Business Plan Dossier

Accompanying the Presentation of Tuesday 10th May 2005

Guoxian Cai ▪ Alexia Dogani ▪ George Georgiou ▪ Francis Ntongo Ekani

▪Mladen Grabovac ▪ Jesper Laursen ▪ James Lawford ▪ Antonio Panariello
Dariusz Sawicki ▪ Iouri Tchekanov ▪ Praveen Vetrivel

A Dossier Submitted in Partial Fulfilment of the Requirements for the Airline Case Study
related to the Degree of Master of Science in Air Transport Management

Department of Air Transport ▪ School of Engineering

Cranfield University

May 2005
Contents

Section Title Page

1.0 Executive Summary 3

1.1 Objectives 3
1.2 Mission Statement 3
1.3 Keys to Success 3
1.4 Corporate Goals 4
1.5 Target Market 4
1.6 Company Summary 4

2.0 Fleet Selection 5

2.1 The ATR42-500 8
2.2 Aircraft Leasing 8
2.3 Maintenance Policy 10
2.4 Flight Operations Monitoring 17

3.0 Market Analysis Summary 19

3.1 Competitor Analysis 22

4.0 Marketing Strategy 24

4.1 Brand Management and Logo 24
4.2 Positioning 24
4.3 Product Planning 25
4.4 Scheduling 25
4.5 Airport Processing 26
4.6 In-flight Service 26
4.7 Aircraft Configuration 26
4.8 Unique Selling Proposition 26
4.9 Ground Handling 27

5.0 Pricing Strategy 28

5.1 Revenue Management 28
5.2 Ancillary Revenues 29

6.0 Promotion Strategy 30

6.1 Advertising Mix 30
6.2 Outdoor and Poster Advertising 30
6.3 Press Advertising 32
6.4 Interactive Online Banners 33
6.5 Postcards 33
6.6 Advertising Costs 34
6.7 Public Relations 34
6.8 Competitive Marketing Activities 35

7.0 Distribution Strategy 36

7.1 On the Internet 36
7.2 On the Phone 37
7.3 Reservation System 37

1
8.0 Management Summary 38
8.1 Corporate Culture 38
8.2 Organisational Structure 38
8.3 Management Team 39

9.0 Financial Plan 41

9.1 Important Assumptions 41
9.2 Budget 41
9.3 Basic Statistics 42
9.4 Profit and Loss 42
9.5 Business Plan 43

10.0 Future Prospects 44

Appendix 1 Summer 2006 Aircraft Schedule 45

Appendix 2 Winter 2006 Aircraft Schedule 46

Appendix 3 Summer 2006 Timetable 47

Appendix 4 Winter 2006 Timetable 48

Appendix 5 Aeronautical Charges 49

Appendix 6 Flight Cancellation and Long Delays 51

Appendix 7 Initial Aircraft Selection Analysis 53

Appendix 8 Direct Operating Costs Per Route 54

Appendix 9 First Year Average Cost Analysis 55

Appendix 10 Revenue Management KRK-GDN 58

Appendix 11 Revenue Management KRK-POZ 59

Appendix 12 Revenue Management GDN-WRO 60

Appendix 13 Revenue Management GDN-POZ 61

Appendix 14 Corporate Salary Structure 62

Appendix 15 Business Plan 63-70

Appendix 16 Profit and Loss Account 71-74

Appendix 17 CEO/CFO/CCO/COO Budgets 75-86

Appendix 18 Profit and Loss Annula Report 87-89

Appendix 19 Profit and Loss Route Information 90-105

2
1.0 Executive Summary

Sense is a new airline in its initial development. It is being formed to enter a specific
niche: the Polish short-haul domestic travel market. Since the accession of Poland to the
European Union in May 2004 an opportunity exists for such an airline based at Krakow.
There is a lack of services to and from Balice Airport in Krakow. With much demand for
air travel on selected domestic routes suggests that a start-up airline could capture a
significant proportion of multi-modal travel in both the business and leisure sector.

The management team plans to provide a low-cost air service to selected Polish
destinations from Krakow. The service approach will emphasise a safe, punctual and
courteous approach to passengers.

All customer surveys indicate a preference for low-fares without safety on punctuality
being compromised. As such our customers will receive an adjusted level of in-flight
service to justify the reduced cost of providing that service. Such in-flight service will
meet the demands of our potential customers in such an operating environment.

1.1 Objectives

The Company has set the following objectives:

 To obtain the required JAA and Polish certifications before commencing services
 To commence revenue services on or before the start of the summer season 2006
 To raise sufficient capital to financially permit such services
 To start operations with two Aerospatiale ATR-42 aircraft in year one and three
in year two and three.

1.2 Mission Statement

We aim to provide safe, point-to-point travel within the Polish market. Market a
consistent and reliable product and introduce fares appealing to leisure and business
passengers. To achieve our goals we will continually develop our people and establish
strong relationships with our suppliers and primarily our customers.

1.3 Keys to Success

Our keys to success are:

 Obtaining the necessary governmental approvals

 Securing sufficient financing
 Experienced management
 Marketing, advertising and promotion
 Product quality with an emphasis on safety
 Timely, cost effective and managed delivery of services

3
1.4 Corporate Goals

Sense Airways aims to become the leading regional carrier in the Polish domestic market.
Its corporate goals consist of becoming the carrier with the most extensive route
network inside Poland, to develop domestic routes which will connect the major cities,
and enable growth and infrastructure development for the country’s regions. The
possibility of becoming the traffic feeder for a major Central European low-cost carrier
may be examined in the future. Such an opportunity will create strategic linkages to
strengthen Sense’s market position as a regional carrier in Poland, and even expand in the
domestic markets of its neighbouring countries. A drive for profit will be one of Sense’s
management main goals, however with a strong focus in investing for the long-term
profitability and success of the carrier.

1.5 Target Market

Sense Airways is a niche domestic carrier in the Polish market aiming to attract business
and leisure passengers travelling between the major cities of Poland, without having to
connect at Warsaw. The target public is young, 18 to 45 year’s old individuals, who travel
either on leisure or business. They are well educated and above-average income earners.
Internet has become an important element in their everyday transactions and they show a
forward looking attitude in new technology. The target market will use Sense for fast
reliable business trips during the week, and enjoy short-breaks away at the weekends with
their families.

1.6 Company Summary

Sense is being formed in 2006 as a Polish Limited Company. Its head office will be in
Krakow, Poland. The founder of has extensive experience in the Polish aviation industry.
The backgrounds of all the members of the management team are enclosed in this
document.

In the second year of operations the management team will expand its revenue by adding
aircraft and extra flights to the most demanded and popular routes in current operation.
This will make the schedule more convenient to these destinations and improve our
competitive advantage. There will be additional flights to new destinations outside the
Polish domestic route where potential is deemed to exist.

The management team plans to lease a small office in Krakow when the necessary
funding is secured.

4
2.0 Fleet Selection

As it has been presented earlier, Sense will be a regional company operating short haul
routes. Average sector for the selected routes will be 260 nautical miles. Therefore, when
selecting an aircraft for the future operations, the company’s management paid particular
attention to the following:

 Capacity between 50 and 70 seats;

 Compatibility of the potential aircraft with the selected routes and with
destination airports
 Best fuel efficiency on the selected routes;
 Facility to subcontract the entire maintenance with minimum costs;
 Lowest Operating Leasing rates and flexibility of leasing conditions.

The last point was very important for the company. In fact, the airline is considering
developing its routes progressively by using aircraft with higher capacity. Therefore it
would like to begin its operations with 50-seats aircraft and to have an option to switch
to 70-seaters one after 2 years of operation if the conditions are favourable for this.

The company did not intend to choose a new aircraft which would be much more
expensive and not available from the leasing companies to a start-up like Sense.
Therefore, the company targeted a potential aircraft between 5 and 10 years old from
different manufactures.

The company selected a short list of potential aircraft in order to analyse their
performance and to make its final choice of one aircraft type. This list is presented on the
table in Annex 1 attached. As we see on the table the minimum distance on which those
aircraft can transport maximum payload is 825 nautical miles (1528 kilometres). Since our
maximum sector distance will be 376 nm (for at least two years) and maximum diversion
distance will not exceed 150 nautical miles, there is no need to make “payload-range”
comparison. All aircraft are suitable for this kind of operation and capable of
transporting maximum payload on this distance.

As shown in Annex 1, maximum take-off distance of 2061 meters with MTOW (ISA
+20°C on Sea Level)1 will be necessary for CRJ-200. Since all the runways lengths on the
selected destinations are over 2000 meters, all aircraft could operate in these runways.

As mentioned above, fuel efficiency of the candidate aircraft on our routes (260 nautical
miles on average) was one of the first priorities. To evaluate this efficiency for the pre-
selected aircraft on an equal basis, we compared required block fuel per distance per seat.
This analysis is presented on the graph 1 overleaf. As wee se, there is a substantial block
fuel consumption difference between jet aircraft and turbo prop for the average sector of
260 nautical miles (nm). According to the graph, to fly one passenger on a distance of
260 nm with a jet aircraft we would need around 60% more fuel the with turbo-prop
aircraft. Therefore, from this point of view, there is no economical reason to choose jet
aircraft for the routes that the airline decided to operate.

1
MTOW – Maximum Take-Off Weight; ISA – International Standard Atmosphere.

5
 Graph 1: Block Fuel Consumption per Distance per Seat (kg)

40,0
CRJ-200 &
35,0
ERJ-145; 22 kg
Block fuel (kg)

30,0
SAAB-2000;
25,0
15 kg Q-300;Q400 &
20,0 ATR-42; 14kg
15,0
10,0 ATR72-500; 12 kg
5,0
200 250 300 350 400 450 500
Distance (nm)
Source: Based on Aircraft Economics data (provided by Mr. Geoff Hearn

If we compare the pre-selected turbo-prop aircraft fuel consumption, ATR72-500

appears to be the most fuel efficient. It is followed by ATR42-500, Dash 8 Q-300; 400
and SAAB2000 respectively. We should also underline that from the two turboprop 70-
seaters, ATR-72 seems to be more fuel efficient than Q-400 on the selected routes. We
can conclude that from the fuel consumption point of view on average sector of 260 nm
ATR-500 family is more suitable aircraft for the company’s future operations. Moreover,
the company sees its operations in prospective and would like to start operations with a
50-seate aircraft and progressively increase capacity and switch to 70 seat aircraft. ATR-
500 family seems to be the only economical option that could offer this possibility. In
fact, this family offers high degree of commonality between ATR42-500 and ATR72-500
models. The commonality results in a single type rating for this aircraft which will allow
the company to switch from one model to another (or operate mixed fleet) without
additional costs. Based on the above the company’s management felt that the best choice
for the airline operation would be to use ATR 42-500 and later to use ATR42 and 72.

We can argue however that the turbo-prop aircraft are slower which could increase travel
time and influence transport choice of the potential customers. The travel time of a
turboprop on the average sector was therefore analysed in comparison with a regional jet.
Three aircraft’s block time travel per distance2 was compared on the graph 2 overleaf. As
we see on the graph, ERJ-145 needs 57 minutes block travel time on the average sector
of 260 nautical miles, compared to 70 minutes for ATR42-500 and 77 minutes for
ATR72-500. On maximum sector ERJ-145 would need only 20 minutes less time then
ATR42. This gap could not make too much difference for the company’s potential
customers. The only difference for a potential customer could be psychological (wrong
impression that it is a slow and old aircraft), but the company’s Marketing department
will promote this kind of aircraft during their advertisement campaigns. Obviously this
gap increases if the company chose to fly longer sectors and a jet aircraft becomes more
reasonable solution. However, for our company with an average sector of 260 nautical
miles turbo-prop aircraft seems to be more economical solution, especially during high
fuel costs times.

