Emirates Airlines Planning and Management - Case Study Example

Airline Planning and Management Name: Tutor: Course: Date: Emiretus Airlines Business Plan Emiretus Airlines (ER) is a Greek airline intending to start its return flight operations from United Kingdom to Switzerland. The flight operations will be between London City airport and Zurich airport. The aim of this business plan is to help the company arrive at a decision to begin planned operations based on market research of customers, competitors and service providers (airports). 1. Background to the Market and Existing Services London City airport is located in London with a longitude GMT+1. The city is served by other airports like Heathrow, Stansted, Gatwick, Southend and Luton. The airport has one terminal and provides an estimated 3.2 million passengers with flight services to more than 30 destinations. Surface transportation is linked by trains, taxis, coaches and car hires. There is a range of parking options. Zurich airport has a new parking garage, automated underground train linking a midfield terminal to a main terminal. The airport handles an estimated 25 million passengers annually. The two airports have facilities for business travelers, children and the disabled. The schedule for flights between September 16th and 22nd 2013 is as shown below; From London City Airport (LCY) to Zurich Airport (ZRH); 480m/s; 772km; GMT+2 Day of the Week Departure Arrival Airline MTWT*** 0700 0930 *BA8763 MTWT*** 0700 0930 *AB5095 MTWTF** 0955 1240 *LX461 MTWTF** 1245 1525 *LX457 MTWTF** 1255 1525 *BA8765 MTWTF** 1255 1525 *AB5097 MTWTF** 1550 1825 *BA8767 MTWTF** 1550 1825 *AB5099 MTWTF** 1710 1950 *LX465 MTWTF** 1835 2110 *BA8769 MTWTF** 1835 2110 *AB5101 From Zurich Airport (ZRH) to London City Airport (LCY); 480m/s; 772km; GMT+1 Day of the Week Departure Arrival Airline MTWT*** 0745 0825 *BA8760 MTWTF** 0745 0825 *AB5094 MTWT*** 1005 1040 *BA8764 MTWT*** 1005 1040 *AB5096 MTWTF** 1135 1210 *LX456 MTWTF** 1600 1640 *LX464 MTWTF** 1705 1740 *BA8766 MTWTF** 1705 1740 *AB5098 MTWTF** 1910 1945 *BA8768 MTWTF** 1910 1945 *AB5100 **WTF** 2040 2115 *LX462 Airlines and Fares (including taxes and charges for a round-trip journey) Airline Economy Premium Economy Business Class First class British Airways £178 £240 £590 £667 Air Berlin £183 £292 £476 £536 Swiss £173 £281 £478 £539 2. Choice of Airport London City Airport serves an estimated 3.2 million passengers annually with majority business travelers flying into and out of London. It has one passenger terminal where about 15 airlines fly to more than 25 destinations hence connecting London’s business community to the major European capitals. One can also view the heart of London when approaching the city. It is also 22 minutes drive to major financial services in middle of the town. The general rule for European flights is that passengers should check in two hours before departure. Boarding normally begins in about 45 minutes before departure at the airport. The EU a decade ago reduced restrictions on flight competition by introducing budget airlines forcing the traditional airlines to lower their prices. The airport is undertaking major infrastructural changes to increase the number of flights by 2016 and introduce bigger aircrafts like Bombardier C-Series (110 to 130 seats) for medium haul destinations. The government inspection team in the 80s had restricted the noisy jets and advised on quiet turbo-props. The airport approves aircrafts that meets specific noise criteria and the capability of approaching at 5.5 degrees or steeper. It prohibits vertical take-off, helicopters, single-engined aircrafts and landing (VTOL) aircraft. Aircrafts flying for leisure or club purposes are also prohibited. The Airport control and operations department approves the following aircrafts; EMB 135/170/190 Avro RJ’s DH-8 Q100,200,300,400 F50/70 ATR42/72 S2000 D328 The airport has a single runway with a length of 1199 meters with dual ILS allowing for operations in either direction. The runway capacity is 38 movements per hour with peak of 2 hours morning/evening. It has 18 stands and annual capacity of 120,000 movements. The runway is operational from 0630 to 2200 on Monday to Friday, 0630 to 1230 on Saturday and 1230 to 2200 on Sunday. 