PANGIRAN BUDI SERVICE SDN BHD SC PANGIRAN BUDI SERVICE SRL 13 JUNE 2016 LOAN APPLICATION DESCRIBE OF PROJECT REQUIRED DESCRIPTION OF JOB LOAD DESCRIPTION OF OBJECTIVE REQUIRED PROJECT PROPOSAL 1.SET UP AIRLINE COMPANY 2.PURCHASED AIRCRAFT 3.PURCHASED EN ROUTE 4.BUILD FLYERS SMALL CITY AEROPOLIS 5.BUNKERING FACILITIES FOR JET FUEL 6.AVIATION SIMULATOR NOTE::: AMOUNT NEEDED: 5 BILLION EURO DOLLAR EURO 5,000,000,000.00 WITH ROLL AND EXTENSION
Market factors favor inauguration of a new airline to meet the demand for additional,
higher-quality passenger and cargo service linking Western Europe with the rapidly expandingmarkets of Southeastern Europe and Turkey, and linking Southeastern European destinations, via
Western European hubs, to trans-Atlantic and global destinations.
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: unserved and
under-served 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 factorscan 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 mostup-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 customerservice 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 meetingthe 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.
Particularly in the post-09/11/01 environment, experience in Europe has shown that those carriers
which can maintain a "mean-and-lean" operation while still meeting the needs and desires of thetraveling public, with the right fares, will not only survive, but can prosper.
The six key characteristics leading to the success and profitability of this new carrier will be:
• Provision of high-quality service on routes and in markets that currently are either unserved,poorly served, or under-subscribed by existing carriers, thereby setting both a new trend and
a new pace in air service to and within the Southeastern European region.
• Employment of cost-effective, up-to-date regional aircraft that will be sized right for themarket and the route, leading to higher load factors, reduced costs, improved efficiency and
flexibility, greater passenger comfort and satisfaction, and higher net profits. Outfitting theseaircraft with the latest aviation technologies and navigational equipment will help ensure the
highest level of reliability, punctuality, safety, and customer satisfaction.
• Utilization of the latest electronic and informational technologies in sales and marketing;reservations, ticketing and check-in; scheduling and resource planning; cargo tracking; and
operational oversight. Such techniques as internet marketing, reservations, and sales;
electronic ticketing and check-in; online quality control, resource planning, operationaloversight, cargo and baggage tracking, and customer service, all will reduce staffing
requirements while offering ease-of-use and greatly enhanced access by, and convenience to,the customer.
• Recognition that not everyone is geared for the electronic world, leading the proposed airlineto provide a high level of non-electronic service as well, particularly to the many newer,
less-experienced travelers - but future loyal customers - found in the region.
• Ensuring a friendly, cooperative, enjoyable, yet highly professional face to the customer.
• Development and implementation of co operations, associations, and partnerships with otherlarger, more established, and highly regarded airlines both within and beyond the region to
provide an extensive range of connections, through fares, frequent-flyer mileage sharing, and
other passenger and client advantages through interline arrangements, code shares, commonhubbing, and so forth.
In short, the goal of this new airline is to be known to the passenger and the cargo customer by its
proposed motto: "We've got a job to do, and we do it every day - for you!"
Primary financial results anticipated during the first year of operations include:
• Average passenger load factors in the 60-80 percent range, depending on route and season,reached within the first year of flight operations, and increasing thereafter to the 75-90percent range.
• Revenues approaching [XYZ] million USD within the first six months of flight operations,
exceeding [XYZ] million USD by the end of the first year, [XYZ] million USD in the second yearof operations, and nearly [XYZ] million USD in the third.
• A gross operating margin of close to [XYZ] percent achieved within the first year of operations,
reaching close to double that by the third year, and with steady growth enabling rationalexpansion of the airline thereafter. Even in the first year of operations, a pre-tax profit of [XYZ]
million USD is anticipated. This is applying a very conservative business model, and isachieved on an initial investment of less than [XYZ] million USD, yielding a return on equity of
[XYZ] percent. The accompanying chart illustrates the growth and profit potential present.
A key element contributing to the success of this new carrier will be its organizational and
management team. Leading this team is Balkan Consortium Holdings USA, Inc. (BalkConsort), aU.S. corporation that is regionally based in Southeast Europe and which knows the region and its
business needs. BalkConsort, together with its partner companies and associations throughout thecountries of Southeast Europe and beyond, identifies business and profit opportunities and
develops projects and strategic partnerships to implement and benefit from them.
As explained in the Company Summary that follows later in this business plan, BalkConsort USA'sinterest and ownership in the proposed airline will transfer first to a new off-shore holding
company, BC Holdings International Ltd, and then to a daughter company registered in a memberstate of the European Union ("BalkConsort EU"), both of which will be established prior to the
airline's start-up. Due to current European Union requirements that E.U. nationals hold the
majority interest in an E.U.-flagged carrier, and the importance of an E.U. air operators certificate(AOC) to the new airline's overall business plan, a majority ownership stake in the new airline,
either directly or through "BC Holdings EU," must be by E.U. nationals.
Joining the BalkConsort USA/BC Holdings International team are aviation, finance, and marketingexperts with long and successful track records, including extensive experience organizing andmanaging other start-up airlines of both a regional and global scope. This organizational and
management team, which is described in greater detail in the section of the business plan dealingwith the Management Team, will help reduce the risk and ensure the success of the proposed new
carrier.
Chart: Highlights
1.1 Objectives
The proposed airline will have as its primary objectives the following elements:
1. To establish and operate a new regional airline aiming specifically at linking Western Europe with
the rapidly expanding markets of Southeastern Europe and Turkey, and linking SoutheasternEuropean destinations, via Western European hubs, to trans-Atlantic and global destinations.
2. To provide service and absorb unmet demand in three key traffic categories: unserved andunder-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 demandson certain key regional, seasonal, and variable routes where very high load factors can be
predicted despite existing, but lower-quality, competition.
3. To implement an organizational and marketing strategy that will, beginning in the first year offlight 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 maximizingrevenues and return on investment while minimizing risk.
4. To achieve revenues in excess of [XYZ] million USD per quarter within the first six months of
flight operations, and exceeding [XYZ] million USD per quarter, by the end of the first year.
5. To achieve net operating profits in the [XYZ] percent range within the first 12 months of flight
operations, an annualized return-on-investment of approximately [XYZ] percent by the end of thesecond year of operations, and steady growth enabling rational expansion of the airline thereafter.
6. To achieve the projected results starting with three mid-to-large-size regional aircraft, growingto five by the end of the first year of operations, similar to the 99-passenger British Aerospace Avro
RJ100 or 85 - 99-seat Avro RJ85 regional jet aircraft, obtained on either a dry-lease or purchasebasis; 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 wellas 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 beginningof 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 intercontinentalcarrier.
8. As an element critical to achieving the airline's other key objectives, to identify and develop keyinterline alliances, cooperations, associations, and partnerships with other larger, more
established, and highly regarded airlines both within and beyond the target region that will enablethe proposed airline to provide an extensive range of connections, through fares, frequent-flyer
mileage sharing, and other passenger and client advantages through interline arrangements, codeshares, common hubbing, and so forth.
1.2 Mission
The proposed new airline's mission, simply stated, is to fill a niche in the growing air-travel and
cargo markets linking Western Europe, and points beyond, to Southeastern Europe and Turkey; toachieve high, and profitable, load factors by identifying and serving key routes and city pairs
currently unserved, under-served, or poorly served, and where significant unmet demand exists;and to set a new standard for air service and professionalism both within the target market regionand beyond.
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 thehighest 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, serviceorientation, 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 excellentreputation 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 tocontinued 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!"
1.3 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 combinesvision; realism; financial ability; solid knowledge of the aviation business; familiarity with, and
belief in, the utilization and benefits of the latest aviation, electronic, and informationaltechnologies; 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. Concentrationon 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, andstraightforward, understandable, highly competitive tariffs and fare pricing, all will form key
pillars of the marketing strategy.
• Identification, through careful market research, of unserved or under-served routes
and city pairs in the target market area with sufficient passenger demand to enable high loadfactors 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 otheroperational costs; expand the potential market base; readily capture sales opportunities;
simplify and speed passenger, baggage, and cargo handling; and enhance customerconvenience and satisfaction.
Additional important, though less critical, keys to assuring the airline's success include thefollowing:
• Identifying, negotiating, and entering into, in the pre-operational stage and early on,
beneficial associations, cooperations, and partnerships with larger, moreestablished, highly regarded carriers both within and beyond the target market region to
offer interline arrangements, through fares, frequent-flyer mileage sharing, and convenienthubbing and long-distance onward connections to passengers. Successful execution of this
element of the business plan is crucial to the overall success and growth of the airline, andmust be kept in mind in the organizational plan and structuring of the airline.
• Establishing a high level of operational oversight and quality control that will ensurethat the airline always lives up to its marketing commitments and fulfills the promise of a high
level of service, customer satisfaction, convenience, and safety, at a reasonable, highlycompetitive fare.
• Avoiding the temptation to go head-to-head with established carriers on routes thatalready are well-served, unless solid evidence exists of additional, significant pent-up demand,
or widespread customer dissatisfaction with existing services.
• Maintaining flexibility that enables the airline to always respond and adapt to changing marketconditions and opportunities, without being erratic, and employing equipment, scheduling,
and staffing on a basis that is sufficient to get the job done properly, efficiently, and at a highrate of return, without "overkill" or fielding costly excess capacity or, conversely, unduly
cancelling scheduled flight operations.
• Identifying, developing, and quickly and cost-effectively exploiting opportunities for
new markets, new market concepts, and expanded sales potential.
• Supplementing regularly scheduled passenger service with both regularly scheduledand also special cargo services when and where sufficient demand exists, and also with
seasonal, peak-period, and other intermittent passenger services 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. Larger,longer-range, or specialized aircraft may be employed on a charter or wet-lease basis to
provide these supplemental, but potentially highly profitable, passenger and cargo services.
• Looking to combine the core aviation business with ancillary marketing concepts
and activities and ground-based operations that support, supplement, and complement theaviation elements of the business, including such activities as package-, group-, and
charter-travel program offerings; value-added sales and customer services, both land- and
Internet-based; construction and operation of enhanced passenger-, baggage-, and
cargo-handling facilities and services; and other logical business pursuits both within and
outside the immediate aviation business.
• Avoiding growth for growth's sake, and instead looking for solid niche-enlargementopportunities that will allow incremental, but always profitable, expansion.
2.0 Company Summary
The plan for the envisaged new regional airline is an outgrowth of the market research andregional experience of Balkan Consortium Holdings USA, Inc. (BalkConsort), garnered over a
nearly three-year period, beginning in mid-1999.
BalkConsort, which is proposing to found the new airline, is a U.S. corporation registered in theState of Delaware and headquartered in Chicago, Illinois, with a Southeastern European regional
headquarters located in Panorama, just outside Thessaloniki, Greece. BalkConsort, together withits partner companies and associations throughout the countries of Southeast Europe and beyond,
identifies key business and profit opportunities and develops projects and strategic partnerships toimplement and benefit from them.
Early on following its establishment in the region in mid-1999, BalkConsort identified a growth
opportunity in the aviation and travel sector in Southeast Europe. This opportunity is occasioned
by growing economic, political, and social stability, and consequent significant business expansion,within and between most of the countries of the region; vastly expanded outside contact and
support with and for the region, occasioned by the aftermath of the Bosnia and Kosovo conflicts;extensive UN, NATO, and other international-organization operations in the region; and suchmultilateral initiatives as the Stability Pact for Southeast Europe, the Southeast Europe
Cooperative Initiative, and the Southern Balkan Initiative.
