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AIR BLUE
Presented by:
The AirBlue management had planned eight workshops, four in Karachi, two in Lahore and two in twin cities of Rawalpindi and Islamabad. The objective of these workshops is to build understanding among all stakeholders of the airline. AirBlue leased ex-Thomas Cook Belgium A320 (394) with V2500s from Jetscape for startup [three-time daily KarachiLahore/-Islamabad] in late April. It expects later to add service to the Middle East and Asia Pacific. Pakistan's most modern domestic airline AirBlue has introduced its latest and innovative web based e-technology to members of the Travel Agents Association of Pakistan [TAAP] in Islamabad of late. A large number of travel agents eager to get acquainted with the airline's online superior reservations services attended the full-day workshop, which was facilitated by Syed Nasir Ali, Director Commercial, Zahid Saleem Khan, Regional Head TAAP [Rawalpindi Chapter] Armaan Yahya, District Manager Islamabad/Rawalpindi and Ms. Sadaf Ali, Manager Systems Support and Ticketing of the AirBlue. Infrastructure plans include some of the most technologically advanced aircraft in the world, featuring next-generation reservations, cheek-in, security and service. It is a public limited company, soon to be on the Karachi Stock Exchange. With Rs 6.0 billion infrastructure infusion in the aviation industry, the airline is the first to introducecommerce in the Indo-Pak history. The air transport sector of Pakistan would also get a boost from newly developed Port of Gwadar in the Balochistan province. The development of the Gwadar Port, the third deep sea port of the country and the first of Balochistan, would serve as a link with the Central Asian States. The government decided to upgrade the Gwadar International Airport at a cost of 480 million rupees last year. Once upgraded, the airport will be able to handle wide-body aircraft such as Airbus and Boeing 747 aircraft. Similarly, the construction for the new runway of Sialkot International Airport was in full swing in May last year. The airport expansion would cost Rs 1.57 billion and is spread over 1007 acres and the project is expected to be finished in 27 months. It would be able to accommodate wide-body aircraft such as Boeing 747 and 777. The BOO project is the first in the country of this magnitude and once completed would not only help facilitate the export from Sialkot, dubbed the export city of the country, but also to such important industrial centres as Gujranwala, Wazirabad, Narowal and Gujrat. The new Lahore Airport, the Allama Iqbal International, & its terminal building was opened for domestic and international traffic on 17 March last year. The 10.3 billion rupee project can now handle 6.5 million passengers a year to accommodate the growing passenger traffic until 2015.
Corporate Profile:
Air Blues overview of who we are, what we do, and how we have become the most preferred airline in the industry.
Our Vision:
The Vision of the Air Blue To build together the first choice airline and global alliance network with the best people; each committed to exceeding our customers' expectations every day.
profitability and shareholder value. This is key to each employee because job security and prosperity are only guaranteed if we are financially successful. To do this we will execute strategies to improve performance, increase productivity, grow revenues, identify high potential areas for expansion, and strengthen our balance sheet by controlling the cost of doing business. We will continue to improve facilities in all service areas and make the investments necessary to execute the Checklist. Significant improvements are underway to the terminals and runway systems of Air Blue hub airports.
Mission Statement:
Mission Statement of Air Blue: Air blue, 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 what so ever. We will strive to operate our flights on time. We will provide friendly and courteous "no frill" service.
Guiding Principles:
Guiding Principles of Air Blue: According to the mission statement of air blue the guiding principles establish the framework. All the guiding principles of air blue represent the: Organization value system. The foundation of its corporate culture. The following principles of air blue air line are as follows: Customer satisfaction is the highest priority. Uphold the highest ethical standards in all of its operations. All stake holders will be treated as partners. Continual improvement in services.
Main Competitors of Air Blue: There are main three competitors of the Air Blue as follows. Pakistan Airline .(PIA) Shaheen Airline. Aero Asia Airline. Distribution Patterns of Air Blue: A large number of travel agents eager to get acquainted with the airline's online superior reservations services attended the full-day workshop, which was facilitated by Syed Nasir Ali, Director Commercial, Zahid Saleem Khan, Regional Head TAAP [Rawalpindi Chapter] Armaan Yahya, District Manager Islamabad/Rawalpindi and Ms. Sadaf Ali, Manager Systems Support and Ticketing of the AirBlue.