3. Estimated Passenger Numbers Using the moving weighted average with factors n=3; factors 0.6, 0.3 and 0.1 for 2014 forecasts. The data is based on international passenger flights to one direction. 2011 2012 2013 2014 Forecast HEATHROW 63686647 65007721 64479295 64558556 GATWICK 28433115 30104072 29435689 29535947 LUTON 8452966 8580611 8529553 8537212 STANSTED 16790765 16412935 16564067 16541397 SOUTHEND 39557 489119 309294 336268 LONDON CITY 2257730 2274829 2267989 2269015 Domestic flights forecast for 2014 2011 2012 2013 2014 Forecast HEATHROW 4703671 4726218 4717199 4718552 GATWICK 3721797 3820509 3781024 3786947 LUTON 587943 590818 589668 58984 STANSTED 1449453 1203424 1301836 1287074 SOUTHEND 2863 127671 77748 85236 LONDON CITY 1047931 1022297 1032550 1031013 Passenger statistics on London airports flights to Zurich 2011 2012 2013 2014 Forecast GATWICK 162567 176122 170700 171513 HEATHROW 958247 1011799 990378 993591 LONDON CITY 393091 418916 408586 410136 LUTON 102758 96744 99150 98789 SOUTHEND 0 2666 1600 1760 STANSTED 471 162 286 267 Market Share London City airport has a market share of 9% for regional and domestic flights 4. Choice of Aircraft Emiretus airlines will choose an aircraft that is compliant with the airport control and operations department of London City airport. The company will start with two aircrafts namely; 1. Avro RJ100 with 97 seats at 5 abreast: This will be suitable for London City airport with short runway of 1199 meters. The ‘Jumbolino’ has wide cross section fuselage and spacious cabin for the four jet engine. It has low noise emission which is desirable by families and residents living on the fly paths of London City. The plane has 40 seats in the Business Class C and 57 seats for the Economy Class Y. The technical details of the plane are; Engines-LF 507-1F, Thrust per engine-3’181kg, Span-26.34 m, Length-31.00m, Height-8.59m, Crew-2/2, Payload-11.7tons, Maximum takeoff and landing weight-44 tons and 40 tons respectively. Maximum range with full payload is 3000km. The middle seats have removable armrests while the rear seats have restricted recline. 2. Embraer 170 with 80 passenger seat market: The Jet is currently operated by more than 15 airlines. The flight deck crew has 2 pilots. It is the average of all the Prop planes and Jet Jets. The engine type is GE CF34-8E, 2×14200lb. It can fly for up to 2,100 nautical miles. Length-30m, Wingspan-26m, height-9.8m, max takeoff weight-36 tons, max landing weight-32.8 tons, payload-8.9 tons and fuel capacity of 11840 litres. Its cruise speed is 890 km/h and its landing field length is 1160m. 5. Product/Service Features Emiretus airlines will provide world class services to its potential customers. The company is positioned as a quality airline and will operate flights via Zurich and later to regional airports of Geneva and Basel. The airline will embody in-depth quality, personal service and excellent hospitality. The company will have its contacts offices in Wallock building, Bond Street, Central London. The offices will also double up as booking as well as a call centre to respond to customer queries and complaints. The airline will have the economy, premium economy and first class services with different classes of fares. Economy The economy class constitutes live-flat bed with all personal space and privacy, efficient service and 3 ingredients of delicious meals, London finest Wines and Cuisines and other culinary pleasures to premium economy experience. The crew will be dedicated to serve and satisfy all the customers. In-flight entertainment will consist of 10” touch screen LCD TV, business news and TV shows Premiere The premiere class will have a hammock headrest, unique foot net and reading light situated at the back of the seat. There will be a 15 inch touch screen that plays music and movies from Jukebox. It offers the finest Wines and Champagnes. First Class First class will offer adequate space, 5-course meals, lovely award-winning cuisine, dual sliding doors, lighting system of night sky mood and 23” flat screen TV entertainment and live text news. The airline will provide a website to allow for online ticketing, on ground services, in-flight experiences, special assistance, passenger information and cargo security and tracking. The airline will also provide information regarding flight booking online, ticketing and online payments. The schedule will also be available alongside a destination and travel guide to Switzerland. The office will have a database of hotels and chauffeurs to popular sites in Zurich. Special offers will not be available until December 2014 when many customers are travelling to international destinations. 