Additionally, the company has determined that maximum potential from this growth opportunitycan be obtained not only by linking certain key destinations within the Southeast European region,
but by linking the region with carefully selected destinations in Western Europe and beyond. Itfurther has identified significant unmet demand, and significant short-, medium-, and long-term
growth potential, represented by Turkey and the rapid growth of the Turkish economy and itsdomestic and international air-travel market, particularly in light of Turkey's growing economic
and political integration with the European Community and Europe as a whole.
Ancillary Travel Services
In response to the growing travel-market potential of the region, represented in particular by thelarge expatriate community living and working in parts of the region, including
Bosnia-Herzegovina, Kosovo, the Former Yugoslav Republic of Macedonia, and Albania,BalkConsort established Hassle-Free Holidays, a package-travel wholesaler and retailer, in
mid-2000.
Both Hassle-Free Holidays and its partner organizations are expected to feed customers and traffic
to the regional airline and utilize the airline's services when possible, and will act as additionallow-cost outlets for marketing the airline through their planned electronic-commerce websites.
Locally established retail travel agencies can serve as a base for the airline's sales and operationsin the key niche market of Kosovo, and Hassle-Free Holidays already has established other close
links with retail agencies in Skopje, Thessaloniki, and Athens, and is working on developing similar
relationships with agencies in Istanbul, Ankara, Tirana, and elsewhere both within and outside the
Southeast European region.
Other related company activities of BalkConsortBalkConsort currently maintains strategic partnerships or associations with companies in the
following functional and geographic areas, all of which can serve to support, augment, orsupplement the proposed new airline's core aviation business:
• Construction, construction management, and construction technology (U.S., Greece, Turkey,Albania).
• Environmental engineering, including water and waste water treatment and solid-waste
management (U.S., Italy).
• High-level security, demining, and explosive-ordnance removal (U.K.).
• Aviation services and airport development (Albania).
• Travel services and package travel development and marketing (Greece, FYRO Macedonia,
Kosovo, global).
• Free-trade zone development (U.S.).
The company owns 50 percent of a private U.S.-Albania joint venture limited-liability company,Rruget e Mira sh.p.k., founded in early 2001 and based in Tirana, Albania. The joint-venturecompany is set up to undertake primarily public road and street construction and reconstruction
projects, as well as general construction and development projects, in Albania.
It also is considering tendering, either on its own or more likely in conjunction with a majorinternational engineering and construction firm, for the build-operate-transfer (BOT) concession
the Government of Albania will let for the planned new passenger terminal for Rinas (Tirana)International Airport.
In addition, BalkConsort also holds exclusive license rights to two advanced U.S.-developed
construction technologies in the 10 countries of Southeast Europe, including Albania,Bosnia-Herzegovina, Bulgaria, Croatia, Greece, Macedonia, Slovenia, Romania, Turkey, and
Yugoslavia (including Kosovo).
These technologies, combined with other building technologies, products, and methodologies the
company and associated companies represent, can offer significant advantages to the new airlineshould it pursue, either on its own or in conjunction with BalkConsort, development and
construction of new passenger-, baggage-, and cargo-handling facilities and other relatedinstallations.
Legal relationship and company status of the new airlineBalkConsort intends to spin-off the proposed new airline operating company into a separate legal
entity under the continued partial ownership and general oversight of BalkConsort, acting as aholding company. Investments in the new airline may be made either through BalkConsort, as a
share of its total capital holdings, through an E.U.-based daughter company described later in this
section that will be BalkConsort's proxy for its interests in the new airline company, or directly into
the new airline operating company.
To obtain maximum flexibility in terms of certification and flight and landing rights, it is importantthat the primary carrier operate under an air operator's certificate (AOC) granted by an European
Union country. Since current E.U. requirements stipulate that European Union nationals(companies and individuals) hold the majority ownership interest in any E.U.-flagged carrier, it iscritical that overall ownership in the new airline be structured in such a way that the majority
interest is held by E.U. nationals.
According to its overall organizational plan, BalkConsort anticipates reorganizing itself into anoff-shore holding company (BC Holdings International Ltd), most likely registered in Anguilla, and
transferring the current share ownership of Balkan Consortium Holdings USA, Inc. to the newoff-shore holding company. BalkConsort USA will then become a daughter marketing company of
BC Holdings International, with a majority of its shares owned by U.S. stockholders (necessary forit to fulfill its role as a U.S. marketing company capable of winning U.S. government contracts
reserved for U.S.-owned companies), and a minority share owned by BC Holdings International asa holding company.
The corporate organizational plan then calls for the establishment of a daughter marketingcompany in the E.U., similar to BalkConsort USA, to be held partly by BC Holdings International as
minority shareholder and with a majority of ownership held by E.U. nationals. This daughtercompany (BalkConsort EU) may own all or part of the new airline operating company, provided
that majority ownership in the airline meets E.U. requirements for an E.U.-flag carrier.
BalkConsort (in its new identity as BC Holdings International and as "BalkConsort EU") anticipates
maintaining or appointing positions on the new airline operating company's board of directorsproportional to its direct or indirect ownership interest in the airline, with other board positions
held or named by other investors in the airline proportional to their ownership interests.Additionally, some board positions will be held by non-equity members, nominated by BalkConsort
and the other investors and strategically selected by the board, whose presence and guidance canserve to advance the new airline's operations, business interests, financial positioning, and
expansion.
It is anticipated that the new airline operating company will be established as a limited-liabilitycompany in one or more E.U. countries, the country or countries to be determined based on tax
requirements and relative tax and business operating advantages, and other substantive
considerations. For instance, registering and basing the company in Luxembourg may offersignificant tax, as well as logistic, advantages to the new airline.
Meanwhile, it may be necessary to register a subsidiary company in another country, such as
Switzerland for example, to obtain necessary landing rights or slots in that country. Furthermore,if - as is being considered and is detailed elsewhere in this business plan - the airline acquiresBritish-built aircraft, it may be advantageous from the perspective of obtaining British export
financing to base the company outside the U.K.
Additional AOCs may be obtained by subsidiary carrier companies established outside the E.U. forsubstantive reasons such as outlined above.
The final company structure, including ownership arrangements, national company registrations
and AOCs, and basing, will be determined based on consultation and negotiation betweenBalkConsort and prospective investors, and with the expert guidance of its project team of tax,
business, and aviation advisors and consultants, and others as may be needed.
2.1 Company Ownership
It is anticipated that a portion of the ownership in the new airline operating company will be held
by BC Holdings International Ltd, most likely through an E.U.-registered daughter company, alongwith one or more strategic private investors. Investment in the new airline operating company
may be made directly in the airline operating company or through investment in BC HoldingsInternational or its E.U. daughter company as the holding company for the airline, with shares
apportioned according to the equity investment involved. However, as previously stated, themajority ownership stake in the new airline must be held by E.U. nationals for the airline to qualify
for an E.U. AOC, considered an essential element of the overall organizational plan. BalkConsort isprepared to discuss and negotiate specific ownership arrangements in detail with prospective
investors. Equity requirements are discussed in the Start-up Summary that follows.
For planning purposes, any subsidiary airline companies established by the parent airline
operating company, as described in the previous section, shall be considered to be wholly ownedsubsidiaries of the parent airline operating company, although individual sub-ownership
arrangements may be made in individual cases of such subsidiary companies, particularly in caseswhere local ownership interests might be required by prevailing law in the countries in question.
Balkan Consortium Holdings USA, Inc., the current entity formulating this proposal, is a privatelyheld Delaware (U.S.A.) corporation. As noted in the previous section, a new off-shore holding
company, BC Holdings International, Ltd., will be set up, with stock ownership in BalkConsort USAtransferring to the new entity. It is anticipated that subsequently BC Holdings Ltd. will set up an
E.U. daughter company which would then hold a share of the new airline, based on its relativestake in the airline.
2.2 Start-up Summary
Most of the planned start-up costs are apportioned to the following six areas, in approximately
declining value:
Dry leasing or purchasing three (followed by two more by the end of the first year of operations)mid-to-large-size regional jet aircraft, most likely the 99-seat British Aerospace Avro RJ100 (or
the older predecessor to the RJ100, the BAe 146, which also offers a quick-convert
passenger-cargo version), or the 85 - 99-seat Avro RJ85, or the next-generation follow-onversions of those two Avro jets, the RJX100 or RJX85.
Provision of a sufficient cash reserve to assure timely payment of the leasing or finance paymentsand operating costs of the aircraft through at least the first six months of operations.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 relatedInternet marketing, as well as conventional print and broadcast advertising, and public relations
activities.
1. Costs associated with recruiting, training, and certifying flight and ground operational crews.
2. A reserve to cover overall operating costs, aside from aircraft operating costs, over at least the
first six months of operations.
3. Administrative and legal costs incurred in setting up the business and the airline operations.
Assumptions governing start-up costs are shown in the following table and chart.Table: Start-up
Start-up
Requirements
Start-up Expenses
Legal and consulting $200,000Route and market study $100,000Office supplies, stationery etc. $10,000Brochures and marketing materials $30,000Design consultants $60,000Corporate insurance $20,000Office rent $50,000Software and systems development $100,000Expensed equipment and off. furniture $150,000Expensed vehicles (8) $100,000Public relations and advertising $80,000Crew, staff training and manuals $60,000Other $30,000Total Start-up Expenses $990,000
Start-up Expenses to Fund $990,000Start-up Assets to Fund $10,800,000Total Funding Required $11,790,000
Assets
Non-cash Assets from Start-up $400,000Cash Requirements from Start-up $10,400,000Additional Cash Raised $0Cash Balance on Starting Date $10,400,000Total Assets $10,800,000
Liabilities and Capital
Liabilities
Current Borrowing $600,000Long-term Liabilities $0
Loss at Start-up (Start-up Expenses) ($990,000)Total Capital $9,810,000
Total Capital and Liabilities $10,800,000
Total Funding $11,790,000
Chart: Start-up
2.3 Company Locations and Facilities
Financial, traffic, and other studies currently are underway to determine the optimal prime basing
location for the proposed new airline. Among the locations under study are the following eight:
1. Luxembourg, Luxembourg;2. Berlin, Germany;
3. London City Airport, London, United Kingdom;
4. Stanstead Airport, London, United Kingdom;
5. EuroAirport, Basel/Mulhouse, Switzerland/France;6. Amsterdam, The Netherlands;
7. Cologne/Bonn, Germany;8. Munich, Germany.
In selecting a location to base the new airline, the following 11 major considerations are beingevaluated, in roughly descending order of relative weight:
1. The tax and business regime in place in the selected locale. A low profit tax rate and a
regulatory and political climate supportive of business, and particularly foreign investment, arekey considerations.
2. The availability of relatively low-cost facilities suitable for basing both the business and
aircraft-support operations, as well as the aircraft, is another key consideration.
3. The availability of sufficient landing and parking slots and gate facilities to permit the desiredlevel of service at the base airport.
4. The ability to interconnect with one or more major carriers for onward interline arrangementsboth within Europe as well as to trans-Atlantic and global destinations.
5. A location that, given the maximum range of the selected aircraft, will enable non-stop flights
to the most important destinations within the new airline's service area in SoutheasternEurope and Turkey and, at most, one-stop service to more distant or secondary destinations.
6. The existence of relatively high-traffic volume between the base location and one or more keyinterchange points to provide sufficiently high load factors between the base location and
onward destinations and points of origin.
7. The existence of a reasonably high level of cargo traffic, including opportunities for interlinetrans-shipment of both inbound and outbound cargo.
8. The support of a larger airline with which the proposed new airline can establish a particularlyclose working relationship.
9. The support of local airport and aviation authorities to facilitate establishment, certification,
and ongoing operation of the airline and its aircraft.
10.A location outside of the U.K. to facilitate British trade finance on acquisition of the new aircraft,should decisions be made to acquire British-built Avro aircraft as previously noted, as well as
to purchase, rather than lease, the aircraft.
