timing | Agreed by Council and Parliament in June 2026, approved by Parliament in July 2026; expected to apply from around mid-2027 |
Sources: European Parliament; Euronews (July 2026).
Source: Skylark Air case file
Additional InformationAsk for dataInterviewer’s data
Share Exhibits 3 and 4 and the following Skylark data:
- Families with children under 14 account for about 30% of Skylark's seat-selection purchases, mostly to sit together
- About €0.30 of the €1.00 of "other fees" per passenger comes from name-correction fees and fees for printing boarding passes at the airport
- Skylark currently lets online travel agents display its "Basic" fare (personal item only)
Try it first, then checkCheck my answerModel answer
1. Peer gap
- Skylark's ancillary revenue per passenger (€17) is about €7 below Ryanair (
€24) and about €19 below Wizz Air (€36) - Ticket revenue per passenger is similar across the three (€45–51), so the gap is almost entirely in ancillaries, not fares
- At Ryanair's level, Skylark would earn €7 x 16 million = €112 million more revenue a year; this is the size of the prize
- Skylark's ancillary share of 26% (€272M of €1,040M) is well above the global industry average (~16%), but below the leading European low-cost carriers
2. Revenue at risk from the reform
- Family seating: 30% x €3.00 = €0.90 per passenger → €0.90 x 16M = ~€14.4 million a year
- Banned fees (name corrections, airport boarding passes): €0.30 per passenger → ~€4.8 million a year
- Total: €1.20 per passenger, or ~€19.2 million a year, about 46% of today's operating profit (€19.2M / €41.6M)
3. The trolley-bag display rule
- Skylark's search-page fare will have to include the trolley bag price. If Skylark shows €48 + €20 = €68 while a competitor with a cheaper trolley bag shows less, Skylark will look expensive on comparison sites
- But the same rule applies to every airline, so the comparison shifts from the lowest "Basic" fare to the best bag-included fare
- Opportunity: create a "Plus" fare family (trolley bag, priority boarding and a standard seat) priced attractively, and make it the default fare displayed. More passengers would then buy the bundle rather than the Basic fare
4. Implications
- The reform turns part of Skylark's fee income into a cost, so the company must replace it with products passengers choose to buy: better bundles, premium seats and partner products
- Skylark should be ready by mid-2027: new fare families, dynamic pricing and redesigned search results
What the interviewer is looking forInterviewer’s viewInterviewer’s view
A good candidate will quantify the gap with peers and the revenue at risk from the reform. A strong candidate will explain where the peer gap comes from (Wizz Air and Ryanair sell more bags and bundles, and use dynamic pricing). An excellent candidate will see that the reform also creates an opportunity: if every airline must display the price with a trolley bag, the market shifts towards comparing "bag-included" prices, which rewards airlines with an attractive bundle rather than the lowest headline fare.
So What? cascade:
- Level 1: Skylark earns €7 per passenger less than Ryanair and about €19 less than Wizz Air
- Level 2: the reform puts about €1.20 per passenger (~€19 million a year, almost half of Skylark's operating profit) at risk
- Level 3: Skylark should move from fee-based ancillaries towards bundles and value-adding products before mid-2027, and use the new display rule to promote a bag-included fare
Question 4Creativity
Brainstorm the ways Skylark could raise ancillary revenue per passenger. Then, using Exhibit 5, estimate how close the plan gets to the CEO's €24 target.
Hint · Creativity
Brainstorm in buckets (e.g. internal vs external, short vs long term) so ideas stay structured and you can see gaps.
Exhibit 5Commercial Team Estimates for Ancillary Levers (Full Effect in Year 2)
| Lever | Assumption | Change in revenue per passenger |
|---|---|---|
| Dynamic checked-bag pricing | Option C from Question 2 | +€1.06 |
| "Plus" bundle (trolley bag, priority boarding, seat) | 12% of passengers buy at €25, replacing about €14 they would have spent à la carte | ? |
| Premium seats (extra legroom, front rows) | Upsell to business and older leisure travellers | +€0.60 |
| Trolley-bag take-up | From 20% to 25% of passengers at €20, driven by the bag-included fare display | ? |
| Partner products in the app (car hire, hotels, transfers, insurance) | Commission rises from €1.00 to €2.00 per passenger | +€1.00 |
| Pre-ordered food and drink | Pre-order in the app at a discount to onboard prices | +€0.50 |
| EU reform (family seating, banned fees) | From Question 3 | −€1.20 |
- Assume about 70% of any additional ancillary revenue turns into operating profit, after handling, payment and partner costs
Source: Skylark Air case file
Additional InformationAsk for dataInterviewer’s data
Let the candidate brainstorm first, then share Exhibit 5 as the commercial team's sizing of the main levers.