2
The calculation includes 10 minutes taxi time.

6
 Graph 2: Block Time per Distance (Minutes)

160
Block time (min) 140
120
ATR72; 77min ATR42-500
100
ATR-42; 70min
ATR72-500
80
ERJ-145
60
40 ERJ-145; 57min

20
100 150 200 250 300 350 400 450 500 550 600
Distance (nm)

Source: Based on Aircraft Economics data (provided by Mr. Geoff Hearn)

Based on the best leasing and maintenance costs rates, for which the company was
quoted from different suppliers (more on this later) and based on the aircraft
performance we estimated Direct Operating Costs (DOC) for the average sector. The
details of this calculation are presented in the Annex 2 attached3. DOC per route per year
of operation (for 3 years) is calculated in a similar way and the results are presented in the
Annex 3 attached. As we see on the Graph 3 overleaf, the DOC per 260 nm sector per
seat for ATR42 and 72 differs significantly from ERJ-145. A simulation of fuel price
increase has been done and revealed that with a 25% fuel price increase (from 1.2 to 1.5
USD/US Gallon), DOC per 260 nm sector for the ATR operation would increase by 1
USD per seat. This increase would be 2 USD per seat per sector if we operated ERJ-145
on these routes. This is another argument in favour of turbo props on short haul routes.

Graph3: Direct Operating Costs (DOC) per Seat per 260 nm Sector (Passenger and
Ground Handling Charges are excluded).

40 37
35 35
30 27
26 24 Fuel cost = $1,2/US
25 23
Gallon
USD

20
Fuel cost = $1,5/US
15
Gallon
10
5
0
ATR42-500 ATR72-500 ERJ-145

Source: Calculation based on Aircraft Economics data (provided by Mr. Geoff Hearn)

3
DOCs per route per month and per year were calculated in a similar way and the results of these costs
are presented in the company’s Profit and Lost accounts.

7
Based on the above arguments the company’s management have selected ATR-500
family for its operations. According to the above table ATR72 provides slightly lower per
seat costs thanks to higher capacity. However, taking into account that the airline is
opening new routes, the company’s management have decided to increase capacity on
the routes progressively and prefer to start activities with ATR42-500 and from the 3rd
year of operation to use both ATR42 and ATR72.

2.1 The ATR42-500

The aircraft is equipped with two Pratt and Whitney Canada PW127E engines4 which
offer the ATR42-5005 a cruise speed of about 300 knots and fast climb from 1,500 ft to
17,000 ft in less then 10 min. The advanced, six blades propeller provides low outside
noise levels. It largely complies with ICAO Annex 16 Chapter III noise levels
requirements. Low fuel burn and gaseous emissions make this aircraft environmentally
friendly, which means that all noise and pollution related taxes can be avoided.

This new generation of ATR offers additional comfort to the passengers. Interior design
was reworked and extensively soundproofed passenger cabin. The new-look interior
offers more volume in the overhead storage bins, with each bin unit sized at 2 meters
long for outsized carry-on baggage. It also gives the passenger cabin an impression of
volume.

2.2 Aircraft Leasing

When choosing the conditions to operate the selected aircraft type, the management took
their decision having in mind two main conditions:

 Flexibility in terms of aircraft operation which offers a possibility to switch from

one aircraft type to another with minimum operations disruption
 Minimum amount of investment

Taking into account the above conditions, Operational Leasing seemed to be more
appropriate for the company’s needs. In fact, buying a new or second hand aircraft
would require substantial amount of money which implies contracting debt or increasing
capital by finding more investors. This option could be considered in future when airline
will be known on the market and will make sufficient amount of cash-flow from
operations. Financial Leasing wouldn’t provide as much flexibility to the airline as it
needs. With Operational Leasing, the company will keep the substantial capital value of
aircraft off-balance sheet and therefore improves its financial ratios and credit capacity.

4
ATR72-500 is equipped with two PW127 engines which give the aircraft similar advantages, though
slightly slower speed.
5
Source : ATR aircraft WEB site.

8
Having made a decision to make an Operational Leasing, the company contacted several
operating lessors and got a very attractive offer from Air Lease Company6 which
operates under EASA regulation. Moreover the terms and conditions of the leasing
agreement concluded between the companies offered Sense the requested flexibility.
Some major points of the agreement are presented below:

 On the 20th of March 2006 the company will receive two 7 years old ATR42-500
in fully operational condition, after a C-check and updated to the last EASA
requirements7. On the 28th of February 2007, Air Lease Company will deliver the
3rd ATR42-500

 Since Sense forecasted introducing 70-seater ATR72-500 on the third year of

operation, Air Lease Company offered this possibility. Therefore, one ATR72-
500 will be delivered to the airline on the 25th of March 2008 whereas one
ATR42-500 will be returned to the lessor on the 1st of April 2008 after a C-check
(with all the mandatory and Airworthiness Directives modifications completed)
in the same condition that it was received

 Maintenance of the aircraft will be under Sense’s responsibility and will be

conducted under the conditions specified by the lessor (maintenance provision is
presented later in this business plan)

 Leasing fees shall be paid on monthly basis in advance; insurance shell be paid on
annual basis in advance to the lessor. Leasing fees amount is 50,000 USD for an
ATR 42-500 and 75,000 USD for an ATR72-500. The leasing fees include the
provision for D checks8. Insurance fees correspond to 1.2% of the aircraft cost
and equal to 60,000 USD per year for ATR42-500 and to 90,000 USD per year
for ATR72-500

 A deposit will have to be paid prior to reception of the aircraft. It corresponds to

three months lease payment for each aircraft. It will be refunded upon the
termination of the contract

 The agreement could be signed for 5 year term and renewed under tacit
agreement

These conditions best suited the company’s needs and have been accepted after some
negotiation over the lease fees rates and the delivery terms.

6
The name of the company is invented. Reference lease values were based on Air Finance Journal data
(provided by Mr. Geoff Hearn).
7
Adjusting the aircraft configuration to the company’s needs (repainting, revamping, interior
modification etc) is under the airline’s responsibility and will cost 100,000 USD per aircraft.
8
ATR42 and 72 D checks are conducted in 6 years intervals

9
2.3 Maintenance Policy

1) Commitment to Safety and Quality Maintenance

Sense’s commitment to safety will be a primary priority of the Company and its
management. This commitment begins with the hiring and training of Sense’s pilots,
cabin crews and maintenance personnel and includes a policy of maintaining its aircraft
in accordance with the highest European airline industry standards. Although SENSE
will seek to maintain its fleet in a cost-effective manner, management will not seek to
extend Sense’s low cost operating strategy to the areas of safety, maintenance, training or
quality assurance. Routine aircraft maintenance and repair services will be performed at
Krakow, Gdansk, Wroclaw, Poznan by LOT which is a maintenance contractor
approved under the terms of Part 145/JAR 145, the European airline industry standard
for maintenance. Sense will contract heavy airframe maintenance, engine overhaul
services and rotable repairs to LOT. Sense will assign a Part 145/JAR 145 certified
mechanic team to oversee heavy maintenance and authorize engine overhauls performed
by third parties.

Maintenance and safety programs budget: $2,800,000 per year

2) Leasing Contract: Maintenance arrangements and regulatory issues

All Sense’s aircraft will be operated on an operating lease base

The conditions which must form part of the dry lease agreement before these can be
accepted by the Authorities are as follows:

 The aircraft to be leased is, by registration, subject to existing AOC requirements

of the lessor. This is regulated by JAR-OPS 1/3.

 The existing maintenance support arrangements for the leased aircraft remain
valid for the duration of the period of lease. These include the following:

o Base and Line maintenance support locations (as appropriate)

o Technical Log procedures
o Maintenance agreement/contract with JAR 145 maintenance organisation
o Approved Maintenance Schedule and associated Engineering
o Maintenance Management Exposition procedures (as appropriate)

 A side letter/addendum to the existing maintenance agreement/contract between

the lessor and the JAR 145 maintenance organisation should be raised identifying
the leasing agreement. Any changes to the existing maintenance arrangements
must also be identified in the side letter and agreed to by the lessor, lessee (and
the JAR 145 maintenance organisation where this is a separate organisation from
the lessor). The side letter/addendum should be signed by all parties involved.

Any expenses associated with placing the Aircraft under our maintenance program is
Sense’s responsibility. Sense, at its sole expense, will maintain the Aircraft in accordance
with all requirements of the following:

10
  The Polish civil aviation authorities (“CAA”), including airworthiness
directives and modifications required for commercial passenger operations.
 The airframe and the engine manufacturer’s maintenance specifications and
service bulletins, including ageing aircraft and corrosion control programs;
 The Sense’s CAA-approved maintenance program. Any extension of service
intervals in Sense’s maintenance program shall be subject to lessor’s prior written
approval. Lessee shall maintain, in the English language, all aircraft documents
and maintenance records required by the CAA in accordance with manufacturer
specifications. During the Lease term, Lessor may inspect the Aircraft and its
records and observe Sense’s maintenance procedures.

3) Maintenance Company: LOT Maintenance Services

Our selection and decision criteria:

 Capital Investment

Reducing aircraft maintenance costs is very important for SENSE to increase its profits.

Maintenance is traditionally one of the biggest barriers to entry for any new carrier such
as our company.

Setting up an in-house maintenance department requires a high level of capital

investment in facilities and components that a low cost new carrier that we are simply
can’t afford if it is to be competitive

As a start-ups and low-cost carriers pursuing a high-growth strategy, we will typically be

short on capital and driven by variable costs.

Therefore, our only alternative is to outsource as much of the maintenance function as

practical.

Outsourcing to an organization with the expertise of LOT, minimizes our need for
capital investment and allows us to benefit from economies of scale realized by a large,
high-volume MRO service provider.

 Full service package and pricing

If maintenance isn’t outsourced on a full service basis the financial advantage may not be
maximized because then the carrier also needs to establish some level of in-house
maintenance capability.

Maintenance expenses are unique items in DOC, which are able to be controlled by us. If
the MRO provider prices its services per man-hour as is traditional maintenance costs
may be more difficult to predict. There may be less incentive on the part of the MRO
provider to return an airplane into service as quickly as the airline, particularly a small one
with limited backup resources, requires. Other issues include competing for attention
with other clients of an MRO provider, and having to accommodate to the MRO’s
infrastructure.

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Fully outsourcing maintenance frees up our management to concentrate exclusively on
earning revenue

LOT is the most cost effective maintenance option, especially for carriers driven by
variable costs, and it assumes total operational responsibility for maintenance as well as
the business risk that comes with it. LOT also has a great level of expertise as it already
operates and maintains its own ATR fleet.

Risk Sharing

LOT eliminates most concerns about cost fluctuations and timely service with one key
feature. It is priced at a fixed rate per flying hour. This makes the variable cost totally
predictable

It gives us the incentive to keep the airplanes flying. The more time we spend in the air
instead of in the maintenance hangar, the more money we make.

The Safety Factor

For our company, with little in-house maintenance experience, LOT will carry a high
level of safety comfort provided that certain responsibilities of our airline are clearly met.
The experience level, maintenance standards, regulatory approvals, and communication
channels to the maintenance oversight airworthiness authorities.

Paradoxically, the higher the level of maintenance that is outsourced our airline, the
greater the interest of the regulators. Full service contracts are particularly vulnerable to
scrutiny because such a level of outsourcing could make it difficult for us to meet our
legal responsibility for safety, which may not be outsourced. The regulators need to be
satisfied that mechanisms are in place for us to retain and exercise full control over
quality assurance. This, however, will be easily accomplished by a small, highly
experienced maintenance audit staff, as our provider they oversee has a good track
record.

LOT maintenance company has been approved by our lessor.

4) Aircraft maintenance services and facilities

LOT is authorised centre for ATR maintenance services for:

 Comprehensive Maintenance & Overhaul

 Interior Refurbishments
 Airframes
 Power plants
 Avionics
 Landing Gear Overhaul
 X-Ray and other NDT
 Mandatory Periodic Inspections

Aircraft maintenance services, including transit checks, pre-departure checks, and heavy-
duty maintenance will performed by several Polish entities owned by Polish Airports
State Enterprise, LOT, and individual airports:

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  Five Major Stations, Warsaw, Krakow, Wroclaw, Poznan, Gdansk are equipped
to carry out lay-over inspections or Daily Inspection during night stop for all
ATRs types of propeller aircraft.
 Warsaw and Krakow has the full facilities to carry out ‘A', ‘B', and ‘C' Checks
which come in the Major Maintenance category for ATR 42 and 72 aircraft.
 The other airports have got full facilities to carry out ‘A' Check on ATRs aircraft

Component and Engines Overhaul and Facilities:

Engines

Central European Engine Services provides aircraft engine maintenance services. The
company is owned in 51% by LOT and by General Electric Engine Services in 49%.