11.A range of other factors, including the availability and cost of local skilled workers, the growthpotential of the market selected, year-round climatic and weather conditions as they mayaffect flight operations, the "cache" of the locale for marketing purposes, the cost and
convenience or difficulty involved in command and control of the airline involving keypersonnel, some of whom may be based at various other locations, and so forth.
It is anticipated that most routine maintenance will be performed at the base location, with some
more minor maintenance and repairs relegated to other locations in the route network. In both
cases, most of this routine maintenance and repair work will be contracted out to established andexperienced service providers, reducing the need for the new airline to maintain its own extensive
maintenance and repair teams and facilities.
The airline will, however, perform its own normal line maintenance at home base and will utilizelocally available services away from home. Aircraft also may be based at key airline hub locationsaway from the home business base as well.
With acquisition of British-built aircraft, major overhauls and heavy maintenance may be
performed at British Aerospace's Woodford facility in the U.K. on a selective basis. In addition, itis anticipated that separate fixed-cost maintenance agreements will be entered into for both the
airframes and the engines, or these elements will be included in any dry-leasing arrangementsentered into.
Estimates for total labor and spare parts costs have been calculated as a fixed per-hour cost and
included in the portion of this business plan dealing with anticipated operating costs.
Sufficient apron and hangar space for staging, parking, and storing, as needed on a short-termbasis, up to the entire initial five-aircraft fleet will be required at the base location and any other
hub locations selected.
As the fleet expands over time, additional parking and storage space will be needed either at the
main base location or at regional hubs in the airline route network. Additionally, sufficient officespace, preferably in one central location at or near the base airport, will be required to house theairline's main administrative offices and its central reservations system.
While the airline may consider establishing its own sales offices in key market locations, in general
sales will be handled through a combination of Internet marketing utilizing the airline's ownwebsite as well as other Internet travel websites, designated general sales agents in given locales,
and regular travel agencies everywhere.
3.0 Services
As demonstrated throughout this business plan, it is clear that a strong growth potential exists forthe future, and the airline will gear itself toward sensible, well-based growth and solid financial and
business planning.
The proposed new airline has the potential to become a strong, well-established, and - as thenumbers indicate - extremely profitable carrier, starting from now.
3.1 Service Description
In reviewing the planned services to be offered by the proposed new airline, this plan will divide
services into two main categories: passenger services and cargo services. Within each category,the service strategy, as well as general services to be offered, are presented and reviewed.
3.2 Competitive Comparison
In comparing the proposed new airline to its competitors, there are at least two levels of
comparison that must be considered; the usually lower-standard airlines, both scheduled andcharter, flying out of the Southeastern European region, and the higher-standard, more highly
regarded airlines operating out of Western Europe.
Beating the former source of competition is both a reasonable and an essential goal. Butcomparing favorably, and even standing notably above, the latter also is an important objectivesince these airlines will represent direct competition to the new airline on many of its projected key
routes, despite efforts to avoid such competition to the extent feasible.
Fortunately, several of the key distinguishing characteristics planned for the new carrier not onlywill enable it to fare extremely well in both levels of competitive comparison, but will actually be
achievable at a savings in cost and resources. In other words, by being smart, the new airline canbe significantly better than its competition while at the same time accruing lower overall costs, a
remarkably good combination.
In comparing the proposed new carrier to both its Southeastern European and its WesternEuropean competition, it is important to look at those factors that determine how most travelers
choose an airline. They include the following (and the order of importance is different for each
traveler and each situation, but the most important factors are listed):
• Safety, actual and perceived;• Cost, and range of fares offered;
• Destinations served;• Availability of seats;• Availability of fares;
• Convenience of flight schedules, times of arrivals and departures;• Frequency of flights;
• Connections, including reliability and convenience of connections;• Nature of flights: non-stop, direct, number of stops, aircraft changes;
• Availability of different classes of service;• Onboard comfort, service, meals, and amenities;
• Type of aircraft, including jet or non-jet, size, and speed;• Age and condition of aircraft;
• Ease and efficiency of reservations and ticketing;
• Reliability and on-time departures and arrivals;• Ground service;
• Reliability and quality of baggage handling;• Friendly, competent service in reservations, check-in, and in the air;
• Overall reputation of airline;• Nationality of carrier;
• Factors of personal preference.
While no airline probably can excel in every one of these areas, the closer an airline comes to
"excellent," or at least "good," ratings in each of these key areas, the better it will fare in itscompetitive standing.
Both in the overall design of the airline and its basic operational features, as well as in its
management, quality control, and day-to-day operations, the proposed airline is expected to
stand out positively in almost every regard.
Competition with Southeastern European carriers
While not all Southeastern European carriers fit the stereotype presented here, and several are inthe process of privatization and ostensible upgrading, most do operate at a lower level of service
than is customary in Western Europe.
It is not uncommon for carriers in the region to operate older Soviet-built equipment (perceived to
be less comfortable, less safe, and less reliable than its Western competition - perceptions thatoften are accurate).
For instance, such competing airlines as Avioimpex of the Former Yugoslav Republic of Macedonia,
Albanian Airlines (Albania's Kuwaiti-owned private carrier), ADA Air (a smaller private carrier inAlbania with which BalkConsort has been partnered for certain purposes), Hemus Air and
Bulgarian Airlines, both of Bulgaria, Tarom, Romania's state carrier, and even Malev, theHungarian airline, still operate Soviet-era aircraft in their fleets. In some cases, these aircraft are
turbo-prop powered, and not pure jet.
While often it is relatively inexpensive to lease such aircraft, their operating costs tend to besignificantly higher than newer, more fuel-efficient Western-built aircraft, and their safety,
reliability, and noise factors are often poor, in some cases limiting their ability to operate in some
markets.
Service levels are poor in general, among both scheduled and charter carriers, which represent asignificant part of the market, particularly in service to Kosovo and Turkey, the two niche marketsidentified for the new carrier.
By utilizing modern, safe, reliable, and cost-effective Western-built regional jet aircraft, the
proposed new airline will offer a far more attractive alternative to the traveler both from within andoutside Southeast Europe, and will be able to operate with far lower fuel and maintenance costs
than the competition.
The comfort, reliability, speed, and safety of the new airline's aircraft all will enable it to be theairline of preference for virtually all business, government, and organizational travelers from both
within and outside the target region when traveling to or within the region, and it also will bepreferred by most leisure and personal travelers, including those from with the target region, as
well.
Greater reliability and punctuality of the aircraft, augmented by state-of-the-art navigational
devices that permit operation under a wider range of weather and visibility conditions, will enablethe airline to compete most favorably on those bases also, and will ensure the least likelihood of
flight cancellations, postponements, and missed or late connections.
On the basis of fares, the new airline will offer highly competitive fares which, in many cases,
should be below those offered by its Southeastern European competition. Higher load factors,combined with greater efficiency both in operational costs as well as in reservations, ticketing, and
check-in, will enable the new airline to be highly competitive from both a cost and a qualityperspective, and will also enable it to retain a higher percentage of its revenues.
In short, the local competition, except in a few cases (such as Aegean/Cronus Airlines, and to a
lesser extent Olympic Airways, from Greece; Adria from Slovenia; in some cases Malev, fromHungary; and the Turkish carriers) will not represent very strong competition to the new airline,
and particularly in attracting the primary market groups at which the new carrier will be aimed.
Finally, the new carrier will be seeking out, as part of its business and marketing strategies, routesand city pairs that offer unserved or under-served demand. That strategy also will help reduce thethreat from competition, and will enable the carrier to further establish itself as the carrier of
choice in Southeast Europe.
Competition with Western European carriersThe competitive picture is somewhat different when Western European carriers represent the
competition. Many of the new airline's competitive advantages relative to Southeastern Europeancarriers are erased or at least minimized.
In most cases, the new airline will be competing with other carriers operating aircraft of a similar
nature. Safety, comfort, convenience, and reliability, as well as in many cases cost, all are on asimilar footing. To stand out from the crowd, the airline must do things either differently or better,
or both, than its competitors, and it is here that both the design and the management of the new
airline must be at their sharpest.
The competition in this region will include such well-established carriers as Swiss International,Austrian, Tyrolean, Lufthansa, KLM, British Airways, Air France, Alitalia, Sabena, and others of that
nature. More recent, lower-cost, and "hipper" start-ups such as EasyJet, Go Fly, Bluebird, VirginExpress, and others like them will represent even more challenging competition in some cases.
But unlike any of its competitors, which may employ one or two or several elements of theproposed new airline's marketing strategies, informational and electronic technologies, and
management techniques, none of them - none - employ the full range of those elements that theproposed new airline will employ.
Consequently, the proposed new airline will be the real equivalent of a whole new generation of
airline (regional or beyond), and will represent the kind of revolution in the aviation world that PanAm, Icelandic, Laker Air, PEOPLExpress, Virgin Air Atlantic, EasyJet, and Air Blue represented in
their day (and in some cases, their "day" is still today).
In that regard, the new airline might well be known as "TechnoAir" given its extensive deploymentof state-of-the-art marketing, reservations, ticketing, check-in, baggage- and cargo-tracking, and
operational and safety technologies.
The advantages of these technologies include a net cost saving to the airline, greater convenience
and ease for the passenger, and an image and reputation that will cause the new airline to standout from the pack. Combined with a staff and management that will be carefully recruited,selected, trained, and motivated to be the best of the best, and to be the most customer-oriented
in the business, the new airline also will soon become known by its motto: "I've got a job to do, andI do it every day - for you!"
In other key areas - routes, schedules, and fares - the new airline also will be carefully designed
to either compete highly effectively or, alternatively, to go where the competition is limited or
non-existent.
Requirements for interline arrangements
In order for the new airline to be able to obtain the interline arrangements such as code-shares,interline fare agreements, frequent-flyer mileage sharing, and so forth, that will be so important to
its competitive posture and overall success, it must:
• Fly Western-built aircraft, preferably pure jet.
• Meet the standards to have a two-letter airline code.• Meet the highest standards for safety, reliability, and service.
• Be accessible through normal reservations and ticketing systems.
Meeting these requirements, and negotiating the desired agreements, will be priorities from theoutset in setting up the new airline. Additionally, partnering and interline arrangements will be
carefully identified and sought that will offer the new airline strategic partnerships that will helpgive it the "cover" of larger, more established carriers, and also the status and service and growth
potentials it will need to grow beyond its initial stage and to become a true presence in the aviationworld.
3.3 Fulfillment
The primary issue regarding sourcing is the question of the type and source of aircraft to beemployed in the new airline's fleet.
Aircraft selectionSeveral potential fleet aircraft and manufacturing sources are being considered and evaluated,
including the following:
• Airbus Industrie ATR72, A-300, A-310, A-320• Boeing 717, 737-500, 737-700
• Saab 2000• Also, in an all-freighter configuration, the BAe 146-200QT** and BAe 146-300QT**
* QC = "Quiet Convertible" version allowing quick-conversion from passenger to full-freighter
configuration; only five of these - the complete production run - currently are in service worldwide.
** QT = "Quiet Trader" all freight version, of which in service there are 13 in the 200 version and
10 in the 300 version.
With the exception of the turboprops ATR72 and the Saab 2000, all aircraft under consideration
are pure jets.
Given the strong "jet preference" among the flying public (for instance, Continental Express in theU.S. estimated that its load factors increased 33 - 50 percent when it switched from turboprops to
jet aircraft, and similar results have been documented elsewhere, including in Europe), the overall
greater speed and reliability, reasonably close operating costs (especially given the additional
flights that can be operated daily), and the longer range offered by jets, the preferred aircraft typeis a pure jet. It remains only to decide which is the "right" pure jet for the fleet.
