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Airline Business Plan

Services

As demonstrated throughout this business plan, it is clear that a strong growth potential exists for the 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 the numbers 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 and charter, 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. But comparing favorably, and even standing notably above, the latter also is an important objective since 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 only will 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 can be 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 Western European 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 its competitive 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 in the 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 that often 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 in Albania 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, the Hungarian 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 be significantly 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 a significant part of the market, particularly in service to Kosovo and Turkey, the two niche markets identified 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 and outside 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 the airline 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 be preferred 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 enable the 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 quality perspective, 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, from Hungary; 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, routes and city pairs that offer unserved or under-served demand. That strategy also will help reduce the threat from competition, and will enable the carrier to further establish itself as the carrier of choice in Southeast Europe.

Competition with Western European carriers
The competitive picture is somewhat different when Western European carriers represent the competition. Many of the new airline's competitive advantages relative to Southeastern European carriers 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 a similar 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, Virgin Express, 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 the proposed new airline's marketing strategies, informational and electronic technologies, and management techniques, none of them - none - employ the full range of those elements that the proposed 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 Pan Am, 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 deployment of 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 stand out 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, and I 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 the outset 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 help give 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 aviation world.

3.3 Fulfillment

The primary issue regarding sourcing is the question of the type and source of aircraft to be employed in the new airline's fleet.

Aircraft selection
Several 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
  • Bombardier Canadair Regional Jet CRJ
  • British Aerospace BAe 146-300, BAe 146-200QC*, Avro RJ85, RJ100, RJX85, RJX100
  • Embraer ERJ-145
  • Fokker 100
  • 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 the U.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 type is 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 factors are 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 99.6 percent 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 and maintenance operations and reducing training and simulator costs.

  4. Four-engine configuration which gives it an added safety factor (while also increasing operating 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, types of 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 the availability 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 85-100 seats 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 for both series, with the major change being in the more advanced and more powerful Honeywell AS977 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 series requires 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, but it 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 than offset by greater revenue potential. Key operating parameters for both the current and new series of Avro jets (85 and 100) are given here:

Aircraft typeRJ85RJ100RJX85RJX100
Seating85-10099/100-11285-10099/100-112
Cargo Capacity (m3/ft3)18.25/645 22.98/81218.25/645 22.98/812
Range (km/nm)2796/15102554/13793296/17803019/1630
Maximum Speed (kt)MO.73/300 ktMO.73/305 ktMO.73/300 ktMO.73/305 kt
Runway for 740 km (m/ft)1157/37961314/43111105/36251275/4183

While any of the available configurations would be adequate to accommodate the range of most of the routes envisaged, the greater range of the RJX series gives added scope, and also enables service 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 later this 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 expense potentially 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 newer generation 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 for purchase 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 passenger amenities 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 the aircraft. 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 for short-term acquisition of aircraft that would be employed in meeting peak demand-type services as 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 provide long-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 for aircraft 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 some used 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 of the 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, and lots 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) that will provide quick and easy access to airline schedules, flight availability, reservations, and ticketing 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 online and 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 trails of 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 local contract 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 airline and passenger.
  • Electronic baggage tracking (e-baggage tracking) which will enable the airline to track any 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 using tracking 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 least both 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 airline appears 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 create a 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 staff resources in the process. What is envisaged is a central electronic matrix that controls and monitors scheduling of aircraft, equipment, personnel, supplies, and support materiel, and responds to problems, excesses, and deficiencies.

    It also will track all elements of a given passenger's or customer's transactions and interactions with 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 and monitoring of the airline's finances, clear advantages.
  • Additional technological features will be incorporated on-board the aircraft to provide flight 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 approach and visibility conditions.