Spares

LOT has a good Spares organization, and components are easily and rapidly available in
their facilities throughout the country.

Summary Table

City Company Company

Krakow LOT Uslugi Lotniskowe Ltd airport ground service of aircraft, aircraft
and engine maintenance, and overhaul
services
Gdansk LOT Uslugi Lotniskowe Ltd 
Poznan Poz-LOT Uslugi Lotniskowe Ltd. 
Wroclaw LOT Uslugi Lotniskowe 
Warsaw Central European Engine Services Sp. maintenance and overhaul of civil aviation
aircraft engines, modules, components, as
well as aircraft engine accessories

a) Maintenance Programme / JAR 145 Compliance

Sense’s aircraft maintenance programs will be made up of a mixture of preventive, on-

condition, corrective and redesign activities:

 Preventive activities will be conducted at prescribed intervals of calendar time,

operating hours or some other usage parameter.
 On-condition maintenance will be conducted based on the results of regularly
scheduled inspections and tests.
 Corrective activities will be conducted in response to in-service discrepancies.

Redesign activities take the form of engineering modifications that are meant to address
unanticipated safety or reliability problems.

The most clearly predictable of these activities are the scheduled preventive maintenance
and inspection tasks. The remaining activities are less predictable and will present a
challenge to maintenance planning and scheduling processes for our company.

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b) Maintenance Scheduling:

Pre-Flight Checks are conducted before each flight

Each aircraft undergoes a Night-Stop Inspection from wingtip to tail by mechanics

 A - Check every 300 flying hours / Will be progressively done overnights

 C - Check every 3,000-3500 flying hours / 2 weeks base maintenance
 D - Check every 6 calendar years ( MSG3 with no flight hours requirement)

C-check-Management

During the course of its operations Sense will have to perform a C-check on its planes.
As the company only lease two aircraft, it will not be able to satisfy its flight schedule if it
temporary looses one of its planes. To overcome that, the airline will process as follow:

As the company is planning to dry lease a third aircraft for the second year of operations,
the new aircraft will enter the fleet one month at the beginning of the 11th month of
operations. One of the two others aircraft will then sent to be C-checked during for two
weeks. Then the aircraft will join back the fleet, and the second one will be C-checked at
its turn for two weeks. At the beginning of the second year, Sense’s fleet will be
composed of three planes.

A similar process will take place for the third year, when the airline will receive an ATR
72 and return one ATR 42 to the lessor.

5) Maintenance supervision

Sense will appoint two well trained and experienced JAR 66 / JAR-145 CAA approved
maintenance and safety supervisors, to manage the airline maintenance programme, and
to oversee LOT maintenance activities. Thanks to a dedicated Software solution, the
supervisors will be able to follow, monitor and plan our company's short term (three to
ten days) aircraft routing and maintenance scheduling.

6) Maintenance costs

Maintenance reserves

Sense will have to pay $360 per flight hours and for each ATR 42 aircraft and $390 for
each ATR 72 aircraft operating e a c h month, to perform the all maintenance tasks.

To overcome any unscheduled overhaul and any repair or inspection costs arising as a
result of an accident, foreign damage or operational mishandling, the company agreed
with the maintenance company to incorporate the costs in the package.

Flight Hours Costs Monthly Costs Yearly Costs

ATR 42 $360 $96,000 $1,152,000 + 20 % (1)(2)
ATR 72 $390 $104,000 $1,248,000 + 20 %

Spares costs: +10% of maintenance costs

Line operations cost: +10% of maintenance costs

14
7) Quality & Safety

As a new airline, sense will face a formidable challenge in beginning and sustaining
operations, managing growth, and developing its maintenance strategy. It’s well known
that new airlines experience a higher rate of safety related concerns and accidents than
established carriers, particularly during their early years of operations. Hence, it’s
important that Sense develops a safety management system not only to fully comply with
the ad hoc regulatory requirements to perform to an approved standard, but to also
ensure that every safety measure is taken to preserve the company’s operational integrity,
viability and continuity. For these reasons, outlining the basic operational safety
threats that sense may face in Ground, Maintenance and flight Operations will be of
paramount importance. On the course of development, we will suggest an appropriate
Safety Management Strategy to systematically identify and manage the potential
risks and a set of specific solutions to minimize the threats base on the experience of
existing airlines and the regulation guidelines.

 ICAO Standard and Recommendation Practices (SARP’s, Annex 6 part 1).

 The Joint Aviation Requirements (JAR):

Operations: JAR-OPS 1 (1.035, 1.037)
Maintenance: JAR 145
Training: JAR-OPS / JAR FCL, JAR 147/66

The company will also seek to conform as fully as possible to the quality and safety
standards of AQS 9000/121 (Aviation Quality Standard) and ISO 9002. This means:

 Compliance to all applicable Air Transportation Office regulations.

 The implementation of accepted good industry standards and practices.
 The use of safety technologies and systems in the operations.
 The incorporation of the ISO 9002 Standard guidelines and elements.

a) Safety Committee

Safety oversight is fundamental to the safety management process. A principal tenet of

safety management policies, principles and procedures will require our airline to critically
review its operations, and to propose operational changes and additions or replacements,
for our safety significance. This will be achieved through two principal means:

 Reactive - Occurrence/hazard reporting

 Proactive - Safety assessments.

The company will have a safety committee composed of pilots and maintenance
supervisors and operational personnel. The committee will periodically meet to review
assess the company’s safety records.

b) Organizational Concerns

Sense will develop a safety culture in its organization, as it’s commonly viewed as an
enduring characteristic that is reflected in its consistent way of dealing with critical safety
issues. Sense will rely on five global components or indicators of safety culture.

15
c) Organizational Commitment

Organizational Commitment to safety refers to the extent to which Sense upper-level

management will identify safety as a core value or guiding principles of the organization.
The company commitment to safety would therefore be reflected in the ability of its
upper-level management to demonstrate an enduring, positive attitude toward safety,
even in times of financial austerity, and to actively promote safety consistently across
all levels within the organization.

d) Management Involvement

The company’s management Involvement will refer to the extent to which both upper
and middle-level managers will get personally involved in critical safety activities within
the organization. Management involvement in safety will be reflected by managers’
presence and contribution to safety seminars and training, their active oversight of
safety critical operations, their ability to “stay in touch” with the risks involved in
everyday operations and the extent of good communication about safety issues, both
up and down the organizational hierarchy.

e) Employee Empowerment

Sense will empower its employees. That means they will have an individual’s perceptions
or attitudes as a result of a delegation of authority or responsibility by upper level
management. An empowered attitude will lead to increased motivation to make a
difference, to go beyond the call of duty for organizational safety and take
responsibility for ensuring safe operations. Within the context of safety culture, this
means that employees will have a substantial voice in safety the company’s decisions,
have the leverage to initiate and achieve safety improvements, hold themselves and
others accountable for their actions, and take pride in the safety record of their
organization.

f) Reporting Systems

An effective and systematic Reporting System will be the keystone to systematically

identifying the weaknesses and vulnerabilities of safety management before an
accident occurs. The willingness and ability of Sense to proactively learn and adapt its
operations based on incidents and near misses before an accident occurs is critical to
improving safety.

g) Non-Punitive Disciplinary Policies

The Company will strive to develop a non-punitive, disciplinary policy as part of its
safety management system. Employees are more likely to report events and cooperate in
an investigation when some level of immunity from disciplinary action is offered.

h) Training Policy

The company, maintenance personnel will also receive the finest in training, aided by the
latest computer based training programs in conjunction with hands-on instruction
provided by highly experienced aviation professionals and the manufacturer of the
airframes (ATR Aerospatiale), turbine engines, and on board systems.

16
2.4 Flight Operations Monitoring

A customized system for Operations Control (SOC) will enable Sense flight operation
centre to operate competitive schedules that meet passenger demand while meeting
dispatch requirements and overcoming disruptions to schedules. The Solution will offer
three suites of integrated products to help address issues such as air traffic, weather,
ground handling, passenger re-accommodation and government regulations.

Operations Monitoring and Scheduling

The solution will enable the airline to monitor and schedule daily maintenance and flight
operations. It will use a Gantt chart to graphically show flight leg information from a
central database. The airline will receive reliable, thorough information about current
operations and maintenance events, which assists in evaluating problems and
determining cost-effective solutions.

 The Maintenance Routing module will use optimization techniques to determine

feasible aircraft routings over a prescribed decision horizon.

 The real-time slot request and management module will oversee slot requests for
Poland via the Central Flow Management Unit (CFMU). The module will
manage CFMU-assigned slots by productively processing slot requests. This
module will be not intensively used as the polish airports we are going to
serve are not congested, and there no slot constrains. But, on occasions, an
airport’s movements capacity may be reduced to well below it’s normal
operating capacity, for example by fog or by an incident on a runway or
taxiway. In order to prevent a large build-up of arriving traffic waiting to
land, CFMU will create a regulation, assigning slots to all flights planning
to land at the airport.

 However, it could be useful as we will be operating at the busy Austrian

Innsbruck airport.

 The browser-based Flight Information Display System will provide real-time

updates of the latest flight departure and arrival information in a continuous text
display. This system will be similar to a Flight Information Display system at an
airport, yet will run on a PC.

Operations Control and Flight Following

The system will help to control and follow the flights. It will be tailored an airline with a
smaller fleet, needing simpler solutions. It will enable our SOC personnel to readily
monitor the status of the airline’s flights. By interfacing with the airline’s CRS, the system
will display real-time flight information in a Gantt chart format with user-defined colours
indicating flight status. The system will interfaces with the airline’s CRS to process flight
movement messages, gathering data such as flight number and date, origin and
destination, departure time, assigned aircraft, fuel data, passenger list (both planned and
actual) and the original, revised, estimated and actual arrival time.

17
Maintenance Control

A maintenance scheduling module will be incorporated in the system. It will allow the
airline to monitor its planned short-term (three to ten days) aircraft routing and
maintenance scheduling. The system will monitor planned aircraft maintenance activities
and communicates that information to an airline’s SOC department via messages and
graphical screen displays. The system will use colour coding to designate deferred items
and inspections that are close to expiring for servicing.

Air-to-Ground Messaging

An ACARS (Aircraft Communications Addressing and Reporting System) module will

be included. It will process air-to-ground messaging between our ACARS-equipped
aircraft and designated positions within the sense airway’s SOC. The system’s
administrative functions will enable flexible decoding, reformatting and distribution of a
variety of operational data, reducing the clerical effort to process ACARS-generated
messages, facilitating automatic proliferation of accurate data and minimizing redundant
data entry.

Sense’s Aeronautical Communication Partner: SITA

Sense will sign a contract with SITA to provide it with seamless and secured flow of
messages. The secure, reliable, cost-effective exchange of messages will be key to
ensuring that the airlines flight operations and aircraft maintenance run efficiently and
effectively.

18
3.0 Market Analysis Summary

Propensity to Fly Chart

Adjusted
GDP/Capita (in $) Population Size sq mi
Domestic Traffic
Poland 4,890 38,626,349 120,728 1,739,967
Greece 12,490 10,647,529 50,949 1,320,508
Spain 15,960 40,280,780 195,364 57,008,991
Italy 20,530 58,057,477 116,341 67,016,865
UK 26,440 49,561,800 88,785 48,000,000

The Polish Market is underserved by over 800,000 passengers a year. All other markets
domestic traffic close to projected figure.

