It did not take long after Malev, the Hungarian national airline stopped operations a few months ago that experts started to think about making a new one. An airline that would carry on the Malev tradition but be more of a commercial venture, hopefully able to stand on its own in the cut-throat environment of to-day’s aviation world.
Of course with even the strongest network carriers like Lufthansa and Air France-KLM scrambling to cut costs and looking at the future with wary eyes, even dreaming about a new airline may seem like audacity. On the other hand, there are new ventures and some of them are succeeding too.
I have written about what I thought were the most important considerations in setting up a successor to Malev and I continue to believe that those items are still valid.
However, investors are unlikely to give you their money without a good, convincing business plan. Writing a business plan is not easy but it has the added advantage of being a brutally honest reality check. Before you even approach the investors, the business plan will tell you in no uncertain terms whether your dreams have any reality at all.
You will notice that this write up is much more about business than flying. This is not a mistake. An airline, like it or not, is connected to aviation only by the incidental fact that it uses aircraft to carry people and goods. Other than that, it is a business… or should be if it wants to survive.
There must be many among our readers who have written numerous business plans and who are better qualified to do the job than I am. Nevertheless, I thought it might be useful to put together a straw-man of a business plan which could be used as first step in the creation of a real plan for the new airline I decided to call BlueSky Air.
A few general considerations
BluSky Air’s Business Plan is special in as much as it is aiming to prove that this initiative will be better than what was there before it… in other words, very soon one has to face up to the political aspects of the Malev failure and there is no place for obfuscation here. One has to assume that the investors will be aware of the details or if not, they will make sure that they get the relevant (and correct…) information and we should not find ourselves in a situation where they are asking questions to which we do not have the answer… It is much better to have all the answers there right from the start so that people don’t have to ask.
Of course if the new airline is being set up in its own right, possibly with its base not even in Hungary (in other words, going after the market as it were, as one of the possible options described in my earlier article), the political aspects do not play such an important role and the plan will be judged solely on its commercial merits.
The structure of the Business Plan
Regardless of subject, Business Plans tend to have a fairly standard structure but it is important that it contains all the usual elements and that their sequence is more or less in line with the usual arrangement. Always keep in mind that the people evaluating our plan will have seen hundreds of them and it helps them enormously if what we present is in the customary format.
So, let’s now have a look at the elements needed and what we would include in each one of them.
EXECUTIVE SUMMARY
Start with a short general introduction, followed by the ONJECTIVES and MISSION. Thereafter list the KEYS TO SUCCESS. It is vital that your text be compact but clear while also highlighting the main messages. Most investors themselves will only ever read this part and if they find it interesting enough, they will pass the whole thing on to their experts for a detailed analysis and recommendation. So, if the executive summary does not cut it, the whole initiative may come to a screeching halt there. This simple fact of life is often forgotten and people spend all the effort on the main part of the plan while the summary is as important and what is more, it is very difficult to create it in the necessary quality.
If you have a few good pictures to illustrate things, they can be inserted here but do not overdo it. Too much detail on this level does more harm than good.
Often it is not easy to differentiate between objectives and the mission. As a general rule and something I would recommend to everyone, is that objectives should always be a list of to does, like to achieve, to establish, to implement, to serve and so on. The mission, on the other hand, should be just a few salient statements along the lines of ”Our mission is to keep alive the Hungarian aviation culture and reinvigorate air travel to and from Hungary through an efficient, competitive and profitable airline that can grow to be counted among the best in the industry.”
The section on keys to success is a list showing which business, organizational, technical and so on solutions we are planning to use to ensure success. If you have a lot of these in the main part, they should not all be repeated here. Just pick the first three or five most important ones. The evaluators will find the others don’t worry.
Among the keys to success, the bits that are there to ensure that the mistakes of the past are not repeated should always be clearly visible. Remember: a spade is a spade and politics have no place in a business plan.