A number of key factors have mitigated toward the BAe Avro RJ family of regional jets rising
toward the top of the list as the probable aircraft of choice for the new airline. Among those factorsare the following:
1. Relatively low per-seat acquisition cost.
2. Relatively low per-passenger-mile costs, given their added capacity over smaller regional jets,and high reliability factors in the newer versions (for instance, Aegean/Cronus Airlines of
Greece, which operates six RJ100s on a very active daily schedule, has averaged above 99.6percent departure reliability with its RJ fleet).
3. Complete pilot and maintenance intercompatibility between the various members of the family
(RJ70, RJ85, RJ100, and now the new RJX family as well), giving added flexibility in flight andmaintenance operations and reducing training and simulator costs.
4. Four-engine configuration which gives it an added safety factor (while also increasingoperating costs, however).
5. Spacious, comfortable cabin interiors that offer the only seat, aisle, and overhead bin
dimensions available in a regional jet that are equivalent to those on standard-size jets.
6. The option of flexible cabin and seating configurations that allow for varying the number of
seats provided for various classes depending on demand, the number of seats abreast, typesof seat coverings, the number of seats provided on a given flight, and so forth.
7. Availability of the aircraft from various sources on both lease and purchase bases.
8. The possible option of obtaining advantageous British export financing.
9. Ability to service the aircraft in many locations on the projected service network and theavailability of major overhaul capabilities at the manufacturer's own facilities in the U.K.
10.Widespread passenger and industry acceptance of the Avro regional jets both within and
outside Europe.
Seating capacity is an important consideration both from the point-of-view of capacity, load factors,and per-passenger-mile costs, but also from the point-of-view of "scope clauses" in pilot union
contracts.
In Europe, any airliner with 100 or more seats falls under the far more highly compensated"mainline" airliner contracts in place in the industry. Planes with 99 and fewer seats are considered"regional airliners" for contract and union purposes, carrying more economical compensation
packages.
On the lower end of the spectrum, market conditions make it very difficult to run profitable
operations in Europe with a 70-seat regional jet, which is considered suitable only for certain niche
markets. Consequently, the core of the regional-jet segment in Europe falls in the range of 85-100seats and, in fact, this segments comprises nearly half the airliners in use in Europe today. Either
the RJ85/RJX85 or RJ100/RJX100 series (or older BAe 146) fall squarely into this size segment.
Either the RJ85/RJX85 or RJ100/RJX100 (the fuselage and cabin configurations are the same forboth series, with the major change being in the more advanced and more powerful HoneywellAS977 engineers on the RJX series) is able to offer seating up to 99 seats (the 100 can offer a
maximum of 112 seats configured with optional six-abreast seating), although the 85 seriesrequires six-abreast seating to reach the upper capacity limit.
There are trade-offs with both series to consider: The 100 series offers greater capacity without
the need to go to six-abreast seating and lower per-passenger-mile costs at higher capacities, butit also offers somewhat less range and requires a longer takeoff roll than the 85 series.
On the other hand, it also has more cargo capacity. The 100 series also obviously costs more to
acquire than the 85 series, but with planned high load factors this capital cost should be more thanoffset by greater revenue potential. Key operating parameters for both the current and new series
Runway for 740 km (m/ft) 1157/3796 1314/4311 1105/3625 1275/4183
While any of the available configurations would be adequate to accommodate the range of most ofthe routes envisaged, the greater range of the RJX series gives added scope, and also enablesservice into airports with shorter runways and with "hot and high" takeoff conditions, such as may
be encountered in Turkey and some other locations in the route network.
Given that the RJX series is now in production with the first ones expected to enter service laterthis year, the RJX series is an option to consider.
While acquiring older-generation BAe 146s also is being evaluated, a number of factors related to
reliability, higher operating and maintenance costs, and the likely need for additional
refurbishment, mitigate toward acquiring newer, or new, Avro RJs for the new airline's fleet,except possibly for air freighter use.
Additionally, per month leasing costs can be two-to-three times higher, as a percentage of aircraft
value, on older aircraft compared with newer aircraft, making their monthly leasing expensepotentially higher than for new or newer aircraft.
One approach worth considering is to commence operations with one generation of aircraft with an
option to return those aircraft to the lessor or manufacturer without penalty in an "upward trade"
to acquire the newer generation aircraft when they become available.
Such options are commonly supported by manufacturers in their effort to market newergeneration aircraft, and would enable the new airline to avoid any delays that might ensue from
backups in the RJX build pipeline.
Given the new airline's stress on technology and the comfort of the passenger, combined with the
very real considerations of lower operating and maintenance costs and greater flexibility,consideration of the latest generation of aircraft should be evaluated carefully, along with limiting
seating to five abreast, including in Value Class as described elsewhere in this plan. However,factors such as initial acquisition cost, refurbishing costs, operating and maintenance expenses,
reliability, operating parameters, customer preference, and financing packages available forpurchase or lease all must be considered.
For purposes of the costing factors utilized in this business plan, acquisition and operating costs for
dry-leasing new Avro RJ100 aircraft with a high-level of technical features and passengeramenities have been employed, with a cost comparison also made for purchasing the same aircraft.
Adjustments would need to be made for other aircraft types or ages and acquisition methods.
Aircraft acquisition
Another issue still being evaluated and which will be decided is the question of how to acquire theaircraft. For a variety of reasons, including the ease with which the leases can be cancelled by the
lessor and the lack of "ownership" of the aircraft, wet leasing has been ruled out except forshort-term acquisition of aircraft that would be employed in meeting peak demand-type servicesas outlined elsewhere in this business plan.
The two remaining options both need to be examined from cost, flexibility, and finance points of
view: Dry leasing the aircraft (generally on a five-year lease), or outright purchase. Both providelong-term control over the aircraft, and while both options tend to restrict changes in the fleet that
might be preferred after the initial years of operation, market conditions and high demand foraircraft indicate that it would be relatively easy to be released from the leases, or to sell or lease
the aircraft to new owners or operators, or to return them to their sources.
A number of leasing sources are available for the BAe Avro aircraft being considered, and someused aircraft also are available from time-to-time on the market from various sources. In addition,
new aircraft can be acquired directly from the manufacturer on a variety of different plans and
options, as well as used aircraft on occasion.
Cost factors employed assume dry leasing of new Avro RJ100 aircraft in 99-seat configurations,with a comparison for purchasing. It is anticipated that finance guarantees up to 85 percent of the
acquisition cost of the aircraft could be obtained from the Export Credit Guarantee Department ofthe United Kingdom (ECGD) for purchasing British-built aircraft exported from the UK.
3.4 Technology
Flight may be based on aerodynamics, but the proposed airline will be based on technology, andlots of it. Efficiency and convenience through use of the most up-to-date informational and
electronic technologies, in addition to modern aviation and navigational technologies, are guiding
principals of the proposed new airline. Technology will also be a cornerstone of the new airline's
marketing strategy.
Among the technological features the new airline will offer are:
• Internet marketing and online reservations (e-reservations) and sales (e-sales) thatwill provide quick and easy access to airline schedules, flight availability, reservations, andticketing to a wide range of customers worldwide. This eliminates payment of agency
commissions and keeps costs low - savings that can be passed on to the customer.
• Electronic ticketing (e-ticketing) which will enable passengers to obtain their tickets onlineand avoid the need to obtain paper tickets from airline offices, travel agencies, or at the airport.
It also frees the airline from having to stock, track, and issue tickets and maintain paper trailsof them. Again, more savings for both the airline and the customer.
• Electronic check-in (e-check-in) that will virtually eliminate waiting in line to check-in for
e-ticketed passengers, enabling them to confirm their identities, obtain their boarding passes,and check-in their baggage (and even purchase tickets upon check-in) utilizing a user-friendly
kiosk that eliminates those last-minute frustrating waits to get to the counter. And it also
greatly reduces the airline's needs to staff check-in desks, control long lines, employ localcontract ground staff, and expend money and resources on an antiquated system that only
adds to the traveler's inconvenience and frustration. Another win-win situation for both airlineand passenger.
• Electronic baggage tracking (e-baggage tracking) which will enable the airline to trackany piece of baggage from check-in to final pick-up and claim. If courier services can track
parcels as they move around the world, and enable customers to track their parcels usingtracking numbers and online tracking systems, then why can't the same system be used to
assure that no passenger will ever again have to wonder where his or her baggage might be?There may still be contingencies (such as late check-in, lack of space, security restrictions, late
connections, and so forth) that cause baggage not to be placed on a given aircraft, but at leastboth the airline and the customer can be assured that they both know exactly where the given
item of baggage is at any moment, and when it might be expected to arrive at the destination.
This could well be an exclusive feature of the proposed new airline since no other airlineappears to be utilizing it at present.
• Electronic cargo tracking (e-cargo tracking) is the same basic idea as e-baggage tracking,
and will use the same basic system, only for tracking cargo and parcels.
• Electronic quality control (e-QC) is another innovation that will enable technology to createa far better flying experience for the customer, give airline management and staff greater
control over airline operations and performance, and save time, effort, money, and staffresources in the process. What is envisaged is a central electronic matrix that controls and
monitors scheduling of aircraft, equipment, personnel, supplies, and support materiel, andresponds to problems, excesses, and deficiencies.
It also will track all elements of a given passenger's or customer's transactions and interactionswith the airline, from initial flight inquiry through reservations, ticketing, check-in, flight,
connections, and final baggage pick-up, claim, and check-out, as well as any standing preferences,
follow-up comments, inquiries, or problems. It also will monitor things like weather conditions,
flight delays or projected delays, gate jam-ups, and other contingencies, and will automatically
notify both appropriate airline personnel as well as passengers and customers of any advisories,warnings, or changes.
• Electronic financial control (e-finance) will enable complete electronic financial control andmonitoring of the airline's finances, clear advantages.
• Additional technological features will be incorporated on-board the aircraft to provideflight crews with the latest navigational and communication technologies to assure the highest
level of passenger safety and also airline reliability and punctuality. Included in this technology,in the case of the Avro aircraft, is all-digital ARINC 700 avionics with advanced Cat IIIb low
weather-minimal landing capability to permit landings under the poorest permissible approachand visibility conditions.
4.0 Market Analysis Summary
Economic growth and the requirements of redevelopment, not to mention the impending entry of
several countries in the region to the European Union, are creating increased demand for air
services between Western Europe and the countries of Southeast Europe and Turkey.
The market combines a variety of elements all of which demand a higher quality of air service thanoften currently available:
1. Business travelers requiring convenience, reliability, speed, and schedules built aroundbusiness needs.
2. Government and international organization travelers, requiring the same elements.
3. Personal and leisure travelers from the Southeast Europe/Turkey region who have the money
to travel by air and who increasingly demand a higher level of service and convenience, but atan economical cost.
4. The "Diaspora," Personal and leisure travelers originally from the Southeast Europe/Turkey
region, but now living and working in sizable numbers in the countries of Western Europe, withthe same demands.
5. Western European personal and leisure travelers, primarily traveling on the airline's routesbetween Western European points.
6. Seasonal (primarily summer, with some limited niche markets in the winter period) holiday
travelers, primarily destined for Greece, Turkey, and the islands of the Mediterranean. Cost,reliability, convenience, and destination are their concerns.
The proposed new airline will appeal to all these distinct groups by offering better quality service(and in some cases, offering service where none now exists), at a higher level of safety, comfort,
and convenience, and at reasonable fares, than currently available. The new airline also will focuson the niche markets identified in the Service Description section of this plan, enabling it to better
serve and to become identified as the carrier of choice for those markets.
4.1 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 marketingplans, and experience with the region and market) for planning purposes, however, indicates the
following approximate market segmentation overall (considerable variations, of course, would beanticipated depending on route, season, and other factors):
• Business - 15%
• Government and International Organizations - 10%• Regional Resident Personal and Leisure Travelers - 20%
• Diaspora Personal and Leisure Travelers - 10%• Western European Personal and Leisure Travelers - 5%
• Seasonal Holiday Travelers - 10%*
* The seasonal/holiday travel segment of the market to some degree distorts the overall marketpercentages, 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 employingspecially chartered or wet-leased supplemental aircraft.