Adjusted Domestic Actual Domestic % of market currently

Traffic Traffic served
Poland 1,739,967 830,000 47.70%
Greece 1,320,508 1,100,000 83.30%
Spain 57,008,991 56,000,000 98.23%
Italy 67,016,865 66,320,000 98.96%
UK 48,000,000
These calculations based on UK domestic traffic

Poland’s GDP Growth

Year GDP Growth
1995 7.00%
1996 6.00%
1997 6.80%
1998 6.80%
1999 4.80%
2000 4.10%
2001 4.00%
2002 1.00%
2003 3.70%
2004 5.30%
Average 4.95%

Domestic Air Pax to Krakow

Domestic PAX 182,512 20.83%
International PAX 693,803
Total PAX 876,315

International Destinations 22
Domestic Destination 1

All domestic traffic carried by LOT and EuroLOT

In 2002 % arriving by air
Foreign tourist 1,000,000 69.38%
Domestic Tourist 5,000,000 17.53%

19
 Projected Growth: Krakow Airport
Pax arriving from different airports Pax departing to different airports
International International
Domestic Domestic
Scheduled Charter Scheduled Charter
90,439 92,822 155,271 92,073 191,141 154,569

City Populations
Warsaw, Poland: Population, total: 1,618,468
Gdansk, Poland: Population, total: 458,988
Krakow, Poland: Population, total: 740,666
Wroclaw, Poland: Population, total: 637,877
Poznan, Poland: Population, total: 578,235
Katowice, Poland: Population, total: 345,934
Szczecin, Poland: Population, total: 416,988
Rzeszow, Poland: Population, total: 162,049
Lodz, Poland: Population, total: 806,728
Bydgoszcz, Poland: Population, total: 386,855
Szczytno, Poland: Population, total: 36,462
Zielona Góra, Poland: Population, total: 118,182

Traffic By rail Carrier In 000’s

PKP Regional Services Ltd 233 272
PKP Intercity Ltd 8 500
PKP SKM Ltd 35 408
PKP WKD Ltd 6 085

Time 1st class 2nd class

GDN KRK 7 hrs 133.5 95
POZ KRK 6 hrs 25 min 72.2 48.13
WRO GDN 6 hrs 25 min 74.7 49.8
WRO KRK 4 hrs 10 min 61.86 46.24

Regional Services carries over 233 million passengers a year. The rail network charges
lower fares than Intercity and cover all destinations in Poland. A typical one way fare
from Warsaw to Krakow costs $ 40. The population of the 4 major cities Krakow,
Poznan, Gdansk and Wroclaw is over 6% of the total population. We can safely assume
that these cities have rail passengers is around 14 million. However not all this traffic
flows between these cities.

Assuming that majority traffic is to Warsaw, the remaining traffic a lot of it is to Krakow
for winters and Gdansk for summer. The business traffic is to Poznan. If only 20% of
the traffic out of these cities was between them. We have 2.8 million passengers
travelling by train between these cities. Intercity on the other hand is the premium rail
network which covers only the big cities. Warsaw, Krakow, Gdansk, Poznan, Wroclaw.
They also connect these cities to Germany. 60% of their services are domestic. This gives
us over 5 million passengers domestically. Again majority of this traffic will be expected
to flow through Warsaw. Even if 50% of the domestic traffic on Intercity is to Warsaw,
we get over 2.5 million passengers travelling domestically between KRK, GDN, WRO,
POZ. Most fares on Intercity are premium fares.

20
The domestic rail traffic between these cities combined with the long train journey, and
the people travelling by roads. We get a target market well over 5 million passengers.
Even if we can capture 10% of this market, we can carry over 500,000 passengers a year.

Route Structure

We start operations from the big cities outside of Warsaw. Using a forecast method
based on the current traffic flows and populations of cities. A traffic forecast is produced
between the big cities.

Forecast Weekly Pax Forecast Daily Pax Forecast

KRK-GDN 1,381 197
KRK-WRO 770 110
KRK-POZ 929 133
WRO-GDN 1,184 169
POZ-GDN 770 110

Although Poznan Gdansk are very close, Poznan is the business capital of Poland ,
which generates a lot of business travel, passengers who will be more willing to travel by
air and will be higher yield.

KRK-GDN will be our main route due to its distance; also Krakow is the cultural capital
of Poland generating a lot of tourist traffic from within Poland. Gdansk being on the
northern coast is a summer destination in Poland.

During the first 3 years of operation we plan to start flying to the main business and
tourist destinations in Poland and increase frequency and capacity in a phased manner.
Also during the ski season we do charter flights to Innsbruck in Austria.

The charter flights will be pre sold through travel agents and tour operators. The first
year of operation we fly connect the two big routes, KRK-GDN and WRO-GDN, the
factors that are considered here are the distances between the cities, long train times,
Krakow and Wroclaw tourist destinations in winter, Also Gdansk developing as a major
tourist destination for summers. This combined with high amount of business traffic
between the big cities.

Krakow-Poznan will also be operated the first year. The route will be mainly business
traffic. During the winter the charter flights will be from KRK-INN and POZ-INN.

The second year we start flights from POZ-GDN. And introduce winter flights from
WRO-INN.

In the third year of operation we will increase capacity on our main KRK-GDN routes.

Summer 2006 MAR-OCT

Route Flights/Week Route Flights/Week
KRK- GDN 25 GDN-WRO 18
GDN-KRK 25 KRK-POZ 18
WRO-GDN 18 POZ-KRK 18

Winter 2006/2007 NOV-MAR

21
 Route Flights/Week Route Flights/Week
KRK- GDN 23 POZ-KRK 19
GDN-KRK 23 POZ-INN 1
WRO-GDN 17 INN-POZ 1
GDN-WRO 17 KRK-INN 1
KRK-POZ 19 INN-KRK 1

Summer 2007 APR-OCT

Route Flights/Week Route Flights/Week
KRK- GDN 30 KRK-POZ 27
GDN-KRK 30 POZ-KRK 27
WRO-GDN 27 POZ-GDN 10
GDN-WRO 27 GDN-POZ 10

Winter 2007/2008 NOV-MAR

Route Flights/Week Route Flights/Week
KRK- GDN 29 GDN-POZ 10
GDN-KRK 29 POZ-INN 1
WRO-GDN 28 INN-POZ 1
GDN-WRO 28 KRK-INN 1
KRK-POZ 22 INN-KRK 1
POZ-KRK 22 WRO-INN 1
POZ-GDN 10 INN-WRO 1

3.1 Competitor Analysis

The primary competition in the Krakow market is LOT Polish Airlines. LOT accounts
for 100% of air travel in this market. The secondary competition in the Krakow market is
by road and rail. The significant journey times of these modes and our competitive
pricing strategy will attract a significant amount of patronage to our air services.

The operation of a single aircraft type will reduce our costs and allow high utilisation
based on a single hub. An over-competitive advantage exists as aircraft and operations
will not be present outside our limited focus. This will act as a barrier to entry from other
competitors once our brand is established. We will operate profitably within our niche
market without the constraints of a network carrier approach. All aircraft will be
configured with a single economy seating capacity of fifty seats. This will maximise
revenue on short-haul domestic flights. The ATR-42 will be the only aircraft operated by
the company.

In the Polish domestic air travel market, the existing carriers are LOT Polish airlines, its
low-cost subsidiary EuroLot and Air Polonia. As the market is deregulated, potential new
entrants could be one or more of the Central European emerging low-cost carriers such
as SkyEurope, Wizz Air or even some of the traditional network carriers (Malev or CSA).
LOT’s strategy has been based upon a hub and spoke network, fed by regional traffic in
Warsaw, to focus upon its strong position in the east - west traffic hub. Star alliance plays
an important part in this European connectivity strategy, and LOT has build a very
strong brand in the region. On the other hand, the introduction of EuroLot as LOT’s
low-cost subsidiary has assisted LOT in reducing significantly its operating costs and gain
99% of domestic market share.

22
Low cost carriers’ emergence in the Polish domestic market is still limited as they are
mainly focusing on intra-European traffic. They tend to operate from major airports on
very dense routes. In the short-term they will focus on building the low-cost market in
the Central European region, and they might not necessarily get involved with regional
traffic. However, an opportunity for Sense in the future would be to become their feeder
for intra-European travel from major airports in Poland.

Finally, the rail and bus companies present in Poland and making efforts to restructure
their network and become more profitable and competitive. However, unless serious
infrastructure developments are made no serious competition can be considered from
these modes of transport, as travel time is significantly higher and the level of
convenience and service is much lower.

23
4.0 Marketing Strategy

Our marketing presence will be achieved by implementing a strategy that focuses on

serving the niche Polish domestic market. Our strategy includes:

 Using local media which is targeted in a cost effecting way

 Operating air services from a central location in a cost effective way
 Operating a reservations system from a central location in a cost effective way
 Marketing will be media generated to both the leisure and business market

4.1 Brand Management and Logo

Sense as a brand name will assist the company in conveying its corporate image as a
reliable, safe and easy travelling proposition coupled with punctuality and efficiency as
the most sensible choice of domestic travel for the business and leisure market. It will
promote relaxed, punctual and hassle-free flying and will significantly emphasize upon
images of a fresh, forward looking and value for money travel proposition. It can only
make sense…

Sense has decided on a fully branded product/service differentiation strategy from the
very beginning. Sense is going to differentiate it self as company which has a sense for its
passengers. Sense is a regional airline and Sense’s brand is regional connectivity,
connecting people, places and happenings, always creating new opportunities.

fl sense Regional Air Carrier

y
“The Smiglo” (Polish: propeller) is to indicates company’s technical essentiality of the
turbo prop operations. The Smiglo is in light sensitive sky blue colour, in its shape almost
like a propelling flower. Smiglo indicates sensitivity which the airline tends to promote by
its name and brand. With sensitivity and high technology Smiglogo is going to bravely
confront previous passenger perception about the turbo prop orientation and encourage
people to enjoy reliable and safe air travel.

4.2 Positioning

Sense Airways will become the sensible choice for domestic air travel in Poland, through
its unique service offerings of high frequencies, fast processing procedures at check-in
and convenient scheduling of services to meet passenger’s needs and serve point-to-
point short-haul domestic destinations.

Our brand positioning statements include:

 Fly Sense and enjoy the experience

 Fly Sense and arrive less tense
 With Sense you can have a taste of Krakow
 With Sense you can see more of Gdansk
 Sense Krakow, Gdansk, Poznan, Wroclaw

24
4.3 Product Planning

Sense Airways will be based upon a low-cost type structure and emphasize the elements
of simplicity of air travel and ease of commuting. The main product features of the niche
domestic carrier will be high daily frequencies meeting the needs of business passengers
during the week and accommodating the leisure travel patterns during the weekends. The
convenient schedule of service will reflect passenger needs and the route network will be
efficiently served to ensure flexibility and convenience of travelling between the
destinations cities in Poland.

4.4 Scheduling

The target market in all routes we operate for the first 3 years will be over 45% business
travellers. To serve the target group we offer high frequency during the weekdays. For
the VFR and tourist traffic we offer Friday night Saturday and day returns on Sunday.
The main route in our network connects KRK (Krakow) and GDN (Gdansk) and we
offer morning flights in both directions. During the first year of operation we will
operate on 3 routes KRK-GDN, KRK-POZ and WRO-GDN.

We will operate 2 ATR-42’s and in order to maximise utilization and provide early
morning flights for business travellers we will base one aircraft in GDN and another in
KRK. There will be 4 daily return flights between KRK-GDN and 3 each between
KRK-POZ and WRO-GDN. Also on Fridays we offer a late service from KRK-GDN
for the leisure travellers who go for a city break. To keep the block hours within
operational limitations we operate 5 return flights at the weekend between KRK-GDN.

In the winter the weekend traffic is from GDN to KRK. We reduce the flights between
KRK-GDN and to maintain the high utilization we offer a Saturday charter flight to
Innsbruck in Austria which is a major ski resort for the Polish travellers. This will be
during the months of Jan Feb and Mar.

During the second year of operation we will introduce a new route between POZ-GDN
and increase the frequency on the existing routes. To do this we obtain a 3rd ATR-42
which will begin operation in April 2007. The frequency will be increased to 30 flights a
week between KRK-GDN. Also on the POZ-GDN route due to its short distance we
will only be able to attract the high end of the market. This will mean return flights on a
daily basis. However the weekend flights on this route will not be offered.