Weaknesses:
These are the following weaknesses define the internal situation of air blue. Obsolete facilities. Too narrow a product line. Poor image in the market place. Weak distribution system. Customer awareness.
Opportunities:
These are the following opportunities define the external situation of air blue. Availability of new customers. Removal of barriers that inhibit growth. New online technology that enhance the quality.
Threats:
Entry of lower cost competitors. Entry of higher quality competitors. Significant slowdown in market growth. Changing tastes and habits of consumers.
Mansoor Cs Model
Corporate: Core Competencies They have taken Air Blue from conception to execution in 18 months. Air blue A320 is one of the most fuel efficient air craft in the air line today. High experienced staff like Shahid Khaqan abbasi and captain helix man with experience and expertise. Culture High experience staff. We have currently 21 pilots they are very well experienced having 10008000 flying ---- to their credit. Motivation level is increase through good compensation package. Coordination In Air Blue there is an effective communication between one person and another one person. Team or a unit level communication is much better as compared to the other airlines. Meeting involvement of different departments in air blue create a effective communication. In air blue the group level communication is more then as compared to other airlines. There is no bad communication climate in air blue airline. There is no doubts and confusion between managers and staff. In air blue the operation manager does not ignore the good ideas of our staff.
There is no communication gap between managers and staff. The operation manager of airblue encourages the crue creativity. For creating a effective communication climate the operation manager breafing our staff every week. The operation managers in airblue understand the problems of our staff. With the help of training programs the listening power of air blue staff is better as compared to other airlines There is no lack of concentration between managers and staff. There is not interruptions create in listening the message. The air blue staff perceive the message accurately. There is no interference between staff. In airblue communication take place almost at entry level. There should be no difference in meaning of sender and receiver and it is possible here all members are skillful and professional.
Competition: Comparison Comparison among the competitors (PIA, Shaheen Airline, Areo Asia Airline) Cost Vise. Reservation Vise. Contrasts A 320 is one of the most fuel efficient air crafts. Check in system. Entertainment system. New generation glass cock pit aircrafts. Universal access number. E-ticketing system. Conditions Company is working in high competitive environment because new entrance come in these days. Companionship United States and France are sponsors of this project and mergin , Joint ventures. Consumer: Contacts E-ticketing system. Universal access number. Web sites & regional offices. Confidence Air blue is successful in creating the perception as a quality airline in a short span of time among the masses. Communication
Take action an the reports to improve quality. Comments card. Personally visited airports and listed to people talking with one an other.
Continuity Continuity is maintained through highly information technology system. E-ticketing and online reservation. Creativity: Change Fuel efficient air craft for the international flats. Management communication network are very effectively and efficiently. Commitment They personally visited the airports and listed to people. Community Provide good relation with customers, stakeholders and government. Convenience Customer convenience through online reservation system. Catastrophes: Certainty New competitors (Itehad Airline, Royal Airline) Existing Rivalry (PIA, Shaheen Airline, Areo Asia Airline) Challenges Fuel price Government Policies. New entrance. Clarity Vision and Mission should be clear. Objectives and plans should be clear. Control Management level control our employees. Cost minimization. Less fairs with the help of discounted features. Control new entrance.
Porters Forces Model: Bargaing Power of Suppliers (Accessories, food, printing material, office requirements. Fuel PSO,Shell Total, Caltex )
Existing Rivalry Among competitors (PIA) Bargaing Power of customers (customer services) (E-ticketing 50% off)
Promotion will be primarily outdoor advertising, radio and TV targeted at the Air Blue 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 Rupees 16.5 million. Past experience with Private Jet has demonstrated that this expenditure is sufficient to launch airline service in a single hub. Distribution Strategy of Air Blue: In addition to other marketing programs outlined the company will also market via the locally and World Wide Web. We will establish our own website with reservation, purchase, and payment capability. You can purchase tickets from web site (www.airblue.com). The system knows you have traveled, from the data that is feed into the system at the time of boarding. It immediately credits the passenger. It is the very successful frequent flier program. That whole procedure is called E-ticketing. Sales Strategy of Air Blue: In order to attract the Air Blue business traveler without the use of frequent flyer miles, the company will make direct sales contacts with the travel departments of Air Blue based corporations and businesses. It is expected that our cost structure will be attractive to these businesses. Air Blue is now the second number in the Pakistan and the Air Blue area economy in general is growing faster that the national average. We expect business travel to amount to at least 50% of our over-all revenue.