The accompanying Market Analysis table and chart below show total potential markets based onestimated 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 passengerdemand from those markets. Overall make-up of the airline's anticipated passenger loads by
market segment are presented above.
Chart: Market Analysis (Pie)
Table: Market Analysis
Market Analysis
Year 1 Year 2 Year 3 Year 4 Year 5
Potential Customers Growth CAGR
Reg Res Pers & Leis 20% 130,000,000 156,000,000 187,200,000 224,640,000 269,568,000 20.00%
Business 15% 5,000,000 5,750,000 6,612,500 7,604,375 8,745,031 15.00%
Government & IO 10% 1,500,000 1,650,000 1,815,000 1,996,500 2,196,150 10.00%
W Europe Pers & Leis 5% 260,000,000 273,000,000 286,650,000 300,982,500 316,031,625 5.00%
Other 20% 5,000,000 6,000,000 7,200,000 8,640,000 10,368,000 20.00%
Total 10.82% 431,500,000 475,400,000 525,777,500 583,793,375 650,831,806 10.82%
4.2.1 Main Competitors
The new airline's main competitors will vary depending on market and route served, and the
category of passenger. For the most part, competition can be expected as follows:
Business andGovernment/IO segmentsto and from SoutheasternEurope
For SE EuropeanRegional and DiasporaPersonal and LeisureTravelers
For Western European Personal andLeisure Travelers, as well as Business andGovernment/IO Travelers betweenWestern European destinations
For seasonal HolidayTravelers toSoutheastern Europeand Turkey
Adria ADA Adria Alitalia
Alitalia Adria Air France/Air Inter Austrian
Austrian/Tyrolean Albanian Alitalia Balkan/Hemus
Croatian Alitalia Austrian/Tyrolean Britannia
Lufthansa Avioimpex British Airways/CityFlyer Express British Airways
Malev Balkan/Hemus Croatian British Midlands
Swiss International Croatian Deutsche Air BA Cyprus
Turkish JAT KLM/KLM Cityhopper/KLM UK Hapag Lloyd
- Tarom Lufthansa Lufthansa
- Turkish Luxair Maersk
- - Malev Malev
- - Sabena Olympic
- - Swiss International SAS
- - Turkish Swiss International
- - - Turkish
The larger, more established carriers often suffer from a lack of flexibility, and a focus on feeding
their main intra-European and trans-Atlantic routes. The smaller regional carriers often arefocused almost exclusively on their own core regional service. The Southeastern European airlines
often suffer from poor service and poor reputations. And the larger, more established charteroperators are focused on the holiday charter and package market.
Again, the extent of competition (and what is listed here is not comprehensive) dictates the
importance of the new airline's three-prong strategy to seek out unserved and under-servedroutes and city pairs, key niche markets where it can effectively compete or create its own market,
and meeting peak travel demands on key regional, seasonal, and intermittent routes. It alsopoints out the importance of standing out from the crowd through offering a higher level of service
and convenience, and utilizing technology and a service-oriented staff to achieve recognition andpassenger preference right from the outset.
5.0 Strategy and Implementation Summary
The airline's strategy has already been adequately explained elsewhere in this plan: targetunserved and under-served markets, seek out niches and unmet demand, and offer a higher level
of service and a higher standard than the competition. The airline will utilize technology to reducecosts and offer better service and greater convenience to the passenger.
In this section we'll examine how the new airline will go about cutting out its niche through its
marketing strategy.
5.1 Marketing Strategy
The proposed new airline intends to cut out new territory as it goes about marketing itself. While
it will clearly serve the target markets of Southeastern Europe and Turkey, it will just as clearly bea different kind of player on the field, and will seek to be known not only as a Western airline, but
at the cutting edge of the aviation business in Europe.
The airline's emphasis on the latest information and electronic technology, and its stress on
comfort, convenience, safety and customer service, will be cornerstones on which the marketingstrategy will be built.
The airline will utilize a combination of methods to achieve the recognition that it both desires and
needs. A fairly large advertising budget is planned to buy the space and time to get its name andmessage in front of the largest possible group of potential customers that it can. Given the
crowded field of European regional airlines, it is better to come on like a lion than a lamb, or youmay be lost in the herd.
The airline will also utilize public relations to good advantage to extend and supplement its
advertising budget.
There are a number of "hooks," aside simply from its newness, that the airline can utilize to get themedia's attention. The airline is opening up new markets, and it also is transcending the
technological barrier with the latest technology in the business in Europe, or anywhere. It has big
ambitions, but knows that it needs to serve the customer first to realize them. And it wants toknow and serve its markets better than anyone else.
Everything about this airline, from its name to its colors, from the look of its planes to its airportkiosks, from its smart but informal crew uniforms to its advertisements and literature should set
it apart. And it costs little more to do things freshly and smartly than the more ordinary way ofdoing things. An organization is new only once in its life, so the airline should grab that opportunity
and get all the attention it can at the outset. And it needs to have both an adequate budget, as well
as an outwardly directed management, to achieve that end.
The new airline will become known as one where all the staff practice the motto, "We have a job
to do, and we do it every day - for you!""
5.1.1 Pricing Strategy
Like everything else about it, the new airline's pricing strategy will also set it apart from the pack
and will form a key aspect of its overall marketing strategy.
It is almost a stock joke, the unwieldy and impenetrable forest of airline tariffs and fares andpromotions (often available for something like three seats on a flight - and that is meant to win
customers) common in the industry today. Few things have garnered the notoriety and degree ofcustomer suspicion and dislike that airline pricing has, and yet there are few moves afoot to
improve the situation.
We intend to change that, and will not only make our business more predictable and"user-friendly" to the passenger, but also will help fill our planes and make our financial direction
more predictable and clear to our management and our bankers as well.
The game plan is simple enough, offer customers good service to places they want (or need) to goto, and at a fair and predictable price. Competition on the basis of price alone has spelled disaster
for more than one carrier (start-up and veteran alike), and once down that slippery slope it is hard
to turn back. And while price is clearly an important factor driving the marketplace, it is by nomeans the only one. It will not be our aim to be the lowest-priced competitor in the market(though we may be on occasion). Nor will we seek to be the highest priced, either. Fairness, clarity,
and a rational fare basis, combined with better service and greater convenience than offeredelsewhere, will be our guiding principles.
Essentially, we will work from only two sets of fares (existing for market segmentation purposes)
for our service:
• Weekday fares, in both Value and Premium (aimed primarily at business travelers who arewilling to pay a higher price to be able to go and come back during the week).
• Stay-over weekend fares, in both Value and Premium (aimed more at the personal or leisure
traveler for whom price is more important than traveling mid-week).
The only variations on those fares (not new fare bases) will be these:
• Set, publicized discounts for early reservations and purchasing tickets in advance.• Set, publicized discounts for reserving and ticketing online, electronically.
• Seasonal and certain peak-period adjustments to the basic fares, or adjustments due to spikesin fuel prices and the like.
• Infant and child discounts based on the original fare (up to free in the case of infants).
• And possibly a stand-by fare (call it the "Gambler Fare") for people who are willing to take
what's available at the last minute (helps us fill seats, helps them get on a nearly full flight, andit does not have to be radically discounted from the normal fare - probably no more than 5
percent discount - since the normal fare will be just that, a normal fare, and not someoutrageously priced gouger).
Given our stress on electronic reservations and ticketing, most tickets will be paid for in advanceof the departure date, which means the new airline - again, as part of its marketing strategy and
offering a higher level of concern for the traveler - should avoid the common and much detestedpractice of overbooking. This also is where stand-bys can help fill any voids that may occur.
In addition, fares for the most part should be based on some rational system that is calculated on
distance and actual costs, and not simply what the market will bear. One must wonder how muchlegitimate business is lost to the industry simply because many passengers cannot and will not pay
the near-equivalent of a round-the-world fare only to go between two neighboring countries inEurope.
Here is an example of how this user-friendly fare system will work for the London-Berlin route:
• Value Fare is $XXX for weekday round-trip travel.
• Value Fare is $XXX - 20 percent for Saturday stay over round-trip travel.
• Value Fare one-way is one-half the round-trip cost of $XXX + 10 percent.
• Premium Fare is Value Fare plus 30 percent (for any category. So you can stay over Saturday
and travel Premium for only 10 percent more than the regular weekday Value fare - this willhelp fill Premium seats and get people used to the idea of traveling Premium during the rest of
the week, too).
• Reserve and pay for your ticket on the airline's website, and receive a 5 percent discount onwhatever the fare is (a lot cheaper than paying a 9 or 10 percent commission plus
reservation-system handling charges, and it gets the customer to be e-ticketed, otheradvantages for the airline as well as the customer. And it beats operations like EasyJet that
only offer a flat 2.50-British pound sterling discount, regardless of the fare).
• Reserve and buy your ticket up to 30 days in advance, and take another 15 percent discount.
Or reserve and buy your ticket up to 14 days in advance, and take a 10 percent discount. Upto seven days in advance, and a 5 percent discount. So essentially, the maximum discount is
40 percent (20 percent for Saturday stay over, 15 percent 30-day-advance purchase, and 5percent online reservations and ticketing. Predictable for the traveller, predictable for the
airline). Fly Premium weekends and reserve 30+ days in advance online, and you fly at 10percent less than weekday Value fare - another marketing hook. And since the basic fare will
be a "fair" one, the airline will not be staging loss-leaders even with the steepest discount. Butno one is likely to complain about the fare, either.
• Go non-stop, or make connections if you need to - no penalty if you don't disembark at theinterconnect and if the fare to the interconnect point is equal to or less than the fare to the
passenger's stated destination, as it would be in most cases. Otherwise the higher fare ischarged to eliminate the argument (it's all in the computer's database).
• And that's it. Unless there is an adjustment for seasonality or other special conditions. Noimpenetrable forest of fares. Few promotions needed (though they might be used from
time-to-time). No reading the small print on the back of the ticket or trying to make out the"fare basis" (except maybe for those through tickets connecting to or from another carrier).
How can the customer not love it? The only real danger is that it could set a new trend for theindustry.
5.1.2 Promotion Strategy
The overall concept and design of the airline sets the stage for its promotion. Marketing andpromotion will stress the unique qualities of the airline and the points that set it apart. Strong
public relations combined with well-placed, well-designed, distinctive advertising appealingdirectly to people who are the airline's prospective customers will help get the word out.
Special effort must be made to develop and operate a highly functional, fast, rock-solid, and
user-friendly website for online information, reservations, and e-ticketing. Internet marketing,combined with conventional non-Web marketing, will steer people to the website. The more
customers use the website, the easier and more pleasant the experience will be for them, and the
more economical and efficient, and predictable, will be the process for the airline.
Special attention will be made at the outset to reach the trend-setters and opinion-leaders in ourvarious target markets, even going so far as to arrange personal meetings between airline
executives and marketing directors and those opinion leaders, particularly either in SoutheastEurope and Turkey or who deal or otherwise have a close connection to the target region.
While in general, special promotional fares and the like will be limited, the airline may considerlaunching with a special promotion simply to get known and to "get off the ground" with planes
that are not mostly empty, as is often the case with new airlines. Overall, management and thesales and marketing department will coordinate closely and will employ outside consultants as
need be to assure the most positive possible launch.
5.2 Sales Strategy
The airline's sales strategy will flow from its overall concept and marketing approach. Massmarketing, but with a personal touch utilizing airline employees as spokesmen and women to
explain that "I have a job to do, and I do it everyday - for you!", will aim to steer as many peopleas possible either to the airline's website, or to its telephone-based customer-service
representatives. While clients are free to utilize their own travel agents, and the airline may also
want to be accessible through general travel sites such as Travelocity, the more customers that canbe encouraged to use the airline's own reservations and ticketing services, the less revenue will
have to be shared in the form of expensive commissions.