Winter of the second year the routes will again be reduced during the weekends and a
third charter flight between WRO-INN will be added. For the third year of operation we
change one of the ATR 42’s to an ATR 72 to increase capacity on the dense KRK-GDN
route. We will operate 5 daily return flights using the ATR 72. The aircraft plots and
schedules for the first year of operations are shown in the appendices.

25
4.5 Airport Processing

A great importance will be placed upon the development of fast processing procedures at
check-in to ensure fast and hassle-free boarding occurs at all airports. Development and
investment in new infrastructure to establish efficient channels of passenger processing
will be considered to achieve low processing times at the airport. Traditional check-in
facilities will be used, however the whole procedure will be simplified and no seat
allocation will be offered. In the future, moveable check-in desks with scanning facilities
will be employed to achieve technology innovation and deliver upon the proposition of
faster airport processing activities.

The travel patterns evident in the domestic Polish market show that passengers travelling
on business carry hand luggage only and the majority of leisure passengers travelling for
short breaks stay for a maximum duration of 5 days. Thus, upon these two assumptions a
conclusion has been made that no centralised baggage processing system is needed to
check-in and transfer the baggage on to the aircraft, as the targeted passengers’ travel
characteristics do not suggest that much luggage is transported on short breaks. An
assumption is being made that 80% of passengers travel with hand luggage. All luggage
will be carried by the passengers to the aircraft side. Luggage not possible to
accommodate in overhead storage, will be placed on the cart situated by the boarding
steps and loaded directly into the baggage holds by the handling agent. Passengers will be
able to collect their luggage upon arrival from the cart next to the aircraft. An extensive
use of outsourcing will be employed, from ground handling to accounting and human
resources.

4.6 In-flight Service

Considering the service offerings on board the aircraft, Sense Airways will not provide
seat allocation or any kind of in-flight services. The prospect of operating a catering
kiosk on board the aircraft will not be developed in the beginning of operations, however
after a few months of operations and if the market demands it an investment evaluation
will be considered and examined. However, because the longest flight is 90 minutes, it is
not justified to have in-flight service.

4.7 Aircraft Configuration

The aircraft which will serve Sense

Airway’s domestic network will be the
ATR 42-500 turboprop and will be
configured with 50 seats at 30” pitch. In
the third year, the ATR 72 will be
introduced with 68 seats at 30” pitch.

4.8 Unique Selling Proposition

The unique selling proposition for Sense Airways therefore will be the ease of travelling
by offering high daily frequencies to business and leisure destinations, at a convenient
schedule with fast and easy check-in processing at origin and destination airports.

26
4.9 Ground Handling

The airports Sense Airways will be operating from have passenger throughput of less
than 1 million, and the ground handling market has not been fully liberalised. Therefore,
Sense Airways have to outsource their ground handling to the current handling company
operating at the selected airports. The only ground handling company is LOT Handling
and they charge $200 per turnaround for an ATR 42.

The price includes 1 check-in desk with 1 member of staff, and 2 ramp staff, toilet
service and potable water at each turnaround. Light cleaning will be conducted by the
cabin crew member on duty and standard cleaning will be carried out at the end of each
day by the handling company.

De-icing is not included in the handling charge. Provisions for de-icing have been made
in the budget.

Once the passengers have checked-in, they will proceed with their baggage through
security. Sense Airways will not use the airport’s baggage system as the passengers will
drop off any baggage too big or too heavy to be stored in the overhead lockers, by the
aircraft side. The passengers will collect their baggage during disembarkation from the
aircraft side.

Sense Airways will employ two Station Managers, one to look after operations at KRK
and WRO and the other at GDN and POZ.
Turnaround time is 20 minutes.

27
5.0 Pricing Strategy

Due to its low cost operating structure SENSE will be able to offer service at less than
50% of the competitive rail fares to our selected destinations. Projected fares are as
follows:

Route Lowest Fare Average Fare Rail Fares

KRK-GDN $12.00 $50.00 $45.00
KRK-POZ $10.00 $40.00 $35.00
GDN-WRO $10.00 $40.00 $35.00
GDN-POZ $8.00 $30.00 $25.00

The fare structure of the airline will be based on both the date of booking and number of
seats already booked for the flight. For the first month of operations the price for the
tickets on these routes will not exceed the corresponding rail fares.

LOT follows a pricing structure which depends completely on the date of booking. A
typical LOT fare will follow the trend shown in the table below

Value in
From To Net Fare Tax
Polish Zlotych
640 84.11
WAW SZZ 420 68.71 4 days before travel
(Centrum) 280 58.91 8 days before travel
115 47.36 15 days before travel

Our pricing strategy will allow us to offer more seats at a lower fare. After the first
month of operation our pricing strategy will be to maintain our fares at a much lower
level than LOT. Our fares will not be higher than the average fare of LOT.

For the winter charter flights operated to the ski resorts in Austria, the average fare will
be $100 or 300 PLN. As the seats will be sold to tour operators the revenue management
methods used for the scheduled flights will not be applied for these routes.

5.1 Revenue Management

The target market in all routes we operate for the first 3 years will be over 45% business
travellers. To serve the target group we offer high frequency during the weekdays. For
the VFR and tourist traffic we offer Friday night Saturday and day returns on Sunday.
The main route in our network connects KRK (Krakow) and GDN (Gdansk) and we
offer morning flights in both directions. During the first year of operation we will
operate on 3 routes KRK-GDN, KRK-POZ and WRO-GDN.

We will operate 2 ATR-42’s and in order to maximise utilization and provide early
morning flights for business travellers we will base one aircraft in GDN and another in
KRK. There will be 4 daily return flights between KRK-GDN and 3 each between
KRK-POZ and WRO-GDN. Also on Fridays we offer a late service from KRK-GDN
for the leisure travellers who go for a city break. To keep the block hours within
operational limitations we operate 5 return flights at the weekend between KRK-GDN.

28
In the winter the weekend traffic is from GDN to KRK. We reduce the flights between
KRK-GDN and to maintain the high utilization we offer a Saturday charter flight to
Innsbruck in Austria which is a major ski resort for the Polish travellers. This will be
during the months of Jan Feb and Mar.

During the second year of operation we will introduce a new route between POZ-GDN
and increase the frequency on the existing routes. To do this we obtain a 3rd ATR-42
which will begin operation in April 2007. The frequency will be increased to 30 flights a
week between KRK-GDN. Also on the POZ-GDN route due to its short distance we
will only be able to attract the high end of the market. This will mean return flights on a
daily basis. However the weekend flights on this route will not be offered.

Winter of the second year the routes will again be reduced during the weekends and a 3rd
charter flight between WRO-INN will be added.

For the 3rd year of operation we change one of the ATR 42’s to an ATR 72 to increase
capacity on the dense KRK-GDN route. We will operate five daily return flights using
the ATR 72.

5.2 Ancillary Revenues

Sense Airways through its website will aim at creating profitable internet links and
advertise complement services, such car rental facilities, hotel reservations, booking
sports facilities and tourist attraction events. The development of a successful and user
friendly internet website will assist the smooth operation of Sense Airway’s ticketing
facilities, in addition to promote advertising space and click through activity to travel
package services.

As Sense is not planning to offer in-flight catering facilities, a revenue generating

opportunity can be found in outsourcing the catering facilities to an external company,
which would pay a percentage of its sales to the airline, and thus bear the whole
operational risk of catering and stocking.

In addition, advertising space on board the aircraft could be leased to media companies.
Such as on overheard lockers or on the seat service trays. These opportunities will be
carefully assessed after a time period of smooth operations to carefully assess the revenue
returns and the project’s feasibility. However, a carefully choice of advertising goods
should be ensured on board the aircraft to ensure compatibility with Sense’s image and
corporate culture in order not to alienate its own customer base.

29
6.0 Promotion Strategy

Create an advertising campaign to build brand awareness and promote purchase

facilitation to differentiate the service from competitors. Strategic advertising links will be
developed to promote the brand and create noise around its service proposition. An
emphasis will be placed upon online advertising through online banners at major Polish
websites to promote click through activity and support internet based distribution
strategy. Finally develop a high-profile service-launch strategy to generate publicity and
extensive media coverage. The ATR 42 turboprop aircraft will be in addition emphasized
as a reliable, safe, fast and new mode of transport for the Polish market. All the
marketing activities will be produced in-house to give a greater control over
communication issues, however for creative executions an external advertising agency
will be employed on a project basis only.

6.1 Advertising Mix

Sense Airways’ advertising campaign will mainly evolve around outdoor billboard ads
and press advertising mainly in popular Polish magazines. Media executions will use local
media which provide the benefit of being highly targeted and cost effective on a cost-
per-impression basis. A separation of advertising efforts between leisure and business
traffic will be pursued in order to ensure a more efficient use of the advertising budget
and focus upon the different market segments accordingly.

6.2 Outdoor and Poster Advertising

Sense Airways will pursue a high-involvement advertising campaign which will require a
strong but relatively short message, thus outdoor advertising becomes a very effective
advertising medium as stationary outdoor vehicles such as train posters allow substantial
processing time and ensure significant exposure to the target public. Billboard
advertisements will be placed on strategic locations near the highway exits of the major
cities served and emphasized mainly in the Krakow and Gdansk region. These mobile
outdoor ads will have to be attention grabbing and easily processed by the target
audience.

However, stationary outdoor ads at train and bus stations will be used to attract
passengers from the competing transportation means. A long exposure time is possible;
therefore, the advertising message can be elaborate and precise. By successfully
positioning the carrier as an alternative commuting method many business and leisure
travellers will switch to air travel to enjoy the benefits of safe, fast and easy travel.
Outdoor advertisements will aim at attracting existing users of alternative modes of
travel.

30
 What would you prefer?
Be stuck in traffic or enjoying fast reliable air travel?

Fly with Sense from Krakow

Visit www.flySense.com

A similar type of billboard displays could be positioned at the exit of the main motorway
in Krakow, Gdansk, Poznan and Wroclaw. This ad style would address mainly the
business passengers, commuting between the major cities and create brand awareness to
alter the travel patterns of business commuters.

Similarly positioned in train stations, an alternative billboard ad could be displayed to

show passengers the alternative modes of transport available in their region, and the
convenience of travelling by air rather than rail.

Where would you rather sit?

Fly with Sense from Krakow

Visit www.flySense.com

31
6.3 Press Advertising

Explore Poland

for a LOT less…..

Visit www.flySense.com
Press ads will be employed at a selection of media vehicles, mainly popular Polish
magazines of business and travelling material to create increased brand exposure and
brand awareness. At all times, the airline’s website will be promoted to drive traffic into
its portal, and increase purchase facilitation amongst its target public. Press ads will
circulate at frequent intervals to ensure a high exposure of a specific target audience,
through the careful selection of the media vehicles in the Polish press. Magazine ads in
business journals and life-style magazines will be accordingly positioned, as to attract the
different market segments in question. For leisure passengers, an effort will be made to
promote short breaks.

Enjoy sports in Poland

Multiple destinations from Krakow with Sense

Visit www.flySense.com

32
The best positioning for these advertisements would be in the top right hand side of the
second quarter of the magazine, as it is researched that these placements have the highest
response rate measurements.

6.4 Interactive Online Banners

Finally, online advertising efforts will play an important role to driving traffic on to Sense
Airways’ website. Online click-through banners will be placed on popular and credible
Polish internet portals, and create synergistic marketing associations and ensure effective
and reliable traffic is achieved to www.flysense.com.

Fly from Krakow to Gdansk for only 30 PLN

Makes Sense

6.5 Postcards

Finally, some corporate postcards could be produced and handed out on board the
aircraft to our passengers. The postcards with our logo and destination photo could be
thus sent by our customers and increase significantly our brand awareness through a
different kind of word-of-mouth. Similarly, postcards could be distributed during PR
events. Financial support for this method of advertising could be sought from the cities
local funds, as the destinations would be equally advertised and promoted.

