Business Plan : The Exercise
• Your team must start a new airline
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Based in Vietnam
With the ambition to expand in Vietnam and South East Asia and
eventually abroad
• You have to build the Business Plan
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For the period 2004-2013
• Strategig Goals are
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Sustainable growth
Long term value creation
• Results
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Excel model
Powerpoint presentation
Vietnam Master in Management – HCMC dec 2003
Exercise
Business Plan : The Exercise
• Basic Assumptions are given by the professor
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Capex (cost and charachteristics of the planes)
Market (global evolution and for each market)
Network (possible network)
Other Costs
• Market reactions to your decisions
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You decide on price, frequencies, quality spendings
Market reactions are calculated in a specific Excel Sheet
• Given by the professor
• Protected (formula are hidden)
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Principles of the market reaction are explained
Details are not known
Vietnam Master in Management – HCMC dec 2003
Exercise
Assumptions
The Planes
• Sole tangible capex : the planes
• Purchase price are given
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Depreciation : 20 years linear
• Operating expenses
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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 »
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Maximum : 10/day (short haul) & 14/day (long haul)
Vietnam Master in Management – HCMC dec 2003
Exercise
Assumptions
The Network and The Market
• Possible routes
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From Saigon
• 5 routes in Vietnam
• 8 routes in SEA
• 2 long haul routes
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From Hanoi
• 5 routes in Vietnam
• 8 routes in SEA
• 2 long haul routes
• Yearly growth (2004-2013)
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For each route
• Competition
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The number of competitors varies
• 1, 2 or 3 competitors
Vietnam Master in Management – HCMC dec 2003
Exercise
Assumptions
Advertising and Sale costs
• You need to advertise
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You need to invest 1 MioUS$/year + 4% of turn-over to
maintain market share
If you invest 1% more or less of your turnover your market
share will win/loose 1%
• It is useless to invest more than 8% of the turnover
• Sale Channels
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Agent : fee of 8% of sale price
Internet sale : cost of 1% of the sale price
To develop Internet sale capex are necessary
• if no capex : 0%
• To have 100% Internet Sale capex of 50 Mio US$ (once)
• You can invest progressively
Vietnam Master in Management – HCMC dec 2003
Exercise
Assumptions
Price, Service and Market Share
• If you make the same price as competitors you will get
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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
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More market share
• Approximately 1% more if you reduce the price by 1%
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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
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More market share
A larger percentage of business customers
Vietnam Master in Management – HCMC dec 2003
Exercise
Assumptions
Personnel and Catering costs
• Wages : to be discussed with students
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Pilot cost / year
Steward cost / year
• Fuel : 0,7 US$/gallon (increase by 2%/year)
• Catering
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Short haul
• 4 US$/pax economy
• 12 US$/pax business
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Long haul
• 20 US$/pax economy
• 60 US$/pax business
Vietnam Master in Management – HCMC dec 2003
Exercise
Assumptions
Other costs
• Quality
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Quality spending is defined as a percentage of turnover
By investing more in quality you can increase market share
By investing more in quality you can increase percentage of
business customers
• Overhead
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Fixed
• 2 Mio US$ in 2004
• 3 Mio US$ after 2004
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Variable
• 1 US$/pax short haul
• 3 US$/pax long haul
• Tax rate of 32% (Vietnam standard rate)
Vietnam Master in Management – HCMC dec 2003
Exercise
Assumptions on routes and
planes
• Excel Sheet gives all details
Vietnam Master in Management – HCMC dec 2003
Exercise
Financial resources
• Equity
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Commitment by the shareholders : Maximum 100 MioUS$
You don’t need to get all the capital immediately
• Debt
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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%
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If leverage D/E is higher than 3
• interest rate is increased by 1%
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If leverage D/E is higher than 4
• interest rate is increased by 3%
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D/E may not be higher than 5
Vietnam Master in Management – HCMC dec 2003
Exercise