| Regional Airline Business Plan |
| | 1.2.1 To obtain required D.O.T. and F.A.A. certifications on or before March 1, 2008. |
| | 1.2.2 To commence revenue service on or before July 1, 2008. |
| | 1.2.3 To raise sufficient "seed" and "bridge" capital in a timely fashion to financially enable these objectives. |
| | 1.2.4 To commence operations with two McDonnell-Douglas MD-95 series aircraft in month one, four by end of month four, and six by end of month six. |
| | >>Note: 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. |
| | 1.4.1 Obtaining the required governmental approvals. |
| | 1.4.2 Securing financing. |
| | 1.4.3 Experienced management. (Already in place). |
| | >>Note: 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. |
| | 1.4.5 Product quality. Always with safety foremost. |
| | 1.4.6 Services delivered on time, costs controlled, marketing budgets managed. |
| | >>Note: 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. |
| | >>Note: 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. |
| | >>Note: Airlines, Inc. will authorize 20,000,000 shares of common stock. 1,000,000 shares are to be set aside as founder's stock to be divided among key management personnel. It is also expected that management stock options will be made available to key management personnel after operations commence. It is expected that founders stock plus option stock will not total more than 15% of authorized shares. |
| | Initial "seed" capital is to be attracted via a convertible debenture sold by Private Placement. This round of funding will have premium conversion privileges vs. later rounds and "bridge" capital. The company has plans to proceed to a public offering prior to initiating revenue service. The expected proceeds from the Private Placement are expected to be $300,000 at "seed" stage, $3.5 million in "bridge" funding and $10 million in I.P.O. proceeds (projected at $6 per share). Management cannot assure that an I.P.O. will be available at the time desired and at the price sought. |
| | A sample of the offering proposed for "seed" investment is included with this plan. |
| | 2.3 Company Locations and Facilities |
| | >>Note: Management plans to lease a small office in suburban Anytown immediately upon closing "seed" funding. |
| | 3.2 Competitive Comparison |
| | >>Note: All company literature is yet to be developed. This includes basic corporate identity material as well as advertising executions. First year projections include an expense item for this necessary development work. |
| | >>Note: All equipment and systems that will be utilized by Airplanes, Inc. have been carefully and diligently evaluated. Management feels that it is an advantage to be starting an airline today vs. using many of the systems that burden even the largest domestic carriers with extra cost due to outmoded technology. |
| | >>Note: Service will be one-class with all aircraft configured for a seating capacity of 165. Travel will be ticketless. Reservations will be handled predominately by our own reservation system (even though we've budgeted travel agent commissions on 30% of sales). In-flight service will be on a pay-on-demand basis. Paid service will be for alcoholic beverages only. No meals will be served on these short-haul flights. A snack of soft drinks and peanuts will be included in the fare structure. Seating will be open with no reserved seats. No frequent flyer or travel incentives will be offered. |
| | 4 Market Analysis Summary |
| | >>Note: Anytown, U.S.A. is the best place in the continental United States to start an airline. Airlines, Inc. management decision to do just that is based upon extensive research compiled from The Department of Transportation O & D report data. This data provides a reliable source (based upon a compilation of actual airline arrivals and departures) of origination and destination demand by passenger, by day. The key measure of demand between any two given points in the grid is called "PDEW." That is "passengers departed each way." The PDEW compiles a total number of passengers on all carriers between two points, on average, each day. This total is irrespective of final destination. |
| | 4.1.1 Market Analysis (Pie) |
| | 4.2 Service Business Analysis |
| | >>Note: The Federal Government de-regulated the airline industry in 1978. Prior to that time the government virtually guaranteed the profitability of the airline industry, at the expense of the consumer. Routes were restricted. Fares were fixed. Costs got out of control. Today some of the major carriers still continue to operate at less than optimum efficiency. This has spawned the success of various "discount" carriers, most notably Southwest, ValuJet, and the new U2 planned by UAL. |
| | The low cost carriers have proven that they can operate profitably, can garner market share, and have even spawned an increase in travel by luring those who would previously have traveled by bus, rail, or automobile or who would not have traveled at all. |
| | 4.2.1 Business Participants |