Visit Wroclaw Visit Gdansk

www.flySense.com www.flySense.com

Visit Wroclaw
Visit Krakow

www.flySense.com

www.flySense.com

33
6.6 Advertising Costs

The airline management decided to advertise through billboards, magazines and the
internet, together with some PR activities. It is very difficult to give a quotation for both
billboard and press adverts. A billboard in Warsaw costs approximately 3000 PLN per
month. In this case we would place the billboards in strategic points where potential
customers could be interested. We would place the billboards on highway exits, train
stations, coach stations of all the four cities to which we are flying to; Krakow, Poznan,
Wroclaw and Gdansk. The cost for this kind of operation would be roughly less than the
price you would pay in Warsaw. The overall monthly cost we would pay for billboards
would be around 12.000 PLN. Moreover, some small adverts will also be placed in the
various airports where the airline operates from. As previously mentioned we would
also advertise in magazines. Our aim will be to advertise in magazines such as the
Polityka (which is the most read in the country) or Newsweek Polka. Such an operation
would cost roughly between 6000 and 7000 PLN for half a page per issue.

The airline will also advertise through the internet. Advertising costs vary depending on
the website and the kind of contract you have with the website owner. With Google for
example there are various advertising possibilities. One of Google’s most attractive
offers is the cost-per-1000-impressions (CPM). Pricing is based on number of
impressions served over a period of time. A £50 CPM means you pay £50 for every
1,000 times your ad appears. ("M" is the Roman numeral for 1,000.) Another chance is
the cost-per-click (CPC). In this case pricing is based on the number of clicks your ad
receives. A typical range is £0.05 to £0.75 pence per click. This is also known as pay-per-
click. CPC may also refer to cost-per-customer.

6.7 Public Relations

Public Relations will mainly be based upon the PR events organised at the launch of
operations, in order to create brand awareness and extensive media coverage in local
press and broadcasting media. The management team of Sense Airways will take part in
these events and ensure the success of this high-end trendy launch.

Brand ambassadors will not be used as the cost of celebrity endorsements are quite high.
However, from the offset of the venture, the CEO of the company will act as a brand
representative and will become known and familiar to the public, to ensure associations
and identification with the company’s goals and aims.

Enjoy beer in Krakow with Sense

Fly from Gdansk for only 30 PNL

Visit www.flySense.com

34
A partnership with a major clothing or brewery company could help expose the brand
more effectively and at a large target audience. A combined effort with fashion events or
beer tasting activities could assist Sense in penetrating the market more aggressively.
Linkage opportunities will be evaluated with hotel companies and tourist attractions to
promote the brand and Sense Airways’ services.

Public Relations will be established with major companies in the business centres of the
major cities to create a good relationship and increase awareness of the new carrier
service business travel needs. In addition, links will be created with the airports we serve
to ensure reliable service and support is achieved from their behalf.

During some of the launch events some free flights could be given out after a draw to all
the customers who during these events subscribe to the ‘flysense’ newsletter. Through
weekly or monthly newsletters the airline will manage to keep its current and potential
customers informed throughout the year about all the flights, services and news. This can
be seen as a very useful way of advertising as the airline will have to incur in almost no
cost as it will already have an initial database of current and potential customers.

6.8 Competitive Marketing Activities

LOT Polish airlines are not a direct competitor in our operations from Krakow, as they
fly to destinations with a connection at Warsaw. However, being the only other domestic
carrier in Poland an investigation of their advertising efforts will be assessed.

LOT Polish airlines are focusing their advertising efforts in press and outdoor
advertisements as they believe that TV and Radio advertising do not create extra added
value to customer retention and they are considerably expensive for their purposes. Their
creative campaign is focused upon the element of humour, with the use of animated
cartoon figures which promote good service, good prices and business class facilities.

PKP Intercity Rail Company has started recently advertising in internet websites and
billboard stands. On the other hand, none of the bus companies advertise at the moment
which will significantly boost Sense Airways’ advertising campaign and create even more
brand awareness as no significant competitors’ advertising activity is found within the
major Polish cities.

35
7.0 Distribution Strategy

10 years ago airline tickets were mainly sold via travel agents using GDS’ and directly by
the airline. The appearance of the Internet changed this distribution pattern to the point
where full service airlines today sell up to 35 % of their tickets online and low cost
carriers up to 95 %.

Statistics have shown that Internet usage follows a more or less predictable pattern. As a
particular country acquires the telecommunications infrastructure that facilitates Internet
access one can observe that the first users are typically businesses, that there are more
males than females using online, and that the majority of users are in the age bracket 15-
45. With respect to Internet usage Poland is following this historical trend: Current
studies suggest that 20-30 % of the population is online, in contrast to companies where
the number is 80 %. Furthermore, 92 % of Polish Internet users are between 15 and 40
years old.

It follows from this that there is a solid potential for using the Internet as a distribution
platform. In order to keep down distribution costs and ensure a regular cash flow Sense
will only use the Internet as well as a call centre to sell tickets.

7.1 On the Internet

Through a dedicated website customers will be able to plan and buy their journeys 24/7.
The interface will be simple and effective, designed to maximise booking efficiency. It
will offer the following functionality:

 The ability to plan and book a journey

 The ability to register one’s email address and a password, the entry of which will
enable the customer to view future bookings and make changes. These will only
be possible to make by payment of a fee, ensuring additional revenue.

The Sense website will be marketed via the Internet through the following channels:

 The use of banners is the most traditional form of Internet advertising. These are
used to either direct traffic to the advertiser’s website or for purposes of
branding. As Sense will operate with a limited marketing budget it is essential that
any Internet advertising effort is directed towards achieving a sale. When using
banner ads the priority should be on Rich Media banners, for example using Java,
Macromedia Flash etc. which are designed in such a way as to generate clicks
rather than branding. This can be done by using interactive technology to
promote specific fare campaigns and offers and make sure that the ad
incorporates interactivity to the point where the user would be able to retrieve
live information about fare and availability, thus enhancing their incentive to click
and finish a booking transaction on the Sense website.

 The main priority should be on distributing fares in such a way that the web user
is guided towards an actual point of sale. Furthermore it should be ensured that
the high cost of producing these banners is justified by ensuring that they are
only present on sites where they are liable to have an effect. This would typically
be travel-related parts of major destination site, sites exclusively dedicated to
travel content, as well as relevant lifestyle sites.

36
  The use of text-based and real-time, client-controlled advertising on popular
destination sites, be it portals, search engines or travel/lifestyle websites. An
example of this is Google Ad Words, a system in which the advertiser has full,
practically real-time control of her message and where this is only presented to
the Google user if she has demonstrated through her search patterns that she is
actively looking for related information. Sense will use this feature to offer
relevant fare information and ensure that a click on the text-based ad would lead
the Internet user directly to the relevant part of the booking engine rather than
simply to the front page of the Sense site.

 The use of permission based email marketing, i.e. emails containing fare offers
and promotions, sent to Sense customers and registered website users.

The price of developing the Sense website including the cost of integrating it with the
company’s back end reservation and inventory management system will be $ 2,000.00.
The yearly operational cost will be $ 2,500.00.

7.2 On the Phone

Customers will be able to buy tickets via the Sense call centre 7 days a week from 8 am to
8 pm. There will be a surcharge for doing this on top of the fares that are available
online. The call centre services will be provided by a local third party company i.e.
outsourced.

The monthly cost of operating the call centre will be $ 4,000.00 per month. This includes
all initial and subsequent cost of training call centre staff.

7.3 Reservation System

At the backbone of Sense’ distribution effort is an integrated passenger processing

system including inventory, fares, ticketless operations and credit card transactions. It will
also contain modules which will facilitate a wide set of financial and operational reporting
tools as well as revenue and yield management. The system will also offer facilities for
monitoring the flight operations and the ability to extract information about them.

The Sense reservation system features an interface which communicates with the Sense
web server as well as the call centre workstations, using TCP/IP over a secure VPN
(Virtual Private Network).

The above system will be hosted on a server located in the Sense headquarters and will
be accessible from local workstations. It will run on FreeBSD UNIX and feature a
MySQL database. The reservation system applications will be programmed by a
dedicated team of 3 software engineers headed by a IT Manager. It estimated that this
task will take 8 months.
The initial cost of setting up the Sense reservation system is $ 50,000.00, including
hardware, software and salaries for the 4 employees involved in the project. After the
system is operable the company will require 2 software engineers to be employed as well
as the IT Manager, representing a monthly expense of $ 4,500.00. Included in this cost is
the expense of hiring part time students to man a company help desk.

37
 8.0 Management Summary

The management team are highly experienced. They are knowledgeable of all
governmental approval procedures. The backgrounds of our key people are enclosed in
this document and will enhance our ability to obtain the required approvals.

8.1 Corporate Culture

Investment in human resources will be very strong and the development of a strong
corporate culture will be pursued. Sense Airways will aim at portraying an organisation
with hands-on involvement and innovative thinking.

A relaxed and easy culture will be nourished in order for the employees to feel
empowered and interested in the company’s development. Continuous training and
investment in labour development will be a strong aspect in the long-term human
resource strategy of the airline.

Sense Airways supports an informal company culture with a flat management structure,
which optimizes information circulation within the airline and ensures responsibility
sharing amongst management.

People in Sense Airways will ensure that the airline develops a strong competitive
advantage from its competitors and promote a successful, strong corporate culture.

Sense’s culture will be associated with a simple, “no frills” service, being “up for it”,
“passionate” and “fresh” becoming the sensible service choice for its customer base.

8.2 Organisational Structure

CEO and
CFO (1)

Assistant (1) Quality / Safety

Manager (1)

Financial Attorney (1)

Controller (1)

Chief Commercial Chief Operating

Officer (1) Officer (1)

Marketing (1) Sales (1)

Flight Operations Ground Operations Technical Operations
Manager (1) Manager (1) Manager (1)

Revenue Network / Product

Management (1) Development (1) Roster and Station Maintenance
Planning (1) Manager (1) Engineer (1)

IT (1)
Chief
Pilot (1)
Pilots (15)

Chief Flight
Attendant (1)
Cabin
Crew (7)

38
The company will be organised into five major operational areas:

 Flight Operations
 Maintenance
 Financial
 Marketing
 Customer Service

8.3 Management Team

CEO/CFO (1) – full time; leasing negotiation, fuel budget, financial activity (bank loans,
overdrafts), financial risk management, credit/debit card operators, company budget,
represents company to the investors, responsible for legal issues

Assistant (1) – half time; for entire company, organise office work, stationery, office
payments, and holidays for office workers, all leaves, company integration and culture,
HR activity (together with outsourced company)

Financial/Business Controller (1) – full time; supervise budget, accounting and

payroll (outsourced), prepares performance statements month by month, etc

Quality / Safety Manager (1) – full time

Attorney (1) – half time, responsible for all legal issues

Chief Commercial Officer (1) – full time; supervise all commercial activity including:
marketing, product, revenue management, network development and planning, IT,
budget for commercial activity, contact with airports, airport charges negotiation,

Marketing Manager (1) – full time; supervise all marketing activity: marketing
campaigns, events, PR, brand management, on board advertisements, etc. Close
cooperation with all media, marketing budget

Sales Manger (1) – full time; responsible for day-to-day sales b2b activity (company
travel, charters); supervise call centre and internet sales, sales statistics, and cost of sales
minimisation, responsible for sales budget

Revenue Manager (1) – full time; day-to-day revenue management, monitoring of

competitors pricing, revenue max, monitoring all activates which can affect revenues

Network/Product Development Manager (1) – full time; future network

development forecast and statistics, future schedule, a/c selection, present network
performance, customer satisfaction surveys, in flight and airport products evaluation and
development

IT Manager (1) – full time; (if IT is outsourced) supervise these companies/company,

responsible for internet site, booking engine and all software, act as a point of contact for
outsourced IT companies, responsible for all IT improvements, responsible for IT
budget

39
Chief Operating Officer (1) – full time; supervise all operational activity including:
cockpit and cabin crew, ground handling, maintenance, documentation, budget for
operating activity

Flight Operations Postholder (1) – full time; supervise all activity relating to flight
crew, crew training, crew rooster, all necessary documentation responsible for crew
budget

Roster and Planning Manager (1) – full time; crew planning and roster, holiday and all
other leaves management, hotel, trip planning,

Chief Pilot (1) – quarter time; act as pilots’ manager, active pilot

Pilots (15) – full time;

Chief Flight Attendance (1) – quarter times; act as cabin crew manager, active flight
attendance

Cabin crew (7) – full time;

Ground Operations Postholder (1) – full time; supervisee all ground handling activity,
responsible for ground handling negotiation, responsible for ground handling budget

Station Manager 1 (1) – full time; supervise day-to-day handling activity at two locations
(KRK, WRO)

Station Manager 2 (1) – full time; supervise day-to-day handling activity at two
locations (GDN, POZ)

Technical Operation Postholder (1) – full time; supervise all maintenance and
technical issues, responsible for maintenance contracting, maintenance documentation,
maintenance budget

Maintenance Manager (1) full time; supervises day-to-day maintenance activity and
maintenance companies at four locations.

