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Business Plan : The Exercise

Business Plan : The Exercise. Your team must start a new airline Based in Vietnam With the ambition to expand in Vietnam and South East Asia and eventually abroad You have to build the Business Plan For the period 2004-2013 Strategig Goals are Sustainable growth Long term value creation

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Business Plan : The Exercise

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  1. Business Plan : The Exercise • Your team must start a new airline • Based in Vietnam • With the ambition to expand in Vietnam and South East Asia and eventually abroad • You have to build the Business Plan • For the period 2004-2013 • Strategig Goals are • Sustainable growth • Long term value creation • Results • Excel model • Powerpoint presentation

  2. Business Plan : The Exercise • Basic Assumptions are given by the professor • Capex (cost and charachteristics of the planes) • Market (global evolution and for each market) • Network (possible network) • Other Costs • Market reactions to your decisions • You decide on price, frequencies, quality spendings • Market reactions are calculated in a specific Excel Sheet • Given by the professor • Protected (formula are hidden) • Principles of the market reaction are explained • Details are not known

  3. AssumptionsThe Planes • Sole tangible capex : the planes • Purchase price are given • Depreciation : 20 years linear • Operating expenses • 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 » • Maximum : 10/day (short haul) & 14/day (long haul)

  4. AssumptionsThe Network and The Market • Possible routes • From Saigon • 5 routes in Vietnam • 8 routes in SEA • 2 long haul routes • From Hanoi • 5 routes in Vietnam • 8 routes in SEA • 2 long haul routes • Yearly growth (2004-2013) • For each route • Competition • The number of competitors varies • 1, 2 or 3 competitors

  5. AssumptionsAdvertising and Sale costs • You need to advertise • You need to invest 1 MioUS$/year + 4% of turn-over to maintain market share • If you invest 1% more or less of your turnover your market share will win/loose 1% • It is useless to invest more than 8% of the turnover • Sale Channels • Agent : fee of 8% of sale price • Internet sale : cost of 1% of the sale price • To develop Internet sale capex are necessary • if no capex : 0% • To have 100% Internet Sale capex of 50 Mio US$ (once) • You can invest progressively

  6. AssumptionsPrice, Service and Market Share • If you make the same price as competitors you will get • 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 • More market share • Approximately 1% more if you reduce the price by 1% • 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 • More market share • A larger percentage of business customers

  7. AssumptionsPersonnel and Catering costs • Wages : to be discussed with students • Pilot cost / year • Steward cost / year • Fuel : 0,7 US$/gallon (increase by 2%/year) • Catering • Short haul • 4 US$/pax economy • 12 US$/pax business • Long haul • 20 US$/pax economy • 60 US$/pax business

  8. AssumptionsOther costs • Quality • 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 • Fixed • 2 Mio US$ in 2004 • 3 Mio US$ after 2004 • Variable • 1 US$/pax short haul • 3 US$/pax long haul • Tax rate of 32% (Vietnam standard rate)

  9. Assumptions on routes and planes • Excel Sheet gives all details

  10. Financial resources • Equity • Commitment by the shareholders : Maximum 100 MioUS$ • You don’t need to get all the capital immediately • Debt • 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% • If leverage D/E is higher than 3 • interest rate is increased by 1% • If leverage D/E is higher than 4 • interest rate is increased by 3% • D/E may not be higher than 5

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