Case Prompt

Nimbus Airways is the largest full service airline in the United States, and it runs two distinct business divisions: a Booking & Distribution division (B&D) and a Flight Operations division. Facing an anticipated antitrust action from the U.S. Department of Justice, Nimbus Airways is planning a spin-off of B&D. Your client is a private equity firm that is interested in investing in the spin-off. Should they do it?

Additional info:

• The private equity firm targets revenue and EBITDA increases of 50% from the initial investment in Year 1 to Year 5, which is when it would typically exit the investment
• The firm specializes in travel, transportation and logistics, and is willing to invest a total of $175M to improve the operations of the spin-off
• B&D manages fare marketing, pricing, sales and distribution through an online platform, as well as phone and airport ticket counter sales channels
• B&D also manages seat inventory, provides customer support and ensures booking validity
• Flight Operations runs and promotes the flights themselves, across domestic routes, international routes and charter services
• The Department of Justice is acting because every flight Flight Operations runs must be sold through the airline’s own booking platform, which weakens competition among travel agencies and other distribution channels

General response summary

Sample Framework

Standalone economics

• Revenue lines
  • Booking fees per booking, by channel
  • Fees paid by distribution partners
• Cost to run alone
  • Platform, infrastructure, support staff
  • Costs the parent airline used to absorb

Value creation levers

• Operating efficiency
  • Automate booking and customer support
  • Better seat inventory and pricing tools
• New revenue
  • Bookings for charter and cargo flights
  • Distribution deals beyond the parent airline

Market and exit

• Demand and competition
  • Air travel volume, shift to mobile booking
  • Independent platforms, airlines selling direct
• Exit in Year 5
  • Buyers for a standalone booking platform
  • Multiple paid on Year 5 EBITDA

Interviewer guidance: hold the financials back until the framework is complete. To move forward the candidate should ask for the division’s revenue and profit.

A strong framework separates what the division earns today from what the $175M could change, and treats the exit as its own branch, because the return is measured at Year 5 and not at close.

If the candidate never asks what the spin-off costs to run on its own, prompt for the costs the parent airline has been absorbing.

A candidate who treats this as a plain profitability case will size the division and stop. Push for the value creation and exit branches.