Pyramid Principle: what it is and what to do instead

The idea worth keeping

Not as boxes to fill, but as questions that fall out of the maths of the goal:

• What is the decision, in one sentence?
• Which two or three facts would flip the decision if they were different?
• What number goes with each reason?
• What would make me wrong, and what should the client do next?

Why reaching for it fails in an interview

• It is generic. Reasons picked to fill a shape ("the market, the company, the risks") could close any case.
• It misses the driver that matters. The shape does not tell you which number decides the call, so the deciding fact can end up as the third reason or be left out.
• It sounds rehearsed. "My recommendation is yes, for three reasons" followed by reasons without numbers sounds learned, not thought through.

What to do instead: a worked case

1. 1

   Pin the question

   Say whether the route makes money at the load we expect, how much room for error there is, and what could go wrong.

2. 2

   Write the maths of the goal

   • Route profit per year = flights per year x (seats x load factor x average fare minus cost per flight)
   • Breakeven load factor = cost per flight / (seats x average fare)
3. 3

   Use what you know about the business

   • For an airline, load factor (the share of seats filled) and average fare decide whether a route makes money; most costs are fixed once the flight is scheduled.
   • Holiday routes are seasonal, so the yearly average can hide quiet months that lose money.
   • Rivals can add flights on a profitable route and cut fares, so the margin of safety matters as much as the profit.

   The structure that falls out of it

   • Answer
     • Launch the route, with a review after the first winter
   • Reason 1: it makes money at the expected load
     • Profit per flight
     • Flights per year
   • Reason 2: there is room for error
     • Breakeven load factor compared with the expected load
   • Risk and next step
     • Quiet winter months
     • A rival adding capacity
     • What to check before committing aircraft

   Hypothesis: The decision turns on the gap between the expected load factor and the breakeven one, so that gap goes second, right after the profit.

4. 4

   Find the facts that decide it

   • Two flights a day is 730 flights a year. Each has 180 seats; at an 80% load factor that is 144 passengers paying 90 on average: 12,960 of revenue against a cost of 11,000, so 1,960 profit a flight and about 1.43 million a year (730 x 1,960 = 1,430,800).
   • Breakeven load factor = 11,000 / (180 x 90) = 11,000 / 16,200, about 68%, against 80% expected: a margin of about 12 points.
5. 5

   Say so what

   Yes, launch the route. It should make about 1.4 million a year at an 80% load factor, and it breaks even at about 68%, so there is a margin of about 12 points. The main risk is the winter months and a rival adding flights; next, check monthly demand and agree to cut winter frequency if bookings fall below breakeven.

Build the acumen behind it

The worked case used two things a list cannot give you: the five moves, and knowing how this kind of business makes money. These pages teach both.