COMPANY SUMMARY
This is the place to give a general but compact description of the proposed company’s roots, the experience being built on, the structure, eventually what other enterprise is involved, where and in what form it will be registered. Involvement of other companies or organizations may also be mentioned here together with why this is advantageous.
Mention for sure if activities outside the core business are also being planned, these would include handling and maintenance, to mention but two.
If the new airline will be part of an existing company, a description of the synergies is essential.
The legal form of the company must be described, with due attention to aspects relevant to the European Union and outside the EU. Arguments for the selected form must be given including explanation of what negative aspects the given form helps to mitigate. Do not forget to mention what kind of rights the new airline expects to have in respect of flying under bi-lateral air service agreements.
COMPANY OWNERSHIP
The ownership structure must be shown here, in as much as this is known and can be revealed. Keep in mind that the nationality of the owners can be a big deal in some countries, including the US!
START-UP SUMMARY
You write up here all costs and funding requirements to cover the start up costs. It is essential that the contents cover, at least on the level of categories, all types of costs and that these are realistic. Not too high and not too low… It is also important to show how the start-up costs will be kept at the lowest possible level.
COMPANY AND FACILITY LOCATIONS
Since we keep thinking about a national airline, this is a touchy subject. If you have read my previous articles, you will remember that I said many times that they do not give you kerosene in exchange for national feelings or pride and this remains true also in respect of the business plan. Obviously, the new venture is expected to base itself and its various facilities at the location that results in the least overall cost and also the lowest tax rate while still allowing the company to meet its objectives and mission. Wanting to have a low tax rate and low costs is not something invented by the devil or anti-patriotic. This is good, common business sense. It is also something expected by the investors. So, whether you decide to base the new airline in Budapest or Timbuktu, with maintenance outsourced to Chine or done in house, a very good explanation needs to be given for the decision. If a decision is based on the right arguments, it is a good decision so do not be afraid to state it. But the arguments must be the right ones… for the company that is and not for outside interests.
SERVICES
What kind of services are we planning to provide? Passenger? Cargo? Both? On the same aircraft or on dedicated ones, eventually quick-change overnight transport? It is vital to show what kind of innovative service formulas we are bringing to the market and why we think these will be a success. Prove to the investors that people will want to use us and not anybody else…
What is the competition and what are we doing to be better than the competition?
This is a good place again to show why our costs will be lower than those of the competing companies and how we may cooperate with others, including alliances, to our benefit.
Once we have made clear the kind of services we will provide, it is time to describe how the most suitable aircraft types will be selected and how they will be procured (purchase or lease).
TECHNOLOGY
We live in a technological age and aviation is an early adopter of new technology but is also very conservative when it comes to equipping aircraft with new capabilities. Of course technology can bring competitive advantages, including reduced costs and hence a description of what is planned in terms of technology use must be seen as an essential element of the business plan.
Wide use of advanced technology does involve slightly higher start-up costs but these are normally more than offset by the reduced costs and other advantages resulting from technology use. This relationship and the net gain for the company must be properly demonstrated so that the start-up cost upward delta is seen as justified.
The word technology must be understood here to mean everything that is not organizational or financial. As such it includes lighter seats and aircraft interiors, IFE system, cockpit equipage especially in terms of air traffic management capabilities, reservations and check-in system, internal accounting system, crew rostering and duty time registration and so on. The aim must be to show how technology will be used to minimize costs while maximizing the service to the customer.
MARKET ANALYSIS SUMMARY
This is an honest appraisal of the market in which the new airline will be operating supplemented by an explanation how the service planned to be provided fits into that market or parts thereof. This is a part where dreaming has no place. You cannot dream a market to a place where it does not exist. The number of tourists to Hungary is not what people would like to see coming but how many actually will come. Phantoms do not normally buy airline tickets…
If there are plans for creating a new market by introducing a new service, this has to be explained here. The reasoning must be clear and valid and it is a good idea to also talk about why nobody else had done the same thing before us.
