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Executive Summary
Market factors favor inauguration of a new airline to meet the demand for additional, higher-quality passenger and cargo service linking All Parts of India for a better connectivity. This new airline will base its business and marketing strategies on achieving high, and profitable, load factors through absorption of unmet demand in three key air-traffic categories: un-served and underserved routes on which high unmet demand currently exists or can be readily developed; serving key niche markets where demand is either unmet or poorly served; and meeting peak traffic demands on certain key regional, seasonal, and variable routes where very high load factors can be predicted despite existing but lower-quality competition, or where competition cannot meet the demand. In addition, the proposed new airline will be designed around, and operated utilizing, the most up-to-date electronic, informational, and aviation technologies to ensure low operating and marketing costs, maximum efficiency in deployment of its resources, and a high level of customer service and convenience. And it is this final element - dedicating the airline, its staff, and its organization to providing a high level of customer service and convenience, and efficiently meeting the needs, wants, comfort, and safety of the passenger - that will assure the proposed airline's rapid acceptance in the marketplace and its long-term growth and success.
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Objectives
The proposed airline will have as its primary objectives the following elements: 1. To provide service and absorb unmet demand in three key traffic categories: unserved and under-served routes on which high demand currently exists or can be developed; serving key niche markets where demand is either unmet or poorly served; and meeting peak traffic demands on certain key regional, seasonal, and variable routes where very high load factors can be predicted despite existing, but lowerquality, competition. 2. To implement an organizational and marketing strategy that will, beginning in the first year of flight operations, achieve average passenger load factors in the 65-85 percent range, depending on route and season, and increasing thereafter to the 75-90 percent range, thereby maximizing revenues and return on investment while minimizing risk. 3. To achieve the projected results starting with three mid-to-large-size regional aircraft, growing to five by the end of the first year of operations, similar to the 99-passenger British Aerospace Avro RJ100 or 85 - 99seat Avro RJ85 regional jet aircraft, obtained on either a dry-lease or purchase basis; supplementing those aircraft with larger, longer-range passenger aircraft and cargo liners on a charter or wet-lease basis to serve peak-demand and intermittent routes and periods, as well as cargo demands, as called for by the business plan; and incrementally expanding the fleet size and scope on a dry-lease or purchase basis to at least double its initial capacity by the beginning of the third year of operations to accommodate projected passenger and cargo growth in the business plan's out-years. 7. To gear operations, and present a professional, serious, growth-oriented image from the outset, that will set the stage for reasoned, planned expansion, mirroring growth rates projected for the first year of operations, and that will enable the airline to extend its regional scope and, in future years, to transition from its initial regional status into a larger continental and intercontinental carrier. 8. As an element critical to achieving the airline's other key objectives, to identify and develop key interline alliances, co-operations, associations, and partnerships with other larger, more established, and highly regarded airlines both within and beyond the target region that will enable the proposed airline to provide an extensive range of connections, through fares, frequent-flyer mileage sharing, and other passenger and client advantages through interline arrangements, code shares, common hubbing, and so forth.
Mission
By utilizing the latest aviation, electronic, and informational technologies, and by designing effective and efficient systems and building in quality control from the outset, we aim to ensure the highest level of service, operations, and safety, all based around the needs, wants, comfort, and convenience of the passenger and the cargo client. This combination of technology, service orientation, and quality oversight will help keep costs at a minimum and maximize profits to the airline and its investors. It also will help build the strong customer satisfaction and excellent reputation that will enable the airline to build solid, and crucially important, interline arrangements necessary to expand its scope and customer attraction in the early stages, and which will lead to continued long-term growth both within the target market area and, looking toward the future, beyond. In short, this airline wants to be known by its proposed guiding motto: "We've got a job to do, and we do it every day - for you!"