E-reservations and e-ticketing, combined with e-check-in, make the most sense for any customers
who have online access, and also for the airline itself. But nonetheless, the airline must not losesight of the fact that many people do not have access to the Internet, or do not care to use it to
arrange their travel, or perhaps just prefer a more personal touch, and so other means of accessmust always be readily available.
The regional and specialized sales and marketing managers, as explained in the section on
Personnel, will concentrate their effort on targeting specific clients that have the potential to offercorporate or group travel (including contract arrangements), or who are potential air-cargo
customers. The airline will not have the resources to field a large sales team, and so these regionalmanagers must target their efforts, and the airline must effectively utilize its mass marketing
methods as well as the Internet to attract individual travelers who, once they experience the newairline, hopefully will feel a close affinity toward it and will become loyal and happy customers.
5.2.1 Sales Forecast
The following chart and table show the projected sales figures for Air Leo.
Special Flights Passenger Revenues $85,680 $104,340 $167,300
Special Flights Cargo Revenues $0 $0 $0
Package trips $31,600 $108,000 $162,000
Other $0 $0 $0
Subtotal Direct Cost of Sales $2,112,400 $4,522,260 $6,318,654
5.3 Milestones
The accompanying chart gives some notional milestones for setting up the new airline, beginningrecruitment, training, and operations, and also reaching profitability on a month-to-month basis.
The timetable is ambitious, and it is meant to be. The time for action is now, and once a decision
is made to go forward there will be no time, or resources, to waste. Of course, once a final plan,team, organization, and financing is in place, a more refined timetable will be established and
specific duties delegated to responsible team members.
Table: Milestones
Milestones
Milestone Start Date End Date Budget Manager Department
Establish a firm financial plan 5/1/2002 5/1/2002 $0 ABC Team
Identify an anchor investor 5/15/2002 5/15/2002 $0 ABC Team
Commence leasing negotiations 6/1/2002 6/1/2002 $0 ABC Team
Set up new company 6/5/2002 6/5/2002 $0 ABC Team
Begin negotiating for offices 6/5/2002 6/5/2002 $0 ABC Team
Select core mngmnt team 6/10/2002 6/10/2002 $0 ABC Team
Commence co. operations 6/15/2002 6/15/2002 $0 ABC Team
Make initial aircraft lease pymnt 6/30/2002 6/30/2002 $0 ABC Team
Begin hiring key personnel 7/1/2002 7/1/2002 $0 ABC Team
Begin crew training 8/1/2002 8/1/2002 $0 ABC Team
Take delivery of aircraft 8/15/2002 8/15/2002 $0 ABC Team
Begin inaugural flights 9/5/2002 9/5/2002 $0 ABC Team
Operation turns profitable 1/1/2003 1/1/2003 $0 ABC Team
Take delivery of fourth aircraft 4/15/2003 4/15/2003 $0 ABC Team
Totals $0
6.0 Management Summary
BalkConsort is putting together what it expects will be a solid management team combiningextensive aviation industry experience with significant experience in finance, accountancy, and
management. An initial project team is in place. As more advanced planning continues on theairline and investment is in place, the full core management team will be finalized and its membersbrought on-board.
More than in most businesses, management is critically important to an airline, and especially an
airline envisaged as this one is. To reiterate a point made early in this plan, the right managementteam is seen as the first and foremost key to the success of the overall venture. We endeavor to
have such a team.
6.1 Organizational Structure
Reflecting the overall nature of the organization envisaged, there is very little hierarchy in theorganizational plan for the airline. In an operation where safety and accountability are so much at
issue, obviously someone has to be in charge, and there also have to be clear lines of authority(and expertise) in the operational aspects of the airline. But beyond that, the organization is
designed around flexibility, a high level of personal accountability and responsibility, and common
cross-training and sharing of responsibilities as need arises and circumstances permit.
The levels of organization (reflected in the personnel and salary chart in the Personnel section ofthis plan) are as follows:
• President and chief executive officer (who reports to the Board of Directors of the airlinecompany).
• Vice president and general manager.• Functional vice presidents for the core areas of commercial activities, finance, and operations.
• Directors covering sales and marketing, communications, human resources, flight safety, flightoperations, ground operations, maintenance, and information systems.
• Managers in sales and marketing, as well as in station management functions.• Professional, engineering, ground handling, service, and other support personnel.
On the flight side, which reports to the director of flight operations and also responds to the
director of flight safety, there are only three levels of personnel:
• Captain;
• First officer;• Flight attendant.
Salary scales and levels of authority have been simplified and based on a rational scale allowing forsimilar levels, though of different natures, of functional work to be compensated at the same pay
levels. The overall objective is to foster an atmosphere of cooperation and shared responsibility tothe overall mission, which is to provide the customer and client with the best possible, safest, and
most satisfying experience with the airline. Cross-training and cross-functioning are importantparts of the organization plan, as explained in more detail elsewhere in this document.
6.2 Management Team
A complete management team, covering the elements of administration, aviation, and finance, is
being assembled. This team brings together a wide range of skills and backgrounds covering thekey areas needed to form, launch, and operate the airline, and from a range of national origins.
6.3 Management Team Gaps
It is premature to speak of management team gaps until a core management team is named. Theindividuals who will play leading roles with the new airline will need to possess the widest possible
range of the requisite skills. The current project team believes investors in the airline will want toplay a key role in helping formulate core management. Once primary investment is established,
that step can be undertaken, and it is anticipated that the core team will be finalized quickly.
The new airline will need people with skill, experience, energy, and vision to head up and serve insuch areas as information management, flight safety, aviation operations, aviation maintenance,
ground operations, sales and marketing, communications, and human resources management.Also good pilots, co-pilots, cabin crew members, and ground staff, and administrative staff.
BalkConsort anticipates putting together the best possible airline management team in the
business, one that also shares the common vision of what this new airline truly can be and what
it can become.
6.4 Personnel Plan
Along with aircraft acquisition and operating costs, personnel costs represent one of the two
largest cost factors faced by the new airline. Additionally, the airline's personnel will largelydetermine the success of the venture. Therefore, it is crucially important to develop and
implement an effective personnel operations and compensation plan.
The Personnel Plan for the new airline reflects the stress on the use of technology to reducestaffing and costs, and the concomitant stress on customer service. Consequently, staffing is
heavier (with individual function directors) in such areas as information technology and oversightof such functions as human resources, flight safety, flight maintenance, and ground operations
than might otherwise be the case with a smaller regional airline. On the other hand, functions suchas sales and marketing, bookkeeping and finance, and personnel management are reduced, with
the assumption being that the effective use of advanced, cost-efficient informational technologiesin these areas will make up for the reduced staffing, resulting in significant cost savings while
providing superior results at less effort.
It is assumed, based on the experience of other regional airlines in Europe, that something on the
order of 60-70 percent of all reservations and bookings will be made electronically, and suchpassengers will be ticketed and checked-in electronically using special electronic check-in kioskssuch as those employed successfully by the U.S. carrier Continental Airlines, leading to major cost
savings in areas such as sales, reservations, and ground check-in staffing, as well as incommissions paid out to outside travel agencies.
Staffing in the sales and marketing area is aimed at targeted customer contact to generate
corporate and group business, rather than individual sales, and to develop special marketing
programs designed to generate significant increases in both passenger and cargo business.
Responsibilities will be divided along both regional and functional lines, with three regional salesand marketing managers (notionally responsible for Western Europe North, Western Europe South,
and Southeast Europe & Turkey) and two targeted, global sales and marketing managers (oneresponsible for special sales aimed specifically at the peak traffic/special flights/holiday
travel/charters market, the other for air cargo sales), reporting to one director of sales andmarketing. Additional personnel will answer customer inquiries and take reservations on thetelephone at central headquarters, with phone calls forwarded to them from throughout the airline
market area, and also will respond to e-mail/website-forwarded inquiries.
All key functional positions throughout the airline, including in the sales and marketing area, arebacked up by professional support personnel, most of whom will be cross-trained in different areas,
so there will always be coverage of all key functional areas as well as back-up support when workdemand requires it.
In the ground-service area, the airline will utilize its own personnel to the extent practical in order
to assure a more consistently positive experience for the passenger. All major destinations will bestaffed by airline personnel, while at some smaller and more remote destinations, or where local
practice or requirement dictates it, ground handling and service may be contracted out to local
service providers.
Even in such cases, efforts will be made to utilize spare flight crew personnel to assist withoversight of ground services and respond to customer needs, again stressing the airline's focus on
cross-training. Finally, as revenues and passenger demand increases, the Personnel Plan can beexpanded to provide additional ground service personnel at key locations and to expand thenumber of locations where the airline provides its own ground-service staffing.
Again through the use of e-ticketing, e-check-in, and e-baggage tracking, ground-service staffing
requirement will be very light compared with a more traditional organization. Particularly given thefairly light flight scheduling at most locations and the convenient size of the projected aircraft,
check-ins should be quick and easy, with little waiting in line or fighting with crowds - majormarketing advantages as well.
Given the airline's motto, "We have a job to do, and we do it every day - for you!", cross-training
and cross-functioning will be core elements of the new airline's personnel-management approach.Everyone will be inculcated with the spirit that she or he is personally responsible for the
passenger and the client having a positive experience when in contact with the new airline.
Everyone, from the president on down, will be familiar with (and participate in) virtually everyaspect of the work and customer-service process (a method employed successfully by the former
PEOPLExpress and other "people-oriented" carriers and other successful service businesses).While no one will expect (nor want) a receptionist to fly the airplane, nor a sales manager to
perform engine repairs, nor for that matter a pilot or flight attendant to tend to the bookkeeping,common customer-service functions like check-in, gate monitoring, baggage handling, andanswering customer inquiries can and should be performed from time to time by any and all
available personnel. This process also requires, however, that personnel receive actual trainingand experience in these various areas, so they do not become more of a hindrance than a help.
Even the airline's uniforms will project an image of ordinary people doing extraordinary work to
please and make the passenger feel comfortable. There will be a stress on informality, utilizing
"non-uniform" uniforms to again stress the airline's work ethic and customer-service orientation,
making both employee and client feel more at home. This approach also is in keeping with today'strend toward greater informality and equality in the work place, and away from the stilted
authoritarian way of the past.
Finally, the proposed hierarchy and salary structure is designed to be both economical as well assufficiently attractive and competitive to enable the airline to recruit good, qualified personnel. Atthe same time, in keeping with the overall ambience of the airline, it also stresses relative equality
and fairness in its structure. A good benefits package, consistent with, and perhaps better than,available elsewhere in the industry or related industries, and the more abstract benefits of being
part of a well-respected, well-functioning, professional, winning team, also will be elementsattracting good employees to the new airline and keeping them on the team.
There are only about 10 pay grades provided for in the salary plan for the entire airline, including
executive-level salaries, with jobs that may be markedly different in terms of function, but similarin terms of experience required, difficulty, and importance, sharing the same pay grade.
Most subordinate grades within given functions are based on a set percentage of higher-level
salaries within the same general function. In addition, the plan for pay increases is straightforward
and fosters clarity and understanding, rather than anxiety and unhealthy competition, amongemployees.
Everyone, across the board, from top to bottom in the organization, who performs satisfactorily
will receive a 10 percent pay increase at the end of the first year of service (deemed to be the mostdifficult), and a 5 percent pay increase at the end of each subsequent year of service (withadjustments made only on the basis of specific across-the-board or localized issues like inflation,
currency devaluations, and so forth).