COMPETITION ANALYSIS
Show clearly who the main competitors are, what their commercial position is and what is their most likely future (consolidation, go out of business, new services, etc.). Do not talk about what you are hoping for but what is likely to happen.
STRATEGY AND IMPLEMENTATION SUMMARY
In the MARKETING STRATEGY you will describe how BlueSky Air will distinguish itself visually from the competition, which specific characteristics it will use to show that it is a better company than the rest. The extensive use of new technologies can be a strong selling point but it may also be important to keep a low profile, trusted local airline image for those markets where clients are traditional rather than tech savvy. The marketing strategy must ensure that in some respects, like safety for instance, the image of the airline is the same for everyone while in other respects each customer sees an airline they can relate to and like. The marketing solutions aimed at achieving this and other objectives need to be described here.
In the PRICING STRATEGY comes the fare-structure with an explanation of every aspect of it. Show a comparison of this fare structure with those of the competition and prove that ours is more advantageous. It is a good idea to indicate what our strategy is likely to be if the competition starts a fare-war.
The PROMOTION STRATEGY, as its name says, will detail where and in what form will the new company appear and what means of publicity will be used. Since in all likelihood we will have said already in the technology part that the new airline will be accessible and visible mainly on the internet (but with ads also on other media), the promotion strategy is also likely to focus primarily on the web. A good description of the look and feel and functions of the company web-site will also be in this section.
In the SALES STRATEGY a description will be given on the plans for selling the airline’s products (individual seats, package deals, vacations, etc.).
The SALES FORECAST will show the planned sales activity. Once again, being conservative rather than overly optimistic is probably the better approach.
MILESTONES
Milestones are a list of important stations on the timeline of creating the airline, with each milestone having an associated target date, costs and responsible person and organization. The target date may be a simple calendar date if known or the number of elapsed days since project start. It is a good idea to explain why a certain target date is important whether as starting or completion date (for instance to be synchronized with the start of a schedule period).
MANAGEMENT SUMMARY
This is a particularly important part for the investors. It is here that we will prove to them that we will be hiring the best executive and operations talent in the industry but also that we will be realizing a work organization that requires the lowest number of employees per available seat-mile yet delivers the service that meets the objectives.
The organizational structure will be described here, including the composition of the management team being careful to highlight how the ratio of management and operational personnel tips the scale towards these latter.
The PERSONNEL PLAN must show how all the new technology we have adopted helps in minimizing personnel costs.
FINANCIAL PLAN
The financial figures, calculations, assumptions contained in this part are of vital importance and must be conservative but as accurate as possible.
When working on the financial plan, always keep in mind that you are creating the basic figures that will demonstrate the viability of the new airline. Or not… but both eventualities are of great importance.
This is where we face the ultimate truth: an aircraft is a very sophisticated business tool and the crew is a set of professionals who are entrusted with operating that tool safely and efficiently. Not very glamorous but this is the way financiers see the world. And we better talk their language…
In the IMPORTANT ASSUMPTIONS part we will list the items which form the basis of all the calculations. Income, assets, costs, revenue, you name it. Things like the likely evolution of the price of fuel require input from experts that make a living from guessing such things… By the time we get to this part of the Business Plan we will have a fairly accurate idea of where we will be flying and hence can make solid assumptions about navigation and other charges. There is no point in trying to make a financial plan before all the operational details are known… for obvious reasons.
This list can be quite lengthy and there may be several of them, covering different options, like leased or purchased aircraft scenarios.
The financial plan will also contain the key financial indicators, a break-even analysis, profit and loss projections, cash flow prediction and projected balance. A table of business ratios will also be included.
The point? To show beyond a shadow of a doubt that if the assumptions pan out, the venture will be profitable within a reasonable timeframe. What is reasonable? Your investors will tell you…
APPENDICES
The Business Plan appendices typically contain a copy of all the tables found in the main part to help analysts review things to their heart’s content.
Well, this is it then. Simple, isn’t it?