The sales personnel and salaries required to execute the direct sales strategy are included in these projections.
Fifty Percent Off: AirBlue is the first-ever airline of Pakistan which has offered 50% Off to the travelers on the eve of its clutching skieswith effect from Friday. This concession shall remain intact for a specific period and subject to certain conditions to facilitate those who cant afford voyage by airexclusively the middle class.
Credible sources say that a special package is also in the offing by AirBlue for celebrated professionals and senior citizens of Pakistan. The airline had simultaneously entered into agreements with Airbus, a dazzling carrier, being manufactured by France.
Sales Forecast of Air Blue: The company is forecasting annual sales in year one of flight operations at Rupees 50 million. Year two of flight operations will reach 125 million. Assumptions made for load factors are: 55% in year one, 62% in year two. The year two numbers are based upon adding more flights and more airplanes to the routes already served. This will enable us to maximize profits within the market we have created without incurring the additional expense of opening new markets. It also allows for more controlled growth and eliminates the risks, early on, of the loss of control of operational procedures that can occur either with de-centralization or growth that is too rapid. The basis of the sales projections illustrated in the table below have been outlined in the "Market Analysis" section of this plan. The company has also prepared five-year projections that are based upon expanded service to additional market areas. This five year plan is a part of our due diligence package. Direct costs of sales are not included here but are instead reflected as a revenue discount in the projected P&L statement. These sales costs consist of travel agent commissions, credit card discounts, and federal excise taxes.
Sales Forecast Sales Sales 2003 Rs0 2004 Rs50,000 2005 Rs125000
Other Total Sales Direct Cost of Sales Sales Other Subtotal Direct Cost of Sales Milestones of Air Blue:
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 2003 is the ideal time both to invest and to start an airline.
Financial Plan:
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. Important Assumptions: The financial plan depends on important assumptions, most of which are shown in the following table. They key underlying assumptions are: 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.
General Assumptions 2003 Plan Month Current Interest Rate Long-term Interest Rate Tax Rate Other 1 0.00% 0.00% 32.75% 0 2004 2 0.00% 0.00% 33.00% 0 2005 3 0.00% 0.00% 32.75% 0
Key Financial Indicators of Air Blue: In the Air Blue 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. Break-even Analysis of Air Blue: When we take out all operational costs for flying aircraft and include only fixed overhead and aircraft leases the company can break even on the first six airplanes by maintaining sales just over Rs2 million per month or approximately Rs24 million in year one. This is less than 25% of our expected sales forecast but it indicates that the company could survive without adding planes and routes for an indeterminate period with load factors of less than 15%. Break-even Analysis: Monthly Units Break-even Monthly Revenue Break-even Assumptions: RS RS
Average Per-Unit Revenue Average Per-Unit Variable Cost Estimated Monthly Fixed Cost
Rs Rs Rs
Projected Profit and Loss of Air Blue: 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 Rs 10 million in profit in the second operational year.
Pro Forma Profit and Loss FY 2003 Sales Direct Cost of Sales Subtractions Total Cost of Sales Gross Margin Gross Margin % Expenses: Payroll Sales and Marketing and Other Expenses Depreciation Leased Equipment Rent and Utilities Other Rent Payroll Taxes Other Rs0 Rs0 Rs0 Rs0 Rs0 Rs0 Rs0 Rs0 Rs0 Rs8,511 Rs82,353 Rs0 Rs0 Rs701 Rs0 Rs0 Rs2,128 Rs0 Rs11,138 Rs141,659 Rs0 Rs0 Rs701 Rs0 Rs0 Rs2,785 Rs0 Rs0 Rs0 Rs0 -----------Rs0 Rs0 0.00% FY 2004 Rs110,000 Rs0 Rs14,300 -----------Rs14,300 Rs95,700 87.00% FY 2005 Rs216,925 Rs0 Rs28,200 -----------Rs28,200 Rs188,725 87.00%
-----------Total Operating Expenses Profit Before Interest and Taxes Interest Expense Taxes Incurred Net Profit Net Profit/Sales Rs0 Rs0 Rs0 RS0 Rs0 0.00%
This business plan cash flows positively from the initial infusion of approx. Rs14 million and forward. It will continue to produce cash as long as sales targets are met. Borrowing may only be required if seasonal fluctuations occur or if expansion plans are further accelerated.