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Keys to Success
In descending order of importance, the five critical keys to success for the proposed new regional airline are: Employing an experienced, highly professional management team that combines vision; realism; financial ability; solid knowledge of the aviation business; familiarity with, and belief in, the utilization and benefits of the latest aviation, electronic, and informational technologies; on-the-ground knowledge of the region and markets to be served; realization of the crucial importance of an organization's personnel to its success; and a total familiarity with, and commitment to, the overall mission and goals of the proposed new airline. Intelligent, progressive, and aggressive marketing that identifies the airline as a different kind of player, one that is sharper and smarter, and with a higher level of professionalism and operational standard than is the norm in the target region. Concentration on safety, with highly trained, dedicated, and professional personnel, caring for the passenger and the passenger's needs and wants, the advantages offered by advanced technology, and straightforward, understandable, highly competitive tariffs and fare pricing, all will form key pillars of the marketing strategy. Identification, through careful market research, of un-served or under-served routes and city pairs in the target market area with sufficient passenger demand to enable high load factors and profitable operations utilizing the category of aircraft envisaged. Use of an all-jet fleet of newer, modern, Western-built regional aircraft that offer a high level of comfort, safety, and fuel and operational efficiency and flexibility, which meet all normal aviation standards, and which offer sufficient, but not excessive, passenger and cargo capacity on the envisaged routes. Use of advanced electronic and information technology to reduce staffing and other operational costs; expand the potential market base; readily capture sales opportunities; simplify and speed passenger, baggage, and cargo handling; and enhance customer convenience and satisfaction.
Start-up Summary
Most of the planned start-up costs are apportioned to the following six areas, in approximately declining value: 1. Dry leasing or purchasing three (followed by two more by the end of the first year of operations) midto-large-size regional jet aircraft. 2. Provision of a sufficient cash reserve to assure timely payment of the leasing or finance payments and operating costs of the aircraft through at least the first six months of operations. 3. Marketing, advertising, and public relations costs, including costs of setting up a website capable of offering flight and fare information and making online sales and reservations, and related Internet marketing, as well as conventional print and broadcast advertising, and public relations activities. 4. Costs associated with recruiting, training, and certifying flight and ground operational crews.
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Start-up Requirements
Start-up Expenses Legal and consulting Route and market study Office supplies, stationery etc. Brochures and marketing materials Design consultants Corporate insurance Office rent Software and systems development Expensed equipment and off. furniture Expensed vehicles (8) Public relations and advertising Crew, staff training and manuals Other Total Start-up Expenses Start-up Assets
Airline Business Plan
$200,000 $100,000 $10,000 $30,000 $60,000 $20,000 $50,000 $100,000 $150,000 $100,000 $80,000 $60,000 $30,000 $990,000
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Start-up Requirements
Start-up Expenses Legal and consulting Route and market study Office supplies, stationery etc. Brochures and marketing materials Design consultants Corporate insurance Office rent Software and systems development Expensed equipment and off. furniture Expensed vehicles (8) Public relations and advertising Crew, staff training and manuals Other Total Start-up Expenses Start-up Assets Cash Required Start-up Inventory Other Current Assets Long-term Assets Total Assets Total Requirements $200,000 $100,000 $10,000 $30,000 $60,000 $20,000 $50,000 $100,000 $150,000 $100,000 $80,000 $60,000 $30,000 $990,000 $10,400,000 $150,000 $50,000 $200,000 $10,800,000 $11,790,000
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Market Segmentation
A complete market analysis and segmentation will require a specific passenger and destination survey, the cost of which is included in the Start-up Costs for the airline. Preliminary analysis (based on a variety of methods, including observation, interviews with travel- and airline-industry professionals, economic segmentation, future projections based on marketing plans, and experience with the region and market) for planning purposes, however, indicates the following approximate market segmentation overall (considerable variations, of course, would be anticipated depending on route, season, and other factors): Business - 30% Government and International Organizations - 15% Regional Resident Personal and Leisure Travelers - 20% Outstation Personal and Leisure Travelers - 15% Seasonal Holiday Travelers - 20%* *seasonal/holiday travel segment of the market to some degree distorts the overall market percentages, but might initially be anticipated for two reasons: first, it compensates for the drop in business and government travel that can be expected during the peak summer holiday travel season; second, a significant portion of this traffic is likely to be carried on flights employing specially chartered or wet-leased supplemental aircraft. The accompanying Market Analysis table and chart below show total potential markets based on estimated population in each segment, as well as potential growth rates in air travel in the new airline's target market region within those segments, but do not reflect the anticipated passenger demand from those markets. Overall make-up of the airline's anticipated passenger loads by market segment are presented below.
