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Puddle Jumpers Airline
Puddle Jumpers Airlines, Inc. is a new consumer airline in its formative stages. It is being organized to take advantage of a specific gap in the short-haul domestic travel market. The gap exists in low cost service out of Anytown, U.S.A. The gap in the availability of low cost service in and out of the Anytown hub coupled with the demand for passenger travel on selected routes from Anytown indicates that a new entrant airline could be expected to capture a significant portion of current air travel business at that hub.
The management of Puddle Jumpers is experienced in airline start-ups. Previously management grew Private Jet Airlines from a single Boeing 727 to a fleet of 16 MD80 series aircraft. Revenues grew to $130 million in a two year period four years ago.
Our research and projections indicate that air travel to and from Anytown is sufficient to provide a new carrier with excellent revenues in its first full year of operations, utilizing six aircraft and selected short-haul routes. These sales figures are based upon load factors of only 55% in year one. Second year revenues are expected to more than doublewith additional aircraft and expanded routes. Load factors for year two are 62%. The Puddle Jumpers plan has the potential for a more rapid ramp-up than was the case with Private Jet due to the nature of the routes and the demand for travel currently in the targeted markets served. In short, the frequency of flights needed to serve Puddle Jumpers’s target market exceeds the demand that dictated Private Jet’s growth.
These sales levels will produce respectable net profit in the first operational year and exponential growth in flight-year two. Profits in year one will be a modest percent of sales and will improve steadily with the economies gained in year two. The over-all operational long term profit target will be 16% of sales as net profit in years four and five. The company’s long term plan is part of the due diligence package. The first operational year is actually fiscal year two in this plan.
The first year of formative operations will burn cash until revenue can commence. This is due to the organizational and regulatory obligations of a new air carrier. Investment activity is needed to handle the expenses of this phase of the business.
The following chart illustrates the over-all highlights of our business plan over the first three years. Gross Margin here is quite high since the only costs included in this calculation are travel agent commissions, credit card discounts, and federal excise taxes. Travel agent commissions are calculated on 30% of sales even though management feels the actual number will not exceed 10% of sales.
NOTE: For display purposes in this sample plan, numerical values in tables and charts are shown in thousands (000’s).
The Company has the following objectives:
- To obtain required D.O.T. and F.A.A. certifications on or before month eight.
- To commence revenue service on or before the end of year one.
- To raise sufficient “seed” and “bridge” capital in a timely fashion to financially enable these objectives.
- To commence operations with two McDonnell-Douglas MD-80 series aircraft in month one, four by end of month four, and six by end of month six of flight operations.
- To add one aircraft per month during year two for a total of 18 at year two end.
Puddle Jumpers International Airlines, Inc. has a mission to provide safe, efficient, low-cost consumer air travel service. Our service will emphasize safety as its highest priority. We will operate the newest and best maintained aircraft available. We will never skimp on maintenance in any fashion whatsoever. We will strive to operate our flights on time. We will provide friendly and courteous “no frill” service.
1.3 Keys to Success
The keys to success are:
- Obtaining the required governmental approvals.
- Securing financing.
- Experienced management. (Already in place).
- Marketing; either dealing with channel problems and barriers to entry; or solving problems with major advertising and promotion budgets. Targeted market share must be achieved even amidst expected competition.
- Product quality. Always with safety foremost.
- Services delivered on time, costs controlled, marketing budgets managed. There is a temptation to fix on growth at the expense of profits. Also, rapid growth will be curtailed in order to keep maintenance standards both strict and measurable.
- Cost control. The over-all cost per ASM (available seat mile) is pegged at 7.0 cents or less in 1996 dollars. This ASM factor places Puddle Jumpers in a grouping of the lowest four in the airline industry within the short-haul market. (US Air, the dominate carrier in the Anytown market, averages 12.0 cents per ASM by comparison). The only three airlines with lower operating costs also operate older and less reliable equipment, and even then the lowest short-haul cost in the airline industry is currently Southwest at 6.43 cents per ASM.