Unsatisfactory performance merits only one of two remedies: Dismissal, or placement on a limitedprobationary regime to determine if problems can be remedied and the employee brought up to
standard within a given time limit. Otherwise, there is no room, and no cause, for protractedanxiety on the part of the satisfactory employee concerning such issues as pay raises and related
issues. The only other issue is the possibility of promotion to a higher position within theorganization, and the airline will endeavor to promote its best from within whenever possible.
One other issue worth considering, though it is not included in the current plan, is the possibility
of offering a bonus to all employees, as a specific percentage of their pay, when the airline shows
a particularly profitable year to encourage additional "pride of ownership" and esprit de corps.
A summary Personnel Plan for the first three years of operations follows in the table below, and adetailed monthly plan for the initial year is provided in the appendix.
Table: Personnel
Personnel Plan
Year 1 Year 2 Year 3
Production Personnel
Captains (3 per aircraft) $585,000 $1,018,500 $1,448,175
First Officers (3 per aircraft) $468,000 $814,800 $1,158,540
Flight Attendants (9 per aircraft) $526,500 $916,650 $1,303,360
Other $59,062 $557,794 $856,370
Other $0 $0 $0
Subtotal $1,638,562 $3,307,744 $4,766,445
Sales and Marketing Personnel
Director of Sales & Marketing $60,000 $66,000 $69,300
This section of the plan offers the core elements for evaluating the financial viability of theproposed new airline. Both in text and in charts and tables, all the key elements are presented to
offer a frank appraisal of the venture and the opportunity it presents.
Of particular importance is the following section which presents the key "Important Assumptions"
on the core cost and revenue aspects of the airline. These assumptions are based on cost factorsinvolving the proposed Avro RJ100 aircraft, and assume dry leasing of new aircraft (a comparison
is also given for a purchase option, although that option, as will be apparent from the numbers,demands a much larger up-front cash outlay, and does not necessarily lead to economies of
operation, particularly in the short run).
Among the assumptions made were that the airline will begin operating with just three99-passenger regional jets, with very low load factors, beneath 25 percent of capacity, and at fare
levels that in all likelihood are lower than reasonably expected on the planned route network.These assumptions were taken to ensure a conservative approach to the financial planning, and to
demonstrate that even with these constraints the proposed airline can be profitable as early as the
first year of operations.
It also was assumed that the aircraft will receive maximum utilization, up to six, seven, or moresegments per day. A "wave" or "W" route pattern, and reciprocating or circular routes, was
assumed, rather than simply a spoke-and-hub route pattern, to enable service to moredestinations and to maximize use of the aircraft. A major feature of the route planning has been toenable business travelers to go and come back from destinations generally in the same day, and
certainly in the same week. Crew requirements and hour restrictions also were considered in theplanning.
Again, it should be stressed that even with the considerable constraints employed in the
calculations, the airline can be expected to carry upwards of 300,000 passengers in its first year,and possibly up to a half a million passengers, and to reach profitability within the first year of
operations, with significant growth in both revenues and cash generated thereafter.
The Important Assumptions section also includes information on the third prong of the proposedmarketing strategy, which is to employ wet-leased or chartered aircraft to serve high-demand
regional, seasonal, and peak-traffic markets as a supplement to the regular scheduled service of
the airline. A conservative approach also was taken with this segment, and again it was shown tobe a profitable area to pursue, although relatively modest particularly at the outset in terms of
overall revenues.
It is strongly suggested that the Important Assumptions section be reviewed carefully prior tomore in-depth examination of the financials since it explains the premises on which the financialsare based. It also should be noted that the aircraft costing section is based on a segment approach,
with aircraft acquisition, operating and crew costs, and some direct sales costs, as well asrevenues, apportioned on a "segment" basis. Note that some elements that go into the segment
costing are based on hourly costs, extrapolated to the segment length, and others are strictly ona "per segment" basis. The number of aircraft employed are stated at the top, on a "full-time
equivalent" (FTE) basis, allowing for variance in fleet size during the year as new aircraft are
brought into the fleet.
7.1 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 informulating the financial portions of this business plan.
Every effort was made to be realistic in these Assumptions, and if anything they were formulatedconservatively, particularly in calculating initial load factors and revenue yields which, in practice,
should be considerably higher than offered here. Additionally, passenger and cargo fares wereconsidered 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 factconfirm 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 ofservice - 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 theOperating Assumptions section which gives a cost comparison should the decision be made topurchase the aircraft new, utilizing ECGD export financing for 85 percent of the purchase price of
the aircraft.
Operating Assumptions FY 2003 FY 2004 FY 2005
Aircraft in service (FTE) 2.83 5.33 7.33
Aircraft in service at end of FY 5 7 9
Cost per aircraft if purchased $26,000,000 $26,000,000 $26,000,000
Annual leasing cost per aircraft $3,120,000 $3,120,000 $3,120,000
Insurance rate % of aircraft cost 1.5% 1.5% 1.5%
Annual insurance cost per aircraft $390,000 $390,000 $390,000
Captain's Annual Salary $60,000 $66,000 $69,300
First Officer's Salary % of Captain 80% 80% 80%
Flight Attendant's Salary % of Capt 30% 30% 30%
Salary Burden as percent of Salary 20% 20% 20%
Crew members per flight Flght-2/Cab-3 Flght-2/Cab-3 Flght-2/Cab-3
Crew contingents per aircraft 3 3 3
Total crew per aircraft (min.) Flght-6/Cab-9 Flght-6/Cab-9 Flght-6/Cab-9
Flight Hours/Month for Crew 80 80 80
Average Total Salary Cost/Hour $202.50 $222.75 $233.89
Total aircraft maint. cost/hour $800 $800 $800
Fuel burn kg/hour 2,100 2,100 2,100
Fuel cost per kg $.35 $.35 $.35
Handling cost/segment (ave.) $360 $400 $440
ATC cost/segment (ave.) $120 $130 $140
Land/depart charge per seg. (ave.) $150 $180 $210
Parking fee/aircraft/night $150 $170 $190
In-flight items/pax -- Value $6 $7 $8
In-flight items/pax -- Premium $8 $9 $10
Percent/revenues commissionable 40% 35% 30%
Commission payable 9% 9% 9%
Ave. reservations cost/pax/seg $2 $2 $2
Average segment (hours) 1.25 1.30 1.35
Annual segments 6,520 11,808 15,638
Ave. total capacity/segment (pax) 99 99 99
Ave. Annual Load Factor (%) 50% 65% 75%
Ave. split Value/Premier 79/20 79/20 79/20
Average fare per Value pax/seg. $110 $110 $110
Average fare per Premier pax/seg. $143 $143 $143
Cargo per segment (kgs) 700 700 700
Ave. cargo tariff per segment/kg. $.50 $.50 $.50
Ave. cargo tariff per segment $350 $350 $350
Average pax revenues/segment $5,775 $7,507 $8,933
Average cargo revenues/seg. $350 $350 $350
Total ave. revenues/segment $6,125 $7,857 $9,283
Total ave. costs/segment $4,972 $5,449 $5,741
Total ave. net yield/segment $1,153 $2,408 $3,542
Total revenues/year $39,935,000 $92,775,456 $145,167,550
Total operating costs/year $32,417,440 $64,341,792 $89,777,758
Total net oper. revenues/year $7,517,560 $28,433,664 $55,389,792
Peak-demand special flights on key regional/seasonal/intermittent routes
The figures provided in this section represent a "best estimate" calculation of the costs andrevenues 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 2003 FY 2004 FY 2005
Flight Segments 48 60 100
Average length of segment (hrs) 4.0 4.0 4.0
Ave. wet-leasing cost of aircraft/hr. $4,000 $4,000 $4,000
Ave. cost per flight segment $16,000 $16,000 $16,000
Handling cost/segment (ave.) $360 $400 $440
ATC cost/segment (ave.) $120 $130 $140
Land/depart charge per seg. (ave.) $150 $180 $210
Parking fee/aircraft/night $150 $170 $190
In-flight items/pax -- Value $12 $14 $16
In-flight items/pax -- Premium $16 $18 $20
Percent/revenues commissionable 50% 45% 40%
Commission payable 10% 10% 10%
Ave. reservations cost/pax/seg $2 $2 $2
Ave. total capacity/segment (pax) 160 160 160
Ave. annual load factor (%) 75% 80% 85%
Ave. split Value/Premier 90/10 90/10 90/10
Average fare per Value pax/seg $250 $250 $250
Average fare per Premier pax/seg $325 $325 $325
Cargo per segment (kgs) 600 600 600
Ave. cargo tariff per segment/kg. $1.20 $1.20 $1.20
Ave. cargo tariff per segment $720 $720 $720
Average pax revenues/segment $30,900 $33,560 $35,020
Average cargo revenues/segm. $720 $720 $720
Total ave. revenues/segment $31,620 $34,280 $35,740
Total ave. costs/segment $20,053 $20,462 $20,883
Total ave. net yield/segment $11,567 $13,818 $14,857
Total revenues/year $1,517,760 $2,056,800 $3,574,000
Total costs/year $962,544 $1,227,720 $2,088,300
Total net revenues/year $555,216 $829,080 $1,485,700
Aircraft cost on a purchase basisIf a decision is made to purchase the aircraft for the new airline rather than dry leasing them, then
a considerably larger cash outlay will be required, even with export financing guarantees from theECGD. For instance, here is a notional cost projection based on five new Avro RJ100s, well fitted
with passenger amenities as well as the most up-to-date communication and navigation gear:
Cost per aircraft $26,000,000
Total cost, five aircraft $130,000,000
Financing to be provided by Export Credit Guarantee Department of theUK
85%
Interest rate 7.5%
Insurance 1.5% on value of the aircraft
Cash outlay required for down payment 15%, or $19,500,000
Amount to be financed $110,500,000
Insurance, per year $1,950,000
Depreciation chargeable against revenues per year for 10 years $13,000,000
Annual payments on five aircraft based on 120 payments (10 yrs) Approx. $12,000,000
Total cost of aircraft w/ payments and interest $163,500,000
Residual value after 10 years Approx. $65,000,000
Total real cost of five aircraft assuming sale at end of 10 years Approx. $98,500,000
Based on these figures, comparative per-segment costs in the following years are shown:
FY 2003 FY 2004 FY 2005
Aircraft in service (FTE) 5 5 5
Segments per year per aircraft 2,303 2,215 2,133
Total segments 11,519 11,076 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 inconsidering 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 aswell as lower up-front cash requirements.
Table: General Assumptions
General Assumptions
Year 1 Year 2 Year 3
Plan Month 1 2 3
Current Interest Rate 9.00% 9.00% 9.00%
Long-term Interest Rate 7.50% 7.50% 7.50%
Tax Rate 34.58% 35.00% 34.58%
Other 0 0 0
7.2 Key Financial Indicators
The accompanying chart, which is based on the actual financial projections for the proposed airline,clearly shows a pattern of solid growth over the first three years of the operation (and which would
continue into the future), which the financials consider in depth. There is a good balance betweenrevenues and costs, yielding healthy gross margins, and in a predictable, steady pattern of growth.
Financial turn-over also is in good balance and, as other tables and charts show, with careful
planning of expenditures cash flow is maintained in good balance throughout the life of the plan.
Chart: Benchmarks
7.3 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 averagepassenger load factor of only about 40 percent with a fleet of three RJ100s operating about six
segments each per day. It is anticipated that this load will be reached fairly early in the newairline's life and, in practice, much higher loads - into the 65 - 75 percent range during the first
year of operations - can be anticipated based on the overall business and marketing plans for theairline.
Chart: Break-even Analysis
Table: Break-even Analysis
Break-even Analysis
Monthly Revenue Break-even $507,571
Assumptions:
Average Percent Variable Cost 5%
Estimated Monthly Fixed Cost $481,754
7.4 Projected Profit and Loss
As the accompanying Profit and Loss chart clearly demonstrates, the proposed airline has thepotential to achieve profitability, on a month-by-month basis, by as early as the third month of
operations, and to end the first year comfortably in the black - an indication of the strength of the
market and the marketing plan for the venture, given the conservative nature with which thenumbers were calculated.
