Your team must start a new airline

1
Business Plan The Exercise

• Your team must start a new airline
• Based in Vietnam
• With the ambition to expand in Vietnam and South
  East Asia and eventually abroad
• You have to build the Business Plan
• For the period 2004-2013
• Strategig Goals are
• Sustainable growth
• Long term value creation
• Results
• Excel model
• Powerpoint presentation

2
Business Plan The Exercise

• Basic Assumptions are given by the professor
• Capex (cost and charachteristics of the planes)
• Market (global evolution and for each market)
• Network (possible network)
• Other Costs
• Market reactions to your decisions
• You decide on price, frequencies, quality
  spendings
• Market reactions are calculated in a specific
  Excel Sheet
• Given by the professor
• Protected (formula are hidden)
• Principles of the market reaction are explained
• Details are not known

3
AssumptionsThe Planes

• Sole tangible capex the planes
• Purchase price are given
• Depreciation 20 years linear
• Operating expenses
• Fuel consumption per flight hour
• Pilots always 2 aboard
• Stewards number depends of aircraft size
• Pilots and stewards maximum 800 flight hours /
  year
• Maintenance (per month per block-hour)
• Flight hours  Block Hours 
• Maximum 10/day (short haul) 14/day (long
  haul)

4
AssumptionsThe Network and The Market

• Possible routes
• From Saigon
• 5 routes in Vietnam
• 8 routes in SEA
• 2 long haul routes
• From Hanoi
• 5 routes in Vietnam
• 8 routes in SEA
• 2 long haul routes
• Yearly growth (2004-2013)
• For each route
• Competition
• The number of competitors varies
• 1, 2 or 3 competitors

5
AssumptionsAdvertising and Sale costs

• You need to advertise
• You need to invest 1 MioUS/year 4 of
  turn-over to maintain market share
• If you invest 1 more or less of your turnover
  your market share will win/loose 1
• It is useless to invest more than 8 of the
  turnover
• Sale Channels
• Agent fee of 8 of sale price
• Internet sale cost of 1 of the sale price
• To develop Internet sale capex are necessary
• if no capex 0
• To have 100 Internet Sale capex of 50 Mio US
  (once)
• You can invest progressively

6
AssumptionsPrice, Service and Market Share

• If you make the same price as competitors you
  will get
• 10 of the market on the 1st year of operation on
  the route
• 15 of the market after
• If you decrease the price you can get
• More market share
• Approximately 1 more if you reduce the price by
  1
• A faster growth of the market
• Approximately 0,25 more growth each year if you
  reduce the price by 1
• If you increase the number of daily flights you
  can get
• More market share
• A larger percentage of business customers

7
AssumptionsPersonnel and Catering costs

• Wages to be discussed with students
• Pilot cost / year
• Steward cost / year
• Fuel 0,7 US/gallon (increase by 2/year)
• Catering
• Short haul
• 4 US/pax economy
• 12 US/pax business
• Long haul
• 20 US/pax economy
• 60 US/pax business

8
AssumptionsOther costs

• Quality
• Quality spending is defined as a percentage of
  turnover
• By investing more in quality you can increase
  market share
• By investing more in quality you can increase
  percentage of business customers
• Overhead
• Fixed
• 2 Mio US in 2004
• 3 Mio US after 2004
• Variable
• 1 US/pax short haul
• 3 US/pax long haul
• Tax rate of 32 (Vietnam standard rate)

9
Assumptions on routes and planes

• Excel Sheet gives all details

10
Financial resources

• Equity
• Commitment by the shareholders Maximum 100
  MioUS
• You dont need to get all the capital immediately
• Debt
• Commitment by the banks Maximum 400 MioUS
• Interest rate
• Tranche 1 up to 200 MioUS 3,5
• Tranche 2 200-300 4
• Tranche 3 300-400 5
• If leverage D/E is higher than 3
• interest rate is increased by 1
• If leverage D/E is higher than 4
• interest rate is increased by 3
• D/E may not be higher than 5