Choose a fare for a Mumbai ferry service
Before the decision
Early sailings queue while midday trips have spare seats. The operator has kept the same fare across departures so regular commuters can predict their costs. Adding a boat would require a separate capital decision. The fleet manager has spare midday capacity but limited room for extra commuter services. Any change needs to preserve a timetable people can rely on.
The problem
Should the team choose Peak fare or Uniform fare for the next 12 months?
Decision owner: The business unit lead.
The premium may redistribute riders or shift them to road transport entirely.
Option economics
Scroll the table to see all figures.
| Option | Volume (trips) | ₹ per unit | Fixed cost | Net contribution |
|---|---|---|---|---|
| Peak fare | 3,30,000 | 37 | ₹79 lakh | ₹43.1 lakh |
| Uniform fare | 3,72,000 | 30 | ₹76 lakh | ₹35.6 lakh |
Make the call
- Calculate net contribution for Peak fare and Uniform fare. Which assumption makes the comparison most fragile?
- If the leading option delivers 10% fewer trips, does your recommendation change?
- What evidence would you ask for before the team makes an irreversible commitment?
Reveal the worked solution
Start by validating Peak fare. It contributes ₹43.1 lakh after fixed costs and leads by ₹7.5 lakh. Treat that gap as the amount of unmodelled cost or lost contribution the option can absorb before the ranking reverses.
- Frame the decision
Compare contribution after the volume response. A better margin on each sale can be offset by lost transactions, downgrades or cancellations.
- Calculate both options
Peak fare: 3,30,000 trips × ₹37 less ₹79 lakh in fixed costs gives ₹43.1 lakh. Uniform fare: 3,72,000 trips × ₹30 less ₹76 lakh in fixed costs gives ₹35.6 lakh.
- Stress-test the forecast
Peak fare leads by ₹7.5 lakh in the base case. If Peak fare delivers 10% fewer trips (2,97,000) at the same margin and fixed cost, it contributes ₹30.89 lakh. Holding the other option constant, the stressed result falls behind. This isolates volume risk. Check whether both options would respond to the same change in demand.
- Set a decision threshold
Holding the other option’s result fixed, Peak fare needs at least 3,09,730 trips to match or beat it under the model. Count boardings by departure and track repeat pass renewals.
The premium may redistribute riders or shift them to road transport entirely. Compare the cost of a limited test with the loss the business would face if the full commitment failed. Ask the team to agree the decision criterion before collecting more evidence.
What if the whole market moves?
The worked solution tests a change to one option at a time. Here, both options gain or lose the same percentage of volume. Unit contribution and fixed costs stay constant.
| Volume scenario | Peak fare | Uniform fare | Higher contribution |
|---|---|---|---|
| Both lose 10% of volume | ₹30.89 lakh | ₹24.44 lakh | Peak fare |
| Base assumptions | ₹43.1 lakh | ₹35.6 lakh | Peak fare |
| Both gain 10% of volume | ₹55.31 lakh | ₹46.76 lakh | Peak fare |
Explain which option you would take forward. Check whether capacity, price or customer mix would also change as the market moves.