How much money is needed to invest in 150 buses? How can you provide a free service yet make one hundred million in profit? Is it possible for a company to provide free rides and still make money?
In our modern and accessible global society, connection flights are becoming a necessity as people venture to an ever-increasing array of destinations. In Chengdu international airport, it is common to witness the scene of hundreds of utility vehicles labeled with the sign “Free pick-up service.”
On average, the taxi fare to downtown is USD 22.5. However, if you take the yellow utility vehicles, then you can reach a destination in the city for free!
How is this possible to provide such a service? The article below provides an insight on how this business model can be profitable:
Sichuan Airline booked 150 Fengxing Lingzhi MPVs all at once.
Sichuan Airline purchased 150 Lingzhi MPVs in order to increase the variety of services they offer. It was chosen because of its reputation as a high quality airport transfer vehicle that will enhance the efficiency of the airports ground service provision.
Sichuan Airline set out a strict set of criteria for the specifications of its vehicles in order to provide the highest quality of service to their customers. This included its appearance, engine output, inner decoration, energy saving capability, handling and ride comfort.
The economies of scale that Sichuan Airlines received from this sizable order enabled them to have the capability to provide free pick-up service. Sichuan Airlines was able to offer 50 percent discount on air fares and also could provide a free pick-up service. This business model reportedly earned them a hundred million dollars profit.
The business model.
The Lingzhi MPV originally cost USD 22,210, Sichuan Airlines asked for a discounted price of USD 13,500 per unit on the proviso that they order a total of 150 units. The drivers were asked to present a detailed introduction of the vehicle to the passengers during the ride. In others words, drivers became salespeople, advertising and marketing the vehicle to their passengers.
The drivers introduced the merits of the vehicle and the service the manufacturer provides throughout the passenger’s journey. The MPV can seat 7 people and 150 vehicles were ordered. The drivers completed 3 round trips a day, exposing more than 2 million passengers to the information daily. It also achieved remarkable marketing results.
Where are the drivers from?
This provided excellent employment opportunities for the residents of Sichuan who wanted to make a living by driving vehicles. However, unlike driving a standard taxi, where they are required to pay an upfront deposit that is equivalent to a new vehicle and only have the right to use, not the own the vehicle. Sichuan Airline hired these drivers and sold the MPVs to them at a unit price of USD 26,713. The drivers would be paid USD 3.75 every time they gave a passenger a ride.
Sichuan Airlines earned a profit of USD 1.98 million: (USD 26,713- USD 13,506) X 150 vehicles
Although the drivers would have to pay a higher price to buy their vehicles Sichuan Airlines guaranteed regular custom from their passengers. It is undoubtedly attractive to the drivers since the 178,000 RMB included stable income, franchise and management fees.
Furthermore, Sichuan Airline launched free pick-up services to the city and 50 percent discount on their tickets highlighting the success of their business model for all. The passengers save USD 22.50 and also get a free ride to the city and Sichuan Airlines gain excellent profit margins
For the manufacturer ‘Fengxing’, selling at a lower price enabled them to offer employment for an additional 150 salespeople. It also saved them advertisement expenses and the creation of successful marketing channel.
As for the drivers, working for Sichuan Airlines guaranteed them a steady income.
With 150 vehicles driving round the city; Sichuan Airlines had created a potential mobile advertising resource and signed a contract with Fengxing to provide advertisement space inside their vehicles. This reportedly earned them USD 1.98 million. Enacting this business model enabled Sichuan Airlines to sell, on average, an extra 10,000 seats each day.
The business model used by Sichuan Airlines, creates a platform where you can not only help others but also create good services. It becomes ecosystem and eventually build a business network.