6. Schedule From London City Airport (LCY) to Zurich Airport (ZRH) Emiretus Airlines Week Departure Arrival Flight No. MTWTFS* 0705 0850 1010 MTWTFS* 0805 0950 2112 MTWTF*S 1300 1450 1015 ******S 1900 2145 1040 **WTF*S 1230 1415 980 MTWTF*S 1330 1520 2120 From Zurich Airport (ZRH) to London City (LCY) Emiretus Airlines Week Departure Arrival Flight No. MTWTFS* 1000 1040 1011 MTWTFS* 1100 1145 2113 MTWTF*S 1600 1645 1016 ******S 2140 2100 1041 **WTFS* 1530 1450 981 MTWTF*S 1630 1825 2121 Assumptions 1. Schedules are fixed within the specified time and not subject to changes 2. All the timings are in the local times 3. Listed seats will be available for booking 4. The seats will be occupied to full capacity in all flights 7. Estimated Operating Costs Item Description £’000’ Procuring 2 aircrafts (Avro RJ 100 & Embraer 170) 48,000 Flight Crew Salaries 5200 Flight Crew allowances and expenses 950 Cabin Crew Salaries (incl. expenses) 1500 Cabin crew allowances and expenses 805 Aircraft fuel and oil 18000 Flight equipment insurance and uninsured losses 250 Rental of flight equipment 3200 Flight Crew training (when not armotised) 600 Maintenance and Overhaul a) Fixed 1200 b) Variable 5600 Depreciation of aircraft fleet (including spares) 4800 Depreciation of ground equipment and property 2300 Landing and departure fees 250 En-route and other navigation service charges 1100 Parking fees and handling charges 1050 Station costs 1400 Passenger services a) Fixed 620 b) Variable 410 Passenger embarkation fees 104 Passenger insurance 189 Sales 206 Reservations 20 Advertising and promotion 50 General and administrative 3800 Specific cargo costs 0 Other operating expenses 124 Total Operating Expenses 101,728 8. Fare structure (Round trip Journey) The distance between London and Zurich is 772km. On average the charge per km is £0.22 per passenger in the economy class. The additional cost per passenger in the premiere and First Class arise from additional services offered. Class Economy Premiere First Class Category One £165 £275 £555 Category Two £157 £282 £574 Category Three £172 £258 £559 Estimating the round trip customers to Zurich and London City for the year ended 2013 to be 3853210, an increase from 3412818 in 2012. If the two aircrafts makes 12 round trips in a week carrying 177 customers in 52 weeks then the total passengers will be 4*12*177*52=441792 On average the distribution of passengers will be on the ratio of 0.2 (first class), 0.3 (Premiere) and 0.5 (Economy) Revenue from (based on category one) First class: 0.2*441792*£555/2=£24519456 Premiere: 0.3*441792*£275/2=£18223920 Economy: 0.5*441792*£165/2=£18223920 Revenues Item Description £’000’ Scheduled Passenger a) First Class 24519 b) Premiere 18220 c) Economy 18222 Scheduled Excess Baggage 0 Scheduled Freight and Diplomatic Bags 3200 Scheduled and Non-Scheduled Mail 0 Non-Scheduled Flights a) Inclusive Tours 7500 b) ABC other than part charter 0 c) Cargo 0 d) Other 0 Incidental Revenue 4500 Total Operating Revenue 76161 Profit and Loss Statement EMIRETUS AIRLINES LIMITED Profit and Loss Statement as at 31st December 2013 £'000' Description Scheduled Passenger a) First Class 24519 b) Premiere 18220 c) Economy 18222 Scheduled Excess Baggage 0 Scheduled Freight and Diplomatic Bags 3200 Scheduled and Non-Scheduled Mail 0 Non-Scheduled Flights a) Inclusive Tours 7500 b) ABC other than part charter 0 c) Cargo 0 d) Other 0 Incidental Revenue 4500 Total Operating Revenue 76161 Procuring 2 aircrafts 48,000 Flight Crew Salaries 5200 Flight Crew allowances and expenses 950 Cabin Crew Salaries (incl. expenses) 1500 Cabin crew allowances and expenses 805 Aircraft fuel and oil 18000 Flight equipment insurance and uninsured losses 250 Rental of flight equipment 3200 Flight Crew training (when