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 than often currently available:
- Business travelers requiring convenience, reliability, speed, and schedules built around business needs.
- Government and international organization travelers, requiring the same elements.
- 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 at an economical cost.
- 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, with the same demands.
- Western European personal and leisure travelers, primarily traveling on the airline’s routes between Western European points.
- 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 focus on 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.
The overall airline industry operating between Western Europe and Southeastern Europe and Turkey consists of four primary segments:
- Established mainline European carriers (primarily Swiss International, Austrian, Lufthansa, Alitalia, Malev, Turkish) utilizing their Southeast European routes as spokes connecting to main hubs 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).
- 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.
- 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 or turboprops, 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 airlines connect points within Southeast Europe, or they may connect Southeastern European destinations to major destinations in Western Europe.
- 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 flights between 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. These charters 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, reasonable and competitive fares, and modern, safe, comfortable aircraft. It also will offer service on under-served and unserved routes where little or no competition currently exists.
Air Leo will fill a niche in the growing air-travel and cargo markets linking Western Europe, and points beyond, to Southeastern Europe and Turkey; to achieve 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 region and beyond.
Financial Highlights by Year
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 and Government/IO segments to and from Southeastern Europe
For SE European Regional and Diaspora Personal and Leisure Travelers
For Western European Personal and Leisure Travelers, as well as Business and Government/IO Travelers between Western European destinations
Air France/Air Inter
Deutsche Air BA
TurkishJATKLM/KLM Cityhopper/KLM UK
For seasonal Holiday Travelers to Southeastern Europe and Turkey
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 are focused 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 charter operators 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-served routes 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 also points 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 and passenger preference right from the outset.
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.
Keys to Success
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 teamthat combines vision; realism; financial ability; solid knowledge of the aviation business; familiarity with, and belief in, the utilization and benefits of the latest aviation, electronic, and informational technologies; on-the-ground knowledge of the region and markets to be served; realization of the crucial importance of an organization’s personnel to its success; and a total familiarity with, and commitment to, the overall mission and goals of the proposed new airline.
- Intelligent, progressive, and aggressive marketing that identifies the airline as a different kind of player, one that is sharper and smarter, and with a higher level of professionalism and operational standard than is the norm in the target region. Concentration on safety, with highly trained, dedicated, and professional personnel, caring for the passenger and the passenger’s needs and wants, the advantages offered by advanced technology, and straightforward, understandable, highly competitive tariffs and fare pricing, all will form key pillars of the marketing strategy.
- Identification, through careful market research, of unserved or under-served routes and city pairs in the target market area with sufficient passenger demand to enable high load factors and profitable operations utilizing the category of aircraft envisaged.
- Use of an all-jet fleet of newer, modern, Western-built regional aircraft that offer a high level of comfort, safety, and fuel and operational efficiency and flexibility, which meet all normal aviation standards, and which offer sufficient, but not excessive, passenger and cargo capacity on the envisaged routes.
- Use of advanced electronic and information technology to reduce staffing and other operational costs; expand the potential market base; readily capture sales opportunities; simplify and speed passenger, baggage, and cargo handling; and enhance customer convenience and satisfaction.
Additional important, though less critical, keys to assuring the airline’s success include the following:
- Identifying, negotiating, and entering into, in the pre-operational stage and early on, beneficial associations, cooperations, and partnerships with larger, more established, highly regarded carriers both within and beyond the target market region to offer interline arrangements, through fares, frequent-flyer mileage sharing, and convenient hubbing 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, and must 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 ensure that 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, highly competitive fare.
- Avoiding the temptation to go head-to-head with established carriers on routes that already 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 market conditions 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 high rate 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 scheduled and 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 the aviation 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-enlargement opportunities that will allow incremental, but always profitable, expansion.
Marketing & Sales
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 be a 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 marketing strategy 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 and message 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 you may 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 the media’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 to know 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 airport kiosks, 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 of doing 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!""
The airline’s sales strategy will flow from its overall concept and marketing approach. Mass marketing, 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 people as 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 can be 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 lose sight 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 access must 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 offer corporate 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 regional managers 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 new airline, hopefully will feel a close affinity toward it and will become loyal and happy customers.
Locations & 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:
- Luxembourg, Luxembourg;
- Berlin, Germany;
- London City Airport, London, United Kingdom;
- Stanstead Airport, London, United Kingdom;
- EuroAirport, Basel/Mulhouse, Switzerland/France;
- Amsterdam, The Netherlands;
- Cologne/Bonn, Germany;
- Munich, Germany.
In selecting a location to base the new airline, the following 11 major considerations are being evaluated, in roughly descending order of relative weight:
- 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, are key considerations.