40
9.0 Financial Plan

Adequate financing is essential for a start-up airline. For us is even more essential, sine
we do not have AOC and applying for that we need to meet all the requirements and
conditions. Two parts of these requirements stand that airline should have sufficient
financial sources to run for 24 months, and the second is to have liquidity, excluding the
firs three month’s profits.

Our strategy is to find the investor or group of inventors and offer them the part of the
company for cash injection. Simply it means that we want to finance the development of
this company by shares offer to private investors. We decided to use this source as only
source, because since we are the start-up company, this is only one feasible option. With
no history and proper guarantees we are not able to have bank loan. On the other hand
the way how we are going to finance our aircraft (operating lease) do not allow us to use
this as guarantee of the loan.

9.1 Important Assumptions

The financial plan depends on important assumptions, most of which are shown in the
following table. They key underlying assumptions are:
 We assume a faster then predicted for EU25 economy growth, without major
recession.
 We assume of course that there are no unforeseen changes in technology to make
products immediately obsolete.
 We assume access to equity capital and financing sufficient to maintain our
financial plan as shown in the table below

General Assumptions 2005 2006 2007 2008

Current Interest Rate 0% 0% 0% 0%
Long term Interest Rates 0% 0% 0% 0%
Tax Rate 35% 35% 35% 35%

 According to Polish Accounting law we are able to amortize our assents

(computer programs, hardware, crew training costs) for three year.

9.2 Budget

To be transparent and show our investors exact values of each cost the budget for the
entire company has been prepared. The company was divided into three major parts
(according to company structure): CEO/CFO, CCO, and COO. The two centers as
CEO/CFO and COO acts as costs centers. The CCO has the revenue from ticket sales,
charter, and other activities. Detail budget is attached as appendix.

41
9.3 Basic statistics

Table below shows the basic statistics for the four year period. The operations start from
March 2006, and 2006 show a huge loss. The small breakeven was achieved in 2007. In
2008 Sense will have profit of 2.6 million, with the revenue increases over 196% from
the year 2006. The passenger numbers will increase significantly between 2006 and 2008
– from more than 117 000 to 333 000 (184% - over two years). At the same time the unit
costs will decrease from, reducing Sense BELF from 84% in 2006 to 55% in 2008.
Statistics Sense
USD 2005 2006 2007 2008
Total Operating Revenue 0 5,277,965 15,458,485 20,923,290
Total Operating Cost 258,260 8,977,999 15,394,278 18,285,455
Operating profit/loss -258,260 -3,700,033 64,207 2,637,835
Oparating margin -70% 0% 13%
Revenue Passenger Kilometers 0 56,387,844 123,105,229 152,667,216
Available Seat Kilometers 110,907 114,539,990 201,202,980 240,847,800
Load factor 0% 49% 61% 63%
Aircraft Km 0 2,290,800 4,024,060 4,340,390
Aircraf Hours flown (per year) 0 5,429 9,625 10,749
Number of sectors (trips) 0 4,785 8,864 9,651
Revenue passengers carried 0 117,786 268,614 331,802
Number of Pilots 0 16 22 25
Size of fleet (yearend) 0 2 3 3
Number of employees 18 45 54 66

Unit cost (per ASK'm in ¢) 0.00 7.84 7.65 7.59

Yield (per RPK'm in ¢) 0.00 9.36 12.56 13.71
Break even 0% 84% 61% 55%
Operating profit per sector (USD) 0 -773 7 273
Flight crew productivity (hours per year) 0 679 875 860
average sector (km) 0 478,746 454,002 449,720
average flight duration (hours) 0 1.13 1.09 1.11
aircraft utilisation (flying hours per a/c per annum) 0 2,715 3,208 3,583
Aircraft Utilization (hours per day) 0 7.46 8.81 9.84

9.4 Profit and Loss

Profit and loss account has been prepared separately for all months during the entire
period. Below there is an aggregated figure for each year. Detailed, month by month split
is attached as appendix.

42
 Profit & Loss Account TTL (05) TTL (06) TTL (07) TTL (08)
REVENUES
Passengers Revenues 0 5,277,965 14,875,004 19,582,738
Other 0 0 583,480 1,340,552
COST OF SALES 0 7,305,159 13,302,767 15,965,522
GROSS PROFIT 0 -2,027,193 2,155,718 4,957,768
OTHER OPERATING
EXPENSES
Sales&Marketing 20,100 832,733 1,231,453 1,391,184
Administration 238,160 840,107 860,058 928,750
OPERATING PROFITS -258,260 -3,700,033 64,207 2,637,835
Exceptional items (net) 0 0 0 0
EBIT -258,260 -3,700,033 64,207 2,637,835
Interested received 41,400 50,497 26,424 37,908
Interest paid 0 0 0 0
PROFIT ON ORDINARY
ACTIVITIES BEFORE TAX -216,860 -3,649,537 90,631 2,675,743
Tax 0 0 0 0
NET INCOME -216,860 -3,649,537 90,631 2,675,743

9.5 Business Plan

Two versions of business plan are attached as an appendix. Version one the correct
business plan, aggregated to yearly figures. The second version is with the assumption of
no revenues for the first three months of operation. That first affects the operating
results (decrease to closely – 5 million USD) and the cash reserves in 2007, which in
March decrees to 202 000 USD (the lowest point). But still even without 3 month
revenues from sales Sense is able to repay its liabilities.

43
10.0 Future Prospects

Katowice, Poland: Population: 345,934

Szczecin, Poland: Population: 416,988
Rzeszow, Poland: Population: 162,049
Lodz, Poland: Population: 806,728
Bydgoszcz, Poland: Population: 386,855

The other big cities in Poland are currently connected only to Warsaw by Air. Katowice
has a low cost carrier operating to Western Europe. IF we act as a feeder for
international low cost operators connecting to Katowice will be a good option.

SZZ is big city north west of Poland and lies on the cost. There are a lot of people from
the south going to Szczecin for summer breaks. Lodz is a city very close to Warsaw and
is not connected very well by air. It could be an alternative destination to Warsaw, the
catchments area will be small due to the Warsaw operations but to operate as a regional
airline the market will be big enough. Bydgoszcz is a city south of Gdansk. It is an
industrial city and is far enough from GDN to operate directly to Bydgoszcz as the
market grows.

Eurocity a subsidiary of Intercity carries over 3.5 million passengers a year from KRK,
GDN, WRO, POZ, WAW to Berlin, Hamburg and Hanover. The train times are well
over 10hrs, most of this traffic will be VFR, due to the large polish community in
Germany. There is also strong Polish presence in Stockholm.

With more countries entering the EU and further development in Eastern Europe, there
is a potential to replicate the model in neighbouring countries. Prague Bratislava and
Budapest are already well connected by air to Western Europe but the connection
between these countries is an option that can be explored.

Forecast for other Domestic routes in Poland.

Forecast Using Gravity Model

From Krakow Weekly Pax Forecast Daily Pax Forecast
Wroclaw 770 110
Poznan 929 133
Katowice 186 27
Szczecin 1,428 204
Rzeszow 650 93
Bygoszcz 904 129

From Wroclaw
Wroclaw 0 0
Poznan 522 75
Katowice 409 58
Szczecin 986 141
Rzeszow 1,356 194
Bygoszcz 672 96

44
Appendix 1: Summer 2006 Aircraft Schedule

45
Appendix 2: Winter 2006 Aircraft Schedule

46
 Appendix 3: Summer 2006 Timetable

S06: Summer 2006 Timetable (March 2006 - September 2006)

From To Season Start End Days Depart Arrive Flight Aircraft Stops Duration

Krakow Gdansk S06 Mar06 Sep06 12345 0600 0715 101 AT4 0 1:15
S06 Mar06 Sep06 67 0840 0955 107 AT4 0 1:15
S06 Mar06 Sep06 12345 1015 1130 102 AT4 0 1:15
S06 Mar06 Sep06 6 1025 1140 108 AT4 0 1:15
S06 Mar06 Sep06 12345 1520 1635 103 AT4 0 1:15
S06 Mar06 Sep06 5 1935 2050 105 AT4 0 1:15
S06 Mar06 Sep06 1234 2030 2145 104 AT4 0 1:15
S06 Mar06 Sep06 5 2120 2235 106 AT4 0 1:15
S06 Mar06 Sep06 67 2215 2330 109 AT4 0 1:15

Gdansk Krakow S06 Mar06 Sep06 12345 0600 0715 201 AT4 0 1:15
S06 Mar06 Sep06 67 0850 1005 207 AT4 0 1:15
S06 Mar06 Sep06 6 1015 1130 208 AT4 0 1:15
S06 Mar06 Sep06 12345 1025 1140 202 AT4 0 1:15
S06 Mar06 Sep06 12345 1520 1635 203 AT4 0 1:15
S06 Mar06 Sep06 5 1945 2100 205 AT4 0 1:15
S06 Mar06 Sep06 1234 2030 2145 204 AT4 0 1:15
S06 Mar06 Sep06 5 2110 2225 206 AT4 0 1:15
S06 Mar06 Sep06 67 2215 2330 209 AT4 0 1:15

Gdansk Wroclaw S06 Mar06 Sep06 67 0600 0705 304 AT4 0 1:05
S06 Mar06 Sep06 12345 0735 0840 301 AT4 0 1:05
S06 Mar06 Sep06 12345 1230 1335 302 AT4 0 1:05
S06 Mar06 Sep06 12345 1655 1800 303 AT4 0 1:05
S06 Mar06 Sep06 7 1825 1930 305 AT4 0 1:05

Wroclaw Gdansk S06 Mar06 Sep06 67 0725 0830 404 AT4 0 1:05
S06 Mar06 Sep06 12345 0900 1005 401 AT4 0 1:05
S06 Mar06 Sep06 12345 1355 1500 402 AT4 0 1:05
S06 Mar06 Sep06 12345 1820 1925 403 AT4 0 1:05
S06 Mar06 Sep06 7 1950 2055 405 AT4 0 1:05

Krakow Poznan S06 Mar06 Sep06 67 0600 0700 504 AT4 0 1:00
S06 Mar06 Sep06 12345 0735 0835 501 AT4 0 1:00
S06 Mar06 Sep06 12345 1240 1340 502 AT4 0 1:00
S06 Mar06 Sep06 12345 1655 1755 503 AT4 0 1:00

Poznan Krakow S06 Mar06 Sep06 67 0720 0820 604 AT4 0 1:00
S06 Mar06 Sep06 12345 0855 0955 601 AT4 0 1:00
S06 Mar06 Sep06 12345 1400 1500 602 AT4 0 1:00
S06 Mar06 Sep06 12345 1815 1915 603 AT4 0 1:00

47
 Appendix 4: Winter 2006 Timetable

W06: Winter 2006 Timetable (October 2006 - February 2007)

From To Season Start End Days Depart Arrive Flight Aircraft Stops Duration

Krakow Gdansk W06 Oct06 Feb07 12345 0600 0715 101 AT4 0 1:15
W06 Oct06 Feb07 7 0840 0955 106 AT4 0 1:15
W06 Oct06 Feb07 12345 1015 1130 102 AT4 0 1:15
W06 Oct06 Feb07 12345 1520 1635 103 AT4 0 1:15
W06 Oct06 Feb07 5 1600 1715 105 AT4 0 1:15
W06 Oct06 Feb07 12345 2030 2145 104 AT4 0 1:15
W06 Oct06 Feb07 7 2215 2330 107 AT4 0 1:15

