Airline Management Airline Business Plan Commerce Essay

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Canada Commuter Air is poised to take on the business travel market by focussing on small-distance travel within the Ontario and Quebec region. This geographical area has a high need for air travel, but the market is poorly served by the current market leader, Air Canada, because of decreasing service levels. Canada Commuter Air will compete in this market by:

· Increasing service options for its clients including door-to-door service and onboard food service

· Situating service at smaller airports closer to both downtown locations and suburban locations

· Creating an air mileage system so that corporate clients can gain points towards vacation travel for their families

· Offering less-expensive charter services for corporate clients with high mileage points

Industry Analysis

As noted by McCarroll, challenges within the airline industry troubles have, unexpectedly made it easier for new airlines to emerge in the market. As he writes, "With so many planes available owing to repossessions and canceled orders, fledgling airlines have been able to buy them at bargain-basement prices" (McCarroll 27). Boeing also notes that over the past 20 years, despite the fact that the airline industry experienced economic downturns several times, it still grew by an average of 5 per cent per year. Jones, in a very recent article about the industry, agrees. Although airlines in the United States are expected to lose $4 billion in 2009 (Jones), there are options opening up for smaller concerns. This is because of the fact that smaller businesses are more flexible and therefore more able to offer specialized services that are aligned with their client base (Gates).

Canada Commuter Air Market

Social and demographic factors point to new diversity in airline provision for both the general and business publics (Boeing; Jones). The market this business will serve will be focussed on providing an attractive alternative to the current market leader. Although Boeing notes that local market service, such as that provided by Canada Commuter Air, is becoming increasingly characterized by low fares, they also note that additional fees for optional services are common. Canada Commuter Air will be focussed on the ways in which the company can increase service levels so that customers feel appreciated. This is, in essence, taking the market development model of a Jet Blue or WestJet but applying it to a more business-oriented travel consumption environment. McCarroll notes that airline start-ups should avoid head to head conflicts with bigger carriers and instead look at a smaller market niche. Canada Commuter Air will do so in the commuter market. Learning from the failure of Eos Airlines in the United States (as detailed by Glab) Canada Commuter Air can offer the privacy and exclusivity of a charter, but at the price of a commercial airline because of our focus on corporate contracts. Nonetheless, where Eos Airlines failed because of its long-haul cost structure, Canada Commuter Air will incur lower costs because of its shorter hauls and lower airport costs. As Boeing notes, "carriers with low costs and minimal premium services are faring best in the current economic environment" (1).

Financial Estimate

To set up and run Canada Commuter Air for one year, the company will have to incur both start-up and ongoing costs. Boeing notes that the price of used commuter planes (namely regional jets) is the most accessible to start-up companies because of the fact that there are so many in service. With the consolidation of larger airlines, many of these planes have been made available at an average cost of $2 million, because as Boeing notes, larger airlines are increasing the size of their regional jets, with service averaging 90+ seat airplanes, so that they can increase their economies of scale. Nonetheless, McCarroll, Gates and Jones all suggest that leasing is the way to go for regional airline start-ups, so that companies can keep costs as low as possible. As McCarroll writes, "Houston's UltrAir leases everything from flight crews, custodians and ticket agents to gates, office space and six 727-model aircraft" (28). Jones notes that the average cost for a regional airline to begin operations in North America is between $1 million and $2 million.

Canada Commuter Air will start with the lease of nine- to twenty-seat planes. Because this type of aircraft can bypass security checkpoints and land in the smallest airports, commuters don't have to spend time in long security lines and the company can increase service options. With this plane size, Canada Commuter Air will aim to secure a passenger load of approximately 44,500 seats filled during the first year. As Boeing notes, new entrants to the market such as Canada Commuter Air will be able to benefit from access to lightly utilized airports and a customer base which is interested in innovative product offerings. It is estimated that Canada Commuter Air will run flights between Toronto, Montreal, Ottawa, London and the growing location of Barrie during the first year. Jones notes that small airports are often willing to provide financial assistance to attract new airlines because of the challenges associated with larger airline needs.

Equipment, operations, staff and maintenance costs will largely depend on the amount of flights that will be able to be booked in the first year of operations because of the fact that all services will be contracted on an as-needed basis. Gates estimates that the average operating cost per hour, including regular maintenance, for the type of planes leased, such as a Embraer EMB 121 Xingu 8-9 seat turboprop aircraft or a Embraer/FMA CBA 123 Vector 19 seat, will be $1,047.00. The lease cost per year will likely run an equal amount to the operating cost. The table below outlines the cost structure.

Cost Items

Cost Per Year

Operations and maintenance; most maintenance will be completed by lease owner

$314,500, based on 10 hours operations per day, 300 days per year

Lease

$300,000

Staff

$600,000 based on 14 hours per day, average wage of $30/hr

Equipment including food and client local transportation

$100,000

Total Costs Per Year

$1,314,500

Revenue Per Year Based on low passenger load of 22,500

$4,200,000

References

Boeing. StartupBoeing - Starting an