not amortized) 600 Maintenance and Overhaul a) Fixed 1200 b) Variable 5600 Depreciation of aircraft fleet (including spares) 4800 Depreciation of ground equipment and property 2300 Landing and departure fees 250 En-route and other navigation service charges 1100 Parking fees and handling charges 1050 Station costs 1400 Passenger services a) Fixed 620 b) Variable 410 Passenger embarkation fees 104 Passenger insurance 189 Sales 206 Reservations 20 Advertising and promotion 50 General and administrative 3800 Specific cargo costs 0 Other operating expenses 124 Total Operating Expenses 101,728 Operating Profit (or Loss) -25,567 Profit and Loss on disposal of fixed assets 0 Interest Payable Less receivable (net) 0 Non-operating items (net) -400 Profit or Loss (-) after exceptionals and taxation -25,167 9. Analysis The outcome from the Profit and Loss statement shows a loss for the airline. This can be partly accounted and explained based on an airline that is new and its presence starting to be felt in the flight market. The assumptions were that passengers are irrational and would take any flight available at the time. Second, the airline would immediately occupy a market share of 8%. These profits may be even lower if the market share of the airline is about 2% as seen in the case of SouthEnd which has been in the market for some time. There is a strong likelihood for the airline to earn from other sources like non-scheduled flights and delivery of diplomatic bags and non-scheduled mails. Assuming that the aircrafts are in good conditions and will not be subject to frequent repairs and maintenance, the company will be set to make its first profits in 2014 and break even in revenue the same year because the cost of aircraft procurement will have been done away with. There is an opportunity for Emiretus to gain from this route (London City to Zurich) because it is popular to customers than the other airports. The choice of the two aircrafts as Avro RJ 100 and Embraer 170 is significant in complying with regulations and code of practice of London City airport. Passenger capacity has also been maximized in this respect. Though the airport is fourth in the market share after Heathrow, Stansted, and Luton, it is popular to short haul operations within the UK and countries within a radius of 1000km. The schedule has been optimized to ensure that the airlines have scheduled flights in the morning, afternoon and evening. The schedules of the competitor airlines like Air Berlin, British Airways and SWISS are almost in agreement with that of Emiretus airlines. The company will have to spend more in advertising and promotion to enable potential customers to know the services offered by the new airlines and possibly acquaint with the schedules and the fares. The entry strategy is setting the fares above that of budget airlines so that it is able to recover on operational and start up costs quickly. Traditional airlines may find this as true competition given that the services of the airline are differentiated in terms of service. The category of fares in I,II and III compare with that of Air Berlin which is regarded as a First Class airline. Positioning Emiretus in the same way will mean that it can share customers with Air Berlin. The Economy class which consist of majority customers have the fares slightly lower that the three existing airlines. This entry strategy is crucial in taking on the majority of potential customers not loyal to any airline and bringing them to a satisfaction level which ensures long-term relationship. References http://www.caa.co.uk/docs/80/airport_data/2012Annual/Table_12_1_Intl_Air_Pax_Route_Analysis_2012.pdf http://www.caa.co.uk/docs/80/airport_data/2012Annual/Table_12_2_Dom_Air_Pax_Route_Analysis_2012.pdf http://www.aircraftcompare.com/helicopter-airplane/Embraer-170/118 http://www.swiss.com/web/EN/fly_swiss/fleet_network/aircraft/Pages/avro_rj100.aspx http://www.caa.co.uk/docs/80/aln_financial/2011_2012/Table_06_Major_UK_Airlines_%20Individual_Airline_Profit_and_Loss_Account_2011.pdf Appendix I Figure 1 (i): Avro RJ100 aerial elevation ii) Avro RJ 100 during flight Appendix II figure 2 (i): Typical Cabin configuration for Embraer 170 (ii) Embraer 170 during flight Read More