Gdansk Krakow W06 Oct06 Feb07 12345 0600 0715 201 AT4 0 1:15
W06 Oct06 Feb07 7 0850 1005 206 AT4 0 1:15
W06 Oct06 Feb07 6 0925 1040 205 AT4 0 1:15
W06 Oct06 Feb07 12345 1025 1140 202 AT4 0 1:15
W06 Oct06 Feb07 12345 1520 1635 203 AT4 0 1:15
W06 Oct06 Feb07 12345 2030 2145 204 AT4 0 1:15
W06 Oct06 Feb07 7 2215 2330 207 AT4 0 1:15

Gdansk Wroclaw W06 Oct06 Feb07 67 0600 0705 304 AT4 0 1:05
W06 Oct06 Feb07 12345 0735 0840 301 AT4 0 1:05
W06 Oct06 Feb07 12345 1230 1335 302 AT4 0 1:05
W06 Oct06 Feb07 12345 1655 1800 303 AT4 0 1:05
W06 Oct06 Feb07 7 1825 1930 305 AT4 0 1:05

Wroclaw Gdansk W06 Oct06 Feb07 67 0725 0830 404 AT4 0 1:05
W06 Oct06 Feb07 12345 0900 1005 401 AT4 0 1:05
W06 Oct06 Feb07 12345 1355 1500 402 AT4 0 1:05
W06 Oct06 Feb07 12345 1820 1925 403 AT4 0 1:05
W06 Oct06 Feb07 7 1950 2055 405 AT4 0 1:05

Krakow Poznan W06 Oct06 Feb07 67 0600 0700 505 AT4 0 1:00
W06 Oct06 Feb07 12345 0735 0835 501 AT4 0 1:00
W06 Oct06 Feb07 6 0940 1040 504 AT4 0 1:00
W06 Oct06 Feb07 12345 1240 1340 502 AT4 0 1:00
W06 Oct06 Feb07 12345 1655 1755 503 AT4 0 1:00
W06 Oct06 Feb07 7 1835 1935 506 AT4 0 1:00

Poznan Krakow W06 Oct06 Feb07 7 0720 0820 606 AT4 0 1:00
W06 Oct06 Feb07 6 0730 0830 604 AT4 0 1:00
W06 Oct06 Feb07 12345 0855 0955 601 AT4 0 1:00
W06 Oct06 Feb07 12345 1400 1500 602 AT4 0 1:00
W06 Oct06 Feb07 6 1600 1700 605 AT4 0 1:00
W06 Oct06 Feb07 12345 1815 1915 603 AT4 0 1:00
W06 Oct06 Feb07 7 1955 2055 607 AT4 0 1:00

Poznan Innsbruck W06 Oct06 Feb07 6 1100 1300 701 AT4 0 2:00
Innsbruck Poznan W06 Oct06 Feb07 6 1340 1540 702 AT4 0 2:00

Krakow Innsbruck W06 Oct06 Feb07 6 1100 1300 801 AT4 0 2:00
Innsbruck Krakow W06 Oct06 Feb07 6 1340 1540 802 AT4 0 2:00

48
Appendix 5: Aeronautical Charges

1) Air Navigation charges

Terminal Navigation Aid

Charges (Unit Rate
Airports
in US$)
Krakow 48
Poznan 22
Gdansk 48
Wroclaw 22
Innsbruck (Austria) 302
Warsaw 72

The terminal approach control charge of aircraft over 2 tonnes is calculated in

accordance with the following formula:

T = J*M, where: T= Total approach control charge, J= unit rate, M= Weight coefficient
equal to square root of product of division by 50 of aircraft MTOW (in tonnes)

En Route Charges
Airspace Charges (unit rate in $)
VFR IFR
Poland 27 55
Austria 40 77

The en-route charge for aircraft of MTOW exceeding 2 tonnes is calculated in

accordance with the following formula

R = U*D*M, where: R= Total en-route charge, U= Unit rate, D= Orthodrome flight

distance within the flight information region (FIR) expressed in km hundreds, less 20
kilometres for each take-off and landing operation, M= Weight coefficient equal to
square root of product of division by 50 of aircraft MTOW (in tonnes)

2) Airport charges

Landing Noise Parking Security

Charge Departing PAX Charge Charge per Infrastructure Charge per
Airport
(Unit Charges Unit Rate Tonne per Charge Departing
Rate) per Tonne 24 Hour PAX
Regional Others
Krakow 8 0 3 0 0
6 11.5
Poznan 8 4 0 2.5 0 0
Gdansk 8 4 0 2 0 0
Wroclaw 7 6 0 2 0 0
Regional Others 10% of PAX RAMP
Innsbruck landing
19 0 6
(Austria) 12.5 14.5 charge per 24 2 70.85
hour
Regional Others
Warsaw 11 2 2 0 0
6 16

49
Fee discount: Airport offer different rates of fee discount when a company opens new
route, for a limited period of time. This could range from zero landing fees for the first 6
months to 60 per cent reduction for the three first years of operation.

Aeronautical charges

Definition of Aeronautical Charges

In the subsequent analysis the distinction between airport and government aeronautical
charges will be applied.

Airport aeronautical charges can generally be divided into:

 landing and take-off charges
 passengers service charges
 parking charges for aircraft
 airport security charges
 airport noise charges

Government aeronautical charges can be divided into:

 noise charges
 security charges
 ATC-charges
 other government charges or taxes

50
Appendix 6: Flight Cancellation and Long Delays

Notification of Rights under EC Regulation No 261/2004 (As Required by Article

14.2)

Sense Airways make every effort to operate to their published schedules. There are
occasions however, where it is not possible to do so and a flight may be delayed or
cancelled. This notification informs you of your rights under EC Regulation No
261/2004 should this happen; it does not give you any additional contractual rights. This
law is applicable to all passengers departing from an airport within the EU and to all
passengers travelling into an EU Member State on an EU carrier unless they have
received assistance in the country of departure. It is the operating carrier’s responsibility
to meet these requirements. This notification also explains how to claim compensation
or a refund or reimbursement under this law in respect of a flight operated by Sense
Airways. Right to re-routing or refund of part(s) of the journey not flown
Passengers, whose flight is cancelled, shall have the choice of either:

a) Re-routing, under comparable transport conditions, to the final destination of the

ticket presented at check-in at the earliest opportunity or at a later date at the passenger’s
convenience, subject to availability; or
b) A refund payable to the person who purchased the ticket. This applies to the part or
parts of the journey not flown.

If your flight is delayed for five hours or more, the purchaser of your ticket is entitled to
a refund for the part or parts of the journey not flown.

How to claim a refund/reimbursement

To apply for a refund of unused parts of your journey or reimbursement of the parts of
the journey flown, please contact the office where your ticket was purchased. If you have
booked by sense.com, check online for contact details. You will need to provide in
writing your name and contact details, ticket number, booking reference, flight number,
date and details of the claim you are making and supporting documents (e.g. unused
ticket coupons).

Right to care

Where a flight has been cancelled, or is subject to a long delay, passengers are entitled to
refreshments and meals in a reasonable relation to their waiting time as well as means of
contacting two people outside the airport. These provisions apply according to the
duration of the expected delay and the distance of the flight as follows:

 Delay of two hours or more for flights of 1500 km or less

 Delay of three hours or more for all flights within the EU of more than 1500
km and all other flights between 1500km and 3500 km
 Delay of four hours or more for all other flights.

In addition, Sense Airways will provide hotel accommodation if necessary and provide
transport between the airport and place of accommodation. Passengers will be advised of
the arrangements for obtaining refreshments, transport and hotel accommodation, by the
carrier.

51
Right to Compensation for Cancelled Flights (Not Including Long Delays)

Where you are informed of a cancellation less than fourteen days before the planned
departure date that arises from causes within the carrier’s control (rather than
extraordinary circumstances which could not have been avoided by all reasonable
measures) you may claim compensation unless you are offered a re-route which allows
departure and arrival at your final destination within the following times:

1. If you are informed of the cancellation between thirteen and seven days before the
scheduled time of departure and are offered re-routing, allowing you to depart no more
than two hours before the scheduled time of departure and to reach your final
destination less than four hours after the scheduled time of arrival; or
2. If you are informed of the cancellation less than seven days before the scheduled time
of departure and are offered re-routing, allowing you to depart no more than one hour
before the scheduled time of departure and to reach your final destination less than two
hours after the scheduled time of arrival.

The levels of compensation are specified as follows:

1. EUR 250 for flights of 1500 km or less

2. EUR 400 for flights within the EU of more than 1500 km and for all other flights
between 1500km and 3500 km
3. EUR 600 for all other flights.

Compensation is reduced by 50% if any re-routing offered to your final destination

results in a scheduled arrival time which does not exceed the scheduled arrival time of
the original flight by:

1. Two hours for flights of 1500 km or less

2. Three hours for all flights within the EU of more than 1500 km and for all other
flights between 1500km and 3500 km
3. Four hours for all other flights.

Please note that passengers are not entitled to compensation if they have been informed
of a cancellation fourteen days or more before the planned departure date. Passengers
will be informed of cancellations via the contact details given to the carrier with the
booking by the passenger, the purchaser of the ticket.

How to claim compensation

To make a claim for please contact Sense Airways Customer Relations on-line at
http://sense.com/euclaim. The person making the claim must be one of the passengers.
Alternatively, claimants can write, to Sense Airways Customer Relations, EU
Compensation Claims. Claimants must supply their name and contact details, the names
of other passengers being claimed for and their contact details, booking reference and
details of the cancelled flight. Claims can cover up to a total of six passengers provided
that they have the same surname, are in the same booking and have travelled the same
journey. Please note Sense Airways is unable to process your claim for compensation at
the airport.

52
Appendix 7: Initial Aircraft Selection Analysis

53
Appendix 8: Direct Operating Costs Per Route Per Year

54
Appendix 9: First Year Average Cost Analysis

55
56
57
Appendix 10: Revenue Management KRK-GDN

58
Appendix 11: Revenue Management KRK-POZ

59
Appendix 12: Revenue Management GDN-WRO

60
Appendix 13: Revenue Management GDN-POZ

61
 Appendix 14: Corporate Salary Structure

Salary (USD)/month
Number Full Time Time Time Equ Total Additional
Cat Name Time Total Net
of People Net Equiv Net Gross Gross Benefits
a CEO/CFO 1 1 2200 2200 4400 2200 4400 company car
a Chief Commercial Officer 1 1 1900 1900 3800 1900 3800 company car
a Chief Operations Officer 1 1 1900 1900 3800 1900 3800 company car
a Assistant 1 0.5 450 225 450 225 450
a Financial/Business Controller 1 1 700 700 1400 700 1400
a Quality/Safety Manager 1 1 800 800 1600 800 1600
a Attorney 1 0.5 800 400 800 400 800
a Marketing Manager 1 1 800 800 1600 800 1600
a Sales Manager 1 1 800 800 1600 800 1600 company car
a Revenue Manager 1 1 700 700 1400 700 1400
a Network/Product Development Manager 1 1 700 700 1400 700 1400
a IT Manager 1 1 800 800 1600 800 1600
a Flight Operation Postholder 1 1 900 900 1800 900 1800
a Rooster and Planning Manager 1 1 700 700 1400 700 1400
a Chief Pilot 1 0.25 700 175 350 175 350
p Pilots (CAP) 8 1 1900 1900 3800 15200 30400
p Pilots (First) 8 1 1350 1350 2700 10800 21600
a Chief FA 1 0.25 700 175 350 175 350
p FA 8 1 700 700 1400 5600 11200
a Ground Operation Postholder 1 1 900 900 1800 900 1800
p Station Manager 2 1 700 700 1400 1400 2800 company car
a Technical Operation Postholder 1 1 900 900 1800 900 1800
p Maintenance Manager 1 1 700 700 1400 700 1400
TTL 49375 98750
Cat Data Total Share
Sum of
15675 32%
TTL net
Administration
Sum of
31350 32%
TTL gross
Sum of
33700 68%
TTL net
Production
Sum of
67400 68%
TTL gross
Total Sum of Total Net 49375
Total Sum of Total Gross 98750

62