Try it first, then checkCheck my answerModel answer
Brainstorm (grouped)
Sell more of existing products
- Dynamic pricing for checked bags, cabin bags and seats
- Better timing: reminders after booking, check-in offers, cheaper online than at the airport
- Better display on online travel agent sites and in the app
Package products differently
- Fare families: "Basic", "Plus" (trolley bag, priority, seat) and "Flex" (plus changes and checked bag)
- Family bundles (for example two checked bags at a discount)
Add new products
- Premium seats (extra legroom, front rows, guaranteed empty middle seat)
- Membership or subscription (discounted bags and seats for frequent flyers)
- Airport services: fast-track security, lounges, parking
Earn more from partners
- Car hire, hotels, airport transfers, travel insurance, event tickets at the destination
- A co-branded credit card and loyalty programme
Completing Exhibit 5
- "Plus" bundle: 12% x (€25 − €14) = 12% x €11 = +€1.32
- Trolley-bag take-up: (25% − 20%) x €20 = 5% x €20 = +€1.00
Adding up the plan
| Lever | Change per passenger |
|---|---|
| Dynamic checked-bag pricing | +€1.06 |
| "Plus" bundle | +€1.32 |
| Premium seats | +€0.60 |
| Trolley-bag take-up | +€1.00 |
| Partner products | +€1.00 |
| Pre-ordered food and drink | +€0.50 |
| Gross improvement | +€5.48 |
| EU reform | −€1.20 |
| Net improvement | +€4.28 |
- New ancillary revenue per passenger: €17.00 + €4.28 = €21.28
- Gap to the €24 target: €24.00 − €21.28 = €2.72
Financial impact
- Additional revenue: €4.28 x 16 million = ~€68.5 million a year
- Additional operating profit: 70% x €68.5M = ~€47.9 million a year
- Operating profit rises from €41.6M to about €89.5M; operating margin rises from 4% to about 8% (€89.5M / (€1,040M + €68.5M) = ~8.1%)
Is €24 realistic? Not in two years. Ryanair reaches €24 with a much larger network and years of ancillary optimisation, and Skylark also has to absorb the €1.20 lost to the reform. A target of about €21–22 by year 2, with a path to €24 in years 3–4 through membership, a loyalty programme and more partner revenue, is more credible.
What the interviewer is looking forInterviewer’s viewInterviewer’s view
A good candidate will generate ideas in clear groups rather than a random list. A strong candidate will complete the missing numbers in Exhibit 5 and add them up correctly. An excellent candidate will conclude that €24 is unlikely within two years once the reform is included, propose a realistic target, and suggest further ideas to close the remaining gap.
So What? cascade:
- Level 1: the plan lifts ancillary revenue by about €4.28 per passenger, to about €21.3
- Level 2: that is worth about €68 million of revenue and roughly €48 million of operating profit a year, which would more than double Skylark's profit
- Level 3: €24 in two years is unrealistic once the reform is included; a target of about €21–22, with a path to €24 through membership and partner products, is more credible and still transforms profitability
Question 5Synthesis
The CEO wants your recommendation for the board. What should Skylark do?
Hint · Synthesis
Answer first: the recommendation, two or three reasons with numbers, then risks and next steps.
Additional InformationAsk for dataInterviewer’s data
- If needed, remind the candidate: dynamic bag pricing worth ~€17M revenue a year; the EU reform removes
€1.20 per passenger (€19M a year); the full plan reaches ~€21.3 per passenger, adding ~€68M revenue and ~€48M operating profit a year
Try it first, then checkCheck my answerModel answer
Recommendation: Rebuild Skylark's ancillary model around dynamic pricing and fare bundles, and reset the target to about €21–22 per passenger in two years, with €24 as a longer-term goal.
Why:
- The gap with peers is real and worth up to ~€112 million a year. Skylark's fares are similar to Ryanair's and Wizz Air's, but it earns €7–19 less per passenger in ancillaries.
- The plan adds about €4.28 per passenger (from €17.00 to ~€21.28), worth ~€68.5 million of revenue and ~€48 million of operating profit a year, roughly doubling operating margin from 4% to about 8%.
