Puddle Jumpers Airlines, Inc., is a consumer airline that is still in its initial 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. Due to the limited availability of low-cost services in and out the Anytown hub, along with the high demand for passenger travel on select routes from Anytown it could be expected that a new entrant airline would take over significant air travel business at this hub.
Puddle Jumpers management is experienced in the start-up of airline companies. Private Jet Airlines was founded by the previous management. It grew from a single Boeing 727 aircraft to a fleet 16 MD80 series planes. Revenues grew to $130 million in a two year period four years ago.
Based on our research and projections, air travel from Anytown to and from Anytown can provide an excellent source of revenue for a new carrier in its first year of operation. We used six aircraft and selected long-haul routes. These sales figures are based only on load factors of 55% during year one. With additional aircraft and increased routes, revenues for the second year are expected to exceed 50%. 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 are expected to produce a respectable gross profit in the initial operational year. The second flight-year will see exponential growth. In year one, profits will be only a small percent of sales. However, they will rise steadily with the economies built in year 2. The overall operating long term profit target for the company will be 16% of total sales, as net profits in years four-five. The due diligence package includes a long-term plan for the company. In this plan, the fiscal year one is actually the second.
The first year will see cash burnt until revenue is possible. This is due the new airline’s regulatory and organizational obligations. To cover these expenses, it is necessary to invest.
Below is a chart that shows the highlights of the business plan we have used over the last 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. Although 30% of sales is the standard, travel agent commissions are calculated even though management believes it will be less than 10%.
NOTE: Numbers in charts and tables in this sample plan are shown in thousands (000’); for display purposes.
1.1 Objectives
The following are the main objectives of the company
- To obtain the required D.O.T. and F.A.A. Certifications issued after or prior to month 8.
- To begin revenue service within the first year.
- To raise enough ‘#8220’ seed and ‘#8220’ bridge capital quickly to enable financial support for these goals.
- To begin operations with two McDonnell-Douglas MD-80-series aircraft.
- To add one aircraft per month during year two for a total of 18 at year two end.
1.2 Mission
Puddle Jumpers International Airlines, Inc. is committed to providing safe, efficient, and low-cost consumer airline travel services. Safety will be a top priority for our service. We will only operate the most modern and well-maintained aircraft. We will never compromise on maintenance. We will strive to operate our flights on time. We promise to provide courteous and professional #8220 “no frills” service.
1.3 Keys To Success
Here are the keys to success
- Obtained all required government approvals.
- Securing financing.
- Experienced management. (Already in place).
- Marketing can be used to address channel problems or barriers to entry, as well as solve problems with large advertising budgets and promotions. Targeted market share must be achieved even amidst expected competition.
- Product quality. Safety is the most important thing.
- Services provided on time, cost control and management of marketing budgets. It’s easy to fixate on growth at all costs. Profits are not the only thing that matters. Also, rapid growth will be curtailed in order to keep maintenance standards both strict and measurable.
- Cost control.
The ASM (available seating mile) costs an average of 7.0 cents in 1996 dollars. Puddle Jumpers’ ASM factor puts them in the lowest four of the airline industry in the short haul market. US Air, the dominant carrier within the Anytown area, charges 12.0 cents on average per ASM. 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.
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