Market Share
Business Govt. and Intl Org. Reg Per and Leis. Outstation Seasonal
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Important Assumptions
In addition to the general financial and business assumptions presented in the following table, the key parameters presented on the next page also were included as Operating Assumptions in formulating the financial portions of this business plan. Every effort was made to be realistic in these Assumptions, and if anything they were formulated conservatively, particularly in calculating initial load factors and revenue yields which, in practice, should be considerably higher than offered here. Additionally, passenger and cargo fares were considered to be flat over the entire period covered by this plan to compensate for the possibility that additional competition could force fares to remain relatively constant over the period. However, the objective of this exercise was to show that the proposed operation will be profitable even with much lower revenues than would normally be expected, and the numbers do in fact confirm a profitable outcome. Additionally, expected net revenues from offering peak-demand special flights also are calculated. They are set apart separately from the scheduled-service revenues to show that both types of service - and particularly the more important scheduled service - are viable and the airline will be profitable even without these additional revenues. The assumptions utilized here are based on dry leasing new Avro RJ100s at a high level of outfitting and with necessary spares included. A separate set of figures is provided following the Operating Assumptions section which gives a cost comparison should the decision be made to purchase the aircraft new, utilizing ECGD export financing for 85 percent of the purchase price of the aircraft. Operating Assumptions Aircraft in service (FTE) Aircraft in service at end of FY Cost per aircraft if purchased Annual leasing cost per aircraft Insurance rate % of aircraft cost Annual insurance cost per aircraft Captain's Annual Salary First Officer's Salary % of Captain Flight Attendant's Salary % of Capt Salary Burden as percent of Salary Crew members per flight Crew contingents per aircraft Total crew per aircraft (min.) Flight Hours/Month for Crew Average Total Salary Cost/Hour Total aircraft maint. cost/hour Fuel burn kg/hour
Airline Business Plan
FY 1 2.83 5 $26,000,000 $3,120,000 1.5% $390,000 $60,000 80% 30% 20% Flght-2/Cab-3 3 Flght-6/Cab-9 80 $202.50 $800 2,100
FY 2 5.33 7 $26,000,000 $3,120,000 1.5% $390,000 $66,000 80% 30% 20% Flght-2/Cab-3 3 Flght-6/Cab-9 80 $222.75 $800 2,100
FY 3 7.33 9 $26,000,000 $3,120,000 1.5% $390,000 $69,300 80% 30% 20% Flght-2/Cab-3 3 Flght-6/Cab-9 80 $233.89 $800 2,100
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Peak-demand special flights on key regional/seasonal/intermittent routes The figures provided in this section represent a "best estimate" calculation of the costs and revenues expected to be derived from special peak-demand flights on key regional, seasonal, and intermittent routes. These figures, which also were approached conservatively, though realistically, supplement the figures derived from the assumptions concerning regular scheduled service. The following assumptions were applied for these special flights: FY 1 FY 2 FY 3
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48 4.0 $4,000 $16,000 $360 $120 $150 $150 $12 $16 50% 10% $2 160 75% 90/10 $250 $325 600 $1.20 $720 $30,900 $720 $31,620 $20,053 $11,567 $1,517,760 $962,544 $555,216
60 4.0 $4,000 $16,000 $400 $130 $180 $170 $14 $18 45% 10% $2 160 80% 90/10 $250 $325 600 $1.20 $720 $33,560 $720 $34,280 $20,462 $13,818 $2,056,800 $1,227,720 $829,080
100 4.0 $4,000 $16,000 $440 $140 $210 $190 $16 $20 40% 10% $2 160 85% 90/10 $250 $325 600 $1.20 $720 $35,020 $720 $35,740 $20,883 $14,857 $3,574,000 $2,088,300 $1,485,700
$26,000,000 $130,000,000
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Based on these figures, comparative per-segment costs in the following years are shown: FY 1 FY 2 Aircraft in service (FTE) 5 5 Segments per year per aircraft 2,303 2,215 Total segments 11,519 11,076
FY 3 5 2,133 10,665
Total cost for down payment $19,500,00 $0 $0 Total cost for insurance per year $1,950,000 $1,950,000 $1,950,000 Total cost for payments/year $12,000,000 $12,000,000 $12,000,000 Total raw cost per year $33,450,000 $13,950,000 $13,950,000 Total raw cost per segment $2,904 $1,259 $1,308 Cost per segment w/ depreciation $4,032 $2,433 $2,527 Cost/seg/yr w/ depr & recov value $3,416 $1,846 $1,917 Comparative cost for five aircraft dry leased w/ insurance/year $17,550,000 $17,550,000 $17,550,000 Cost per segment as above for dry-leased aircraft $1,524 $1,585 $1,646 This comparison obviously does not examine the possible tax consequences and other factors in considering the comparative cost of dry leasing versus purchasing, but it does demonstrate that lower short-range acquisition costs result in an immediate lower segment cost for the aircraft as well as lower upfront cash requirements.