- The EU reform makes change urgent: about €1.20 per passenger (~€19 million a year) of family-seating and fee income disappears from around mid-2027, and bag-included prices will be shown to every customer from the first search page.
Sequencing:
- Next 6 months: roll out dynamic checked-bag pricing (worth ~€17M revenue a year); launch premium seats; renegotiate partner contracts and move partner offers into the app
- 6–12 months (before mid-2027): launch "Basic", "Plus" and "Flex" fare families; make "Plus" the default displayed fare; change the family seating process and remove the banned fees
- 12–24 months: test a membership programme and co-branded card to close the remaining gap towards €24
Risks and how to manage them:
- Higher ancillary prices reduce ticket sales: track total revenue per passenger (fare plus ancillaries) and conversion rates, not just ancillary revenue; run controlled tests before each network-wide change
- Customer backlash against "hidden fees": show all prices clearly at booking and make bundles simple
- Regulatory detail: the final legal text may differ from current reporting; involve legal teams early and design pricing that is compliant in all markets Skylark serves
What the interviewer is looking forInterviewer’s viewInterviewer’s view
A good candidate will give a clear answer on the €24 target and the main actions. A strong candidate will sequence the actions around the mid-2027 reform date. An excellent candidate will address the risk that higher ancillary prices reduce ticket demand and propose how to measure it.
Data Sources
| Fact used in the case | Publisher | Title | Year | URL |
|---|---|---|---|---|
| Ryanair FY26: 208.4M passengers, 94% load factor, scheduled revenue €10.56bn, ancillary revenue €4.99bn (€24 per passenger) | Ryanair Holdings | Ryanair 2025-26 PAT rises 40% to €2.26bn (FY26 results) | 2026 | https://investor.ryanair.com/wp-content/uploads/2026/05/FY26-Ryanair-Results.pdf |
| Wizz Air F26: 69.7M passengers, passenger ticket revenue €3,161.4M, ancillary revenue €2,530.0M | Wizz Air Holdings | Final Results 2026 (RNS) | 2026 | https://s204.q4cdn.com/169340705/files/doc_news/Final-Results-2026.pdf |
| Global ancillary revenue ~$157bn in 2025 (up from $148.4bn in 2024), 15.7% of airline revenue; range 3.2% to 62% across airlines | IdeaWorksCompany | Mission Possible: Airlines Earn Record Ancillary Revenue While Consumers Enjoy Lower Fares | 2025 | https://ideaworkscompany.com/wp-content/uploads/2025/11/Press-Release-197-Global-Estimate-2025.pdf |
| Ryanair 20 kg checked bag bought online ~€21.49 to €59.99 per flight (checked September 2026) | Ryanair | Fees (Help Centre) | 2026 | https://www.ryanair.com/gb/en/useful-info/help-centre/fees |
| EU reform: trolley-bag cost included in the fare shown at the start of booking; fares without cabin bag still allowed; children under 14 seated with companion free; name-correction and printed boarding pass fees banned; applies from mid-2027 | Euronews | Air passenger rights reform: What the new rules mean for you | 2026 | https://www.euronews.com/my-europe/2026/07/21/air-passenger-rights-reform-what-the-new-rules-mean-for-you |
| Free personal item of 40 x 30 x 15 cm retained; Parliament approval in July 2026; rules to take effect in 2027 | Euronews | European Parliament approves free cabin luggage and new delay compensation rules for air passengers | 2026 | https://www.euronews.com/2026/07/07/european-parliament-approves-free-cabin-luggage-and-delay-compensation-for-air-passengers |
| Parliament position adopted January 2026 (632 votes to 15) including a free personal item and small cabin bag | European Parliament | European Parliament stands behind air passenger rights | 2026 | https://www.europarl.europa.eu/news/en/press-room/20260116IPR32442/european-parliament-stands-behind-air-passenger-rights |
Skylark Air is a fictional company. Its fleet, passengers, fares, ancillary breakdown, test results and lever estimates are illustrative and were set to be consistent with the sourced benchmarks above. Peer ratios in Exhibit 3 are calculated from the published figures: Ryanair €10.56bn / 208.4M = ~€50.7 ticket revenue and €4.99bn / 208.4M = ~€23.9 ancillary per passenger; Wizz Air €3,161.4M / 69.7M = ~€45.4 and €2,530.0M / 69.7M = ~€36.3 per passenger.
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