- 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.
- The availability of sufficient landing and parking slots and gate facilities to permit the desired level of service at the base airport.
- The ability to interconnect with one or more major carriers for onward interline arrangements both within Europe as well as to trans-Atlantic and global destinations.
- 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 Southeastern Europe and Turkey and, at most, one-stop service to more distant or secondary destinations.
- The existence of relatively high-traffic volume between the base location and one or more key interchange points to provide sufficiently high load factors between the base location and onward destinations and points of origin.
- The existence of a reasonably high level of cargo traffic, including opportunities for interline trans-shipment of both inbound and outbound cargo.
- The support of a larger airline with which the proposed new airline can establish a particularly close working relationship.
- The support of local airport and aviation authorities to facilitate establishment, certification, and ongoing operation of the airline and its aircraft.
- 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.
- A range of other factors, including the availability and cost of local skilled workers, the growth potential of the market selected, year-round climatic and weather conditions as they may affect 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 key personnel, 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 and experienced 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 utilize locally available services away from home. Aircraft also may be based at key airline hub locations away 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, it is 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 arrangements entered 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-term basis, 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 office space, preferably in one central location at or near the base airport, will be required to house the airline’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 own website as well as other Internet travel websites, designated general sales agents in given locales, and regular travel agencies everywhere.
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
Equipment & Tools
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.
Ownership & Structure
Reflecting the overall nature of the organization envisaged, there is very little hierarchy in the organizational 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 of this plan) are as follows:
- President and chief executive officer (who reports to the Board of Directors of the airline company).
- 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, flight operations, 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:
- First officer;
- Flight attendant.
Salary scales and levels of authority have been simplified and based on a rational scale allowing for similar 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 to the 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 important parts of the organization plan, as explained in more detail elsewhere in this document.
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 the key 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. The individuals 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 to play 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 in such 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.
In addition to the general financial and business assumptions presented in the following table, the key parameters presented on the next page also were included as Operating Assumptions in formulating the financial portions of this business plan.
Every effort was made to be realistic in these Assumptions, and if anything they were formulated conservatively, particularly in calculating initial load factors and revenue yields which, in practice, should be considerably higher than offered here. Additionally, passenger and cargo fares were considered to be flat over the entire period covered by this plan to compensate for the possibility that additional competition could force fares to remain relatively constant over the period. However, the objective of this exercise was to show that the proposed operation will be profitable even with much lower revenues than would normally be expected, and the numbers do in fact confirm a profitable outcome.
Additionally, expected net revenues from offering peak-demand special flights also are calculated. They are set apart separately from the scheduled-service revenues to show that both types of service – and particularly the more important scheduled service – are viable and the airline will be profitable even without these additional revenues.
The assumptions utilized here are based on dry leasing new Avro RJ100s at a high level of outfitting and with necessary spares included. A separate set of figures is provided following the Operating Assumptions section which gives a cost comparison should the decision be made to purchase the aircraft new, utilizing ECGD export financing for 85 percent of the purchase price of the aircraft.
Revenue by Month
Expenses by Month
Net Profit (or Loss) by Year
Use of funds
Legal and consulting $200,000
Route and market study $100,000
Office supplies, stationery etc. $10,000
Brochures and marketing materials $30,000
Design consultants $60,000
Corporate insurance $20,000
Office rent $50,000
Software and systems development $100,000
Expensed equipment and off. furniture $150,000
Expensed vehicles (8) $100,000
Public relations and advertising $80,000
Crew, staff training and manuals $60,000
TOTAL START-UP EXPENSES $990,000
Projected Profit and Loss
|Gross Margin %
|Total Operating Expenses
|Depreciation and Amortization
|Gain or Loss from Sale of Assets
Projected Balance Sheet
|Other Current Assets
|Total Current Assets
|Total Long-Term Assets
|Income Taxes Payable
|Sales Taxes Payable
|Total Current Liabilities
|Total Owner’s Equity
|Total Liabilities & Equity
Projected Cash Flow Statement
|Net Cash Flow from Operations
|Depreciation & Amortization
|Change in Accounts Receivable
|Change in Inventory
|Change in Accounts Payable
|Change in Income Tax Payable
|Change in Sales Tax Payable
|Change in Prepaid Revenue
|Net Cash Flow from Operations
|Investing & Financing
|Assets Purchased or Sold
|Net Cash from Investing
|Dividends & Distributions
|Change in Short-Term Debt
|Change in Long-Term Debt
|Net Cash from Financing
|Cash at Beginning of Period
|Net Change in Cash
|Cash at End of Period