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Break-even Analysis
As the accompanying chart demonstrates, the break-even point comes at a relatively modest monthly passenger load, under 22,000 passengers per month, which represents an average passenger load factor of only about 40 percent with a fleet of three RJ100s operating about six segments each per day. It is
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Break-even Analysis Monthly Revenue Break-even Assumptions: Average Percent Variable Cost Estimated Monthly Fixed Cost
$507,571 5% $481,754
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$702,000 $0 $120,000 $24,000 $32,600 $15,300 $10,000 $220,000 $98,000 $8,640 $56,000 $185,000 $44,000 $828,012 $0 $2,343,552 5.64% $1,322,000 $0 $0 $1,322,000 3.18% $5,781,052 $2,356,805 $2,476,805 $45,536 $917,055 $1,394,214 3.36%
$702,900 $0 $120,000 $30,000 $48,900 $18,000 $30,000 $220,000 $180,000 $8,640 $80,000 $150,000 $88,000 $1,365,174 $0 $3,041,614 3.20% $2,228,625 $0 $0 $2,228,625 2.34% $8,034,989 $21,504,959 $21,624,959 $27,837 $7,516,993 $13,960,129 14.68%
$738,045 $0 $120,000 $36,000 $73,350 $22,000 $35,000 $242,000 $198,000 $9,500 $120,000 $165,000 $95,000 $1,701,603 $0 $3,555,498 2.38% $2,383,810 $0 $0 $2,383,810 1.60% $9,785,188 $48,223,792 $48,343,792 $9,369 $16,674,155 $31,540,268 21.15%
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Business Ratios
The accompanying table offers key business ratios, based on the financial plan for the proposed airline. It is worth noting that even in the first year of operations, and with conservative planning, a profit, albeit relatively modest, is feasible - something unusual in the airline business. Even in the first year, the investor can expect a return on equity about [XYZ] percent, and then significant cash growth going into the second and third years, with ROE figures upwards of [XYZ] percent on a cumulative basis. Care must be taken to control costs, to plan routes, schedules, and capacities carefully, and to take on highcost items with caution and with an eye to timing. But the basic elements for a solid business are evident in this plan's financials. Prudent, experienced management will regard these caveats carefully and, in so doing, will see the airline through its initial challenging launch into a period where growth will be both solid and sustained. A long-term (five-year) financial plan is included among the appendix. Ratio Analysis Year 1 0.00% 28.63% 2.12% 0.29% 99.53% 0.47% 100.00% 34.68% 0.00% 34.68% 65.32% 100.00% 19.59% 15.98% 3.61% 5.67% 2.87 2.81 Year 2 128.99% 35.69% 2.48% 0.16% 100.13% -0.13% 100.00% 20.12% 0.00% 20.12% 79.88% 100.00% 31.06% 16.38% 2.10% 22.61% 4.98 4.85 Year 3 56.83% 26.84% 1.66% 0.08% 100.24% -0.24% 100.00% 13.68% 0.00% 13.68% 86.32% 100.00% 38.89% 17.88% 2.01% 32.33% 7.33 7.21 Industry Profile 2.91% 21.79% 4.16% 36.78% 62.73% 37.27% 100.00% 32.64% 18.38% 51.02% 48.98% 100.00% 55.97% 39.09% 0.59% 1.06% 1.57 1.01
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Sales Growth Percent of Total Assets Accounts Receivable Inventory Other Current Assets Total Current Assets Long-term Assets Total Assets Current Liabilities Long-term Liabilities Total Liabilities Net Worth Percent of Sales Sales Gross Margin Selling, General & Administrative Expenses Advertising Expenses Profit Before Interest and Taxes Main Ratios Current Quick
Airline Business Plan
$11,124,214 $25,204,343 $56,864,612 51.76 772.53 5,147.17 0.41 35% 1.98 3.71 0.00 0.33 20% 3.08 3.78 0.00 0.44 14% 5.25 2.63 0.00
Return on Investment
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