150 Cars, 13.2 Million Yuan and 10,000 Flight Tickets

In 2016, Sichuan Airlines, one of the top 5 aviation groups in China, purchased 150 mini-buses from FXAUTO, a leading car manufacturer in China. While appearing to be a simple transaction, this deal happened to reveal a brand-new innovation in the traditional aviation business model.

According to the announcement from Sichuan Air the high-end mini-bus acquisition was made to improve their standards of ground-based services which in the past have been provided by low-quality buses known as Traveler’s Buses. Per the terms of the deal, Sichuan Air received the 150 mini-buses with a unit price of 90 thousand Yuan, a 40% discount compared to the current market price. In return, Sichuan Air is required to provide passengers utilizing the ground service a detailed introduction of the mini-bus they are traveling in as well as the service provided by FXAUTO.

Let’s do some calculation now: every mini-bus can carry 7 passengers at a time. Assuming one bus can travel three times a day between the city of Sichuan and the airport, the total audience exposed to FXAUTO’s marketing presentation in a year would be: 7 passengers * 6 total trips/day * 150 mini-buses * 365 days = 2.28 million people per year. The cost of advertising to so many people far exceeds the initial discount given to Sichuan.

Additionally, Sichuan has also found a way for the mini-buses to pay for themselves. Potential drivers are required to pay a refundable deposit (178,000 Yuan) in order to receive their own min-bus. The drivers are incentivized to pay this fee over the traditional taxi model due to the steady flow of customers offered by the airline, the high fees per customer that is guaranteed (25 Yuan per passenger), and the simplicity of the route they need to drive. From these deposits alone, Sichuan will immediately receive over 13 million Yuan, almost nullifying the initial investment necessary to get the buses on the road and FXAUTO acquires 150 part-time sales associates, the drivers, almost overnight.

In an effort to encourage passengers to utilize the new ground service, Sichuan Airline will provide passengers that purchased a flight tickets with less than 50% discount a free ride from the airport to the city, or vice versa.

Not only does the airline and car manufacturer benefit from this deal, but the customers and drivers do as well. This deal and the subsequent decisions made by Sichuan and FXAUTO represents a brand-new business model featuring unique resource integration and a win-win-win-win result for all parties.

According to Sichuan estimates, this new campaign may sell an additional 10,000 tickets per day. That’s the power of Business Model Innovation at work.

Thanks to 《你可能一直在研究假的“商业模式”》

Leave a Reply

Your email address will not be published. Required fields are marked *