Pro Forma Cash Flow FY 2003 Cash Received Cash from Operations: Cash Sales Cash from Receivables Subtotal Cash from Operations Additional Cash Received Sales Tax, VAT, Rs0 Rs0 Rs0 Rs0 Rs0 Rs0 Rs110,000 Rs0 Rs110,000 Rs216,925 Rs0 Rs216,925 FY 2004 FY 2005
HST/GST Received New Current Borrowing New Other Liabilities (interest-free) New Long-term Liabilities Sales of Other Current Assets Sales of Long-term Assets New Investment Received Subtotal Cash Received Expenditures Expenditures from Operations: Cash Spending Payment of Accounts Payable Subtotal Spent on Operations Additional Cash Spent Sales Tax, VAT, HST/GST Paid Out Principal Repayment of Current Borrowing Other Liabilities Rs0 Rs0 Rs0 Rs0 Rs0 Rs0 Rs0 Rs0 Rs0 Rs0 Rs415 Rs415 Rs0 Rs108,655 Rs108,655 Rs0 Rs195,107 Rs195,107 Rs0 Rs0 Rs0 Rs0 Rs0 Rs13,850 Rs13,850 Rs0 Rs0 Rs0 Rs0 Rs0 Rs0 Rs110,000 Rs0 Rs0 Rs0 Rs0 Rs0 Rs0 Rs216,925
FY 2003
FY 2004
FY 2005
Principal Repayment Long-term Liabilities Principal Repayment Purchase Other Current Assets Purchase Long-term Assets Dividends Subtotal Cash Spent Net Cash Flow Cash Balance Rs0 Rs0 Rs0 Rs0 Rs0 Rs13,435 Rs13,435 Rs0 Rs0 Rs0 Rs0 Rs108,655 Rs1,345 Rs14,780 Rs0 Rs0 Rs0 Rs0 Rs195,107 Rs21,818 Rs36,597
Problems:
Air Blue is a great new airline in the Pakistan. It is very stylish, very technological and very customer oriented. Prospects of investment in the international aviation industry are low after the unfortunate events of September 11. Aside from terrorism issue also. Another big problem is the cost of fuel is very high. When Air Blue made cost structure, the price of fuel was less then what it is now. New clue of high fuel prices the airline is facing much problems. Because we all are well familiar with the concept of fuel. It prices of fuel are high every things because changed it effects all the strategies, planning etc. It many result in increase in fare and may decrease in services also, but as in this competitive world we cant afford these things. Government Policies, Governments intervention of main ----- socio- economic routes is fine. However the requirements does create difficulties no -------- afford to fly 30 to 40 people on a 737 and -------- with few passengers. Government has suggested operating smaller aircraft is a big expenditure. Government of Pakistan has a policy that domestic ---------- cant fly international routes for the first 12 months. This is disadvantage for us. We safer loss in revenue due to his government policy. There are some issues related to infrastructure. There is issue with getting A 320 pilots getting signed off by airbus. There are departure delays due to external reasons. Check pilots signing off our own crews created some delays. There are some weather delays as well as delays due to Government VIP arrivals.
Suggestions:
Very first problem of September 11 and terrorism are technological system and as well as over security system should be so effective so that we may minimize this problem. As we know prices of fuel affects all the activities and operations. We suggest there must be contingency plan for that and customer must be look in confidence because it is a unplanned activity and effects customer loyalty. first problem is socio economic routes. It must be solved with proper negotiation with Government because it is difficult to maintain two air crafts. If the Government concern is safely to restrict domestic air line not to fly international before 12 months. The safety concern is met through aircraft operation certification. Wait time should be reduced from 12 months. In the last must be proper hiring and training must increase motivation level for employees. Delays must be carefully scheduled. Contingency plans are necessary of new happening. Air line may take off few minutes earlier.