| | >>Note: The major air carriers in the U.S. are not the focus of this plan. They are not viewed as competition to a single hub, short-haul, low cost entrant. The following three airlines are worthy of study. Southwest as one to emulate. ValuJet as one to improve upon. US Air as one to learn from and avoid similar pitfalls. |
| | 4.2.2 Distribution Patterns |
| | >>Note: Sales of airline tickets have historically been either direct from the airline itself or through various travel agents. Modern computer technology and communications capability are changing the mix dramatically. Travel agents once accounted for 80% of ticket sales. This channel of distribution has been one of very high cost to the airlines. Travel agent commissions at one time became the highest individual cost item to an airline. Perks and incentives amounted to coercion and bribery. The airlines found themselves held hostage. Not until Delta boldly announced that commissions to travel agents would be held to 10% did the situation begin to change. |
| | 4.2.3 Competition and Buying Patterns |
| | >>Note: The only significant competitor in the Anytown market is US Air. At one time Eastern and Piedmont dominated the market. Eastern went out and Piedmont was acquired by US Air. US Air is highly vulnerable because of its high operating costs. ASM short-haul cost of 12 cents is currently the highest in the US. US Air commands 86% of the Anytown air travel market. Delta is a distant second with 2%. |
| | As a result, Anytown currently has the highest air travel costs in the country and 0% of air travel is at discount fares. |
| | 5 Strategy and Implementation Summary |
| | >>Note: Marketing is targeted locally. The advantage of a local and highly identifiable market is that media selections can be limited in scope. There is no need for a national media program to launch Airlines, Inc. The most effective media is expected to be outdoor billboards. Private Jet relied heavily on a dozen well-placed billboards in and around Anytown to build a $100 million plus business. |
| | >>Note: Promotion will be primarily outdoor advertising, radio and TV targeted at the Anytown business and leisure traveler. |
| | In addition the company will employ a public relations firm for both consumer and financial purposes. |
| | The combined amount budgeted for advertising, public relations, and reservations will be held under 15% of sales. Thus, the first year expenditure in these categories is expected to be $16.5 million. Past experience with Private Jet has demonstrated that this expenditure is sufficient to launch airline service in a single hub. |
| | 5.1.3 Distribution Strategy |
| | >>Note: In addition to other marketing programs outlined the company will also market via the World Wide Web. We will establish our own website with reservation, purchase, and payment capability. |
| | >>Note: The following table lists important program milestones, with dates and managers in charge, and budgets for each. The milestone schedule indicates our emphasis on planning for implementation. |
| | Management expects that the current regulatory climate will loosen shortly. We expect it to be a long-term advantage to well operated airlines. We feel that 2007 is the ideal time both to invest and to start an airline. |
| | The costs of adding airplanes are figured on the basis of first and last payment in advance + one month's lease payment. |
| | 6.1 Organizational Structure |
| | >>Note: Adequate financing is essential for a start-up airline. Our strategy remains a "seed" to "bridge" to "IPO" progression. This has served as a successful model for airline starts in the past. Because of the amount of capital required to start an airline management feels it is restricted to this funding path. Once four to six airplanes are up and flying the company can continue to operate profitably for an indefinite period of time in the event additional capital becomes unavailable on attractive terms. |
| | 7.1 Important Assumptions |
| | >>Note: We assume a slow-growth economy, without major recession. |
| | We assume of course that there are no unforeseen changes in technology to make products immediately obsolete. |
| | We assume access to equity capital and financing sufficient to maintain our financial plan as shown in the tables. |
| | 7.1.1 General Assumptions |
| | 7.2 Key Financial Indicators |
| | >>Note: In the airline business the most important measurements are cost per Available Seat Mile and the System Utilization Factor. If seat costs are kept below 7 cents and utilization is at 50% or better, the airline will operate profitably. |
| | 7.4 Projected Profit and Loss |
| | >>Note: Our profits improve from approx. 1% of sales in year one to 10% of sales in year two and are expected to peak at about 16% in year three and thereafter. In gross numbers, we exceed $20 million in profit in the second operational year. |
| | 7.6 Projected Balance Sheet |
| | >>Note: The projected balance sheet illustrates the growth of the net worth of the business and may also be utilized to estimate future stock values based upon industry multiples. |
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