All cost items are covered in this Profit and Loss chart and, while the organization and salary and
cost items presented are not lavish, they both cover the needed functions adequately and alsoallow some margin for movement. Given the business plan's stress on utilizing technology to
control staffing and related support and marketing costs - big problems for many airlines - the planpresented here should enable this airline to accomplish far more with less, and simultaneously to
present less of a "command-and-control" problem to the management team.
All flight and cabin crew salaries are included in the line designated "Operational" in the top sectionof the chart, with all non-salary aircraft operational costs included in the same section. All
revenues, which derive almost entirely from airline operations (both scheduled and special flights)are also provided in the top area, along with a deduction for the direct cost of sales, such as
reservations fees and commissions (an area that hopefully can be reduced even further throughe-reservations and e-ticketing, though it probably cannot be eliminated altogether. Clearly the
affect of these charges on the bottom line can be seen in this chart, even figuring that 60 percentand more of airline clients will utilize electronic means for ticketing). The rest of the chart is broken
down by functional area, outside of direct flight operations (which also include aircraft acquisitioncosts).
Finally, it is worth noting that a net operating profit of more than [XYZ] million USD (on an equity
investment of under [XYZ] million USD) is projected for the first year, with a net profit of more than[XYZ] percent. Profits in the second and third years show substantial growth, with a combined net
profit in excess of [XYZ] million USD projected for the third and fourth years, even given thelimited size of the fleet (up to nine mid-sized jets by the end of the third year of operations)
projected for the airline.
Chart: Profit Monthly
Chart: Profit Yearly
Chart: Gross Margin Monthly
Chart: Gross Margin Yearly
Table: Profit and Loss
Pro Forma Profit and Loss
Year 1 Year 2 Year 3
Sales $41,531,760 $95,102,256 $149,146,550
Direct Cost of Sales $2,112,400 $4,522,260 $6,318,654
Production Payroll $1,638,562 $3,307,744 $4,766,445
Other General and Administrative Expenses $0 $0 $0
Total General and Administrative Expenses $2,343,552 $3,041,614 $3,555,498
General and Administrative % 5.64% 3.20% 2.38%
Other Expenses:
Other Payroll $1,322,000 $2,228,625 $2,383,810
Consultants $0 $0 $0
Contract/Consultants $0 $0 $0
Total Other Expenses $1,322,000 $2,228,625 $2,383,810
Other % 3.18% 2.34% 1.60%
Total Operating Expenses $5,781,052 $8,034,989 $9,785,188
Profit Before Interest and Taxes $2,356,805 $21,504,959 $48,223,792
EBITDA $2,476,805 $21,624,959 $48,343,792
Interest Expense $45,536 $27,837 $9,369
Taxes Incurred $917,055 $7,516,993 $16,674,155
Net Profit $1,394,214 $13,960,129 $31,540,268
Net Profit/Sales 3.36% 14.68% 21.15%
7.5 Projected Cash Flow
Cash flow is probably the factor that makes or breaks more businesses than any other, and it is
even more critical to consider in a venture as capital-intensive as is an airline.
As the accompanying chart and table readily show, with careful planning and control of resourcesand expenses, cash flow crises should not pose a threat to the new airline. Even allowing for a [XYZ]
million USD up front deposit on aircraft leases (which would be charged against operationalexpenses as the airline begins flying) and other significant up-front costs, as shown in the
accompanying illustrations, at no time does cash on-hand become a major issue during the firstyear, and even less so in the follow-on years.
While an investment of about [XYZ] million USD is modest by regional airline standards, thefinancial and business planning done here should indicate that the venture is quite feasible in the
market. Nevertheless, it would offer an extra cushion of safety to arrange for availability ofadditional credit facilities or cash reserves, or equity investment, to be called up only as needed in
the short-run should cash demands out strap expectations, immediate revenues, and on-hand
cash on a temporary basis.
It should be noted that a 30-day accounts payable repayment schedule is included in the planningfor the financials. However, a majority of the airline's revenues will come from online sales, with
payment by credit cards and generally rapid settlement, and also from ticket sales from travelagencies that are required to make payments usually in half the accounts payable schedule used
in the assumptions for this plan. Given the large fluxes of cash, even these payment methods allowfor significant amounts of funds to be receivable at any given time but, again, the financial
calculations indicate that this should pose no significant problem to the airline's financialmanagement or cash liquidity.
Chart: Cash
Table: Cash Flow
Pro Forma Cash Flow
Year 1 Year 2 Year 3
Cash Received
Cash from Operations
Cash Sales $26,995,644 $61,816,466 $96,945,258
Cash from Receivables $9,626,176 $26,952,615 $45,812,104
Subtotal Cash from Operations $36,621,820 $88,769,081 $142,757,362
Additional Cash Received
Sales Tax, VAT, HST/GST Received $0 $0 $0
New Current Borrowing $0 $0 $0
New Other Liabilities (interest-free) $0 $0 $0
New Long-term Liabilities $0 $0 $0
Sales of Other Current Assets $0 $0 $0
Sales of Long-term Assets $0 $0 $0
New Investment Received $0 $0 $0
Subtotal Cash Received $36,621,820 $88,769,081 $142,757,362
Expenditures Year 1 Year 2 Year 3
Expenditures from Operations
Cash Spending $4,140,062 $6,825,869 $8,508,015
Bill Payments $30,946,389 $74,284,142 $106,090,971
Subtotal Spent on Operations $35,086,451 $81,110,011 $114,598,986
Additional Cash Spent
Sales Tax, VAT, HST/GST Paid Out $0 $0 $0
Principal Repayment of Current Borrowing $188,100 $205,200 $205,200
Other Liabilities Principal Repayment $0 $0 $0
Long-term Liabilities Principal Repayment $0 $0 $0
As the accompanying Balance Sheet indicates, the proposed venture will maintain a healthyposition, even with limited hard assets other than cash and leased aircraft, and the company's net
worth is projected to grow beginning from the end of the first year from about [XYZ] million USD to[XYZ] million USD by the end of the second year, and to more than [XYZ] million USD by the end
of the third year, with continued growth at about the same remarkable rate beyond that.
Total Long-term Assets $80,000 ($40,000) ($160,000)
Total Assets $17,151,662 $31,527,634 $65,655,459
Liabilities and Capital Year 1 Year 2 Year 3
Current Liabilities
Accounts Payable $5,535,548 $6,156,590 $8,949,347
Current Borrowing $411,900 $206,700 $1,500
Other Current Liabilities $0 $0 $0
Subtotal Current Liabilities $5,947,448 $6,363,290 $8,950,847
Long-term Liabilities $0 $0 $0
Total Liabilities $5,947,448 $6,363,290 $8,950,847
Paid-in Capital $10,800,000 $10,800,000 $10,800,000
Retained Earnings ($990,000) $404,214 $14,364,343
Earnings $1,394,214 $13,960,129 $31,540,268
Total Capital $11,204,214 $25,164,343 $56,704,612
Total Liabilities and Capital $17,151,662 $31,527,634 $65,655,459
Net Worth $11,204,214 $25,164,343 $56,704,612
7.7 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 significantcash growth going into the second and third years, with ROE figures upwards of [XYZ] percent ona cumulative basis.
Care must be taken to control costs, to plan routes, schedules, and capacities carefully, and to take
on high-cost items with caution and with an eye to timing. But the basic elements for a solidbusiness 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 aperiod where growth will be both solid and sustained. A long-term (five-year) financial plan is
included among the appendix.
Table: Ratios
Ratio Analysis
Year 1 Year 2 Year 3 Industry Profile
Sales Growth n.a. 128.99% 56.83% 2.91%
Percent of Total Assets
Accounts Receivable 28.63% 35.66% 26.86% 21.79%
Inventory 2.12% 3.40% 1.49% 4.16%
Other Current Assets 0.29% 0.16% 0.08% 36.78%
Total Current Assets 99.53% 100.13% 100.24% 62.73%
Long-term Assets 0.47% -0.13% -0.24% 37.27%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 34.68% 20.18% 13.63% 32.64%
Long-term Liabilities 0.00% 0.00% 0.00% 18.38%
Total Liabilities 34.68% 20.18% 13.63% 51.02%
Net Worth 65.32% 79.82% 86.37% 48.98%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 19.59% 31.06% 38.89% 55.97%
Selling, General & Administrative Expenses 15.98% 16.38% 17.88% 39.09%
Advertising Expenses 3.61% 2.10% 2.01% 0.59%
Profit Before Interest and Taxes 5.67% 22.61% 32.33% 1.06%
Main Ratios
Current 2.87 4.96 7.35 1.57
Quick 2.81 4.79 7.24 1.01
Total Debt to Total Assets 34.68% 20.18% 13.63% 58.53%
Pre-tax Return on Net Worth 20.63% 85.35% 85.03% 1.65%
Pre-tax Return on Assets 13.48% 68.12% 73.44% 3.99%
Debt to Net Worth 0.53 0.25 0.16 n.aCurrent Liab. to Liab. 1.00 1.00 1.00 n.a
Liquidity Ratios
Net Working Capital $11,124,214 $25,204,343 $56,864,612 n.aInterest Coverage 51.76 772.53 5,147.17 n.a
Additional Ratios
Assets to Sales 0.41 0.33 0.44 n.a
Current Debt/Total Assets 35% 20% 14% n.a
Acid Test 1.98 3.03 5.27 n.a
Sales/Net Worth 3.71 3.78 2.63 n.a
Dividend Payout 0.00 0.00 0.00 n.a
4.2 Service Business Analysis
The overall airline industry operating between Western Europe and Southeastern Europe and
Turkey consists of four primary segments:
1. Established mainline European carriers (primarily Swiss International, Austrian, Lufthansa,
Alitalia, Malev, Turkish) utilizing their Southeast European routes as spokes connecting to mainhubs in Western Europe (or Budapest and Istanbul in the case of Malev and Turkish,
respectively) and serving to feed traffic to their prime intra-European and trans-Atlantic routes(or domestic Turkish routes in the case of Turkish).
2. Smaller, but generally well-established regional airlines primarily from Western Europe or the
upper level of Eastern European states (primarily Swiss International, Tyrolean, and Adria)that perform essentially the same function as the mainline carriers or, in the case of carriers
like Adria, link destinations in Southeast Europe to their own national capitals.
3. Home-based Southeastern European carriers (such as ADA Air, Albanian Airlines, Avioimpex,
Balkan Air, Hemus Air, JAT, and Tarom Airways) that often operate older, Soviet-built aircraft orturboprops, offer a generally lower level of service (though not always lower fares), and are
often less highly regarded, including by travelers from Southeastern Europe. These airlinesconnect points within Southeast Europe, or they may connect Southeastern European
destinations to major destinations in Western Europe.
4. There also is a fourth segment worth noting, and that is the fairly significant charter market
that exists within certain niche or seasonal markets. This market includes charter flightsbetween Pristina and destinations in Switzerland and Germany, as well as primarily summer
charters from Southeast Europe to New York and other destinations in North America. Thesecharters are often operated by individual travel agencies or airlines, and often are categorized
by a low level of service and utilization of older, often Soviet-built, aircraft. There also are the
vacation charters that operate from Western Europe to Greece, Turkey, Cyprus, and the other
holiday spots of Southeastern Europe and the Mediterranean.
It is anticipated that the proposed new airline would most closely fit into the second grouping above,but would compete effectively with all four main segments through a combination of a high level of
safety and service, carefully selected routes, niche-market service, convenient schedules, reasonableand competitive fares, and modern, safe, comfortable aircraft. It also will offer service onunder-served and unserved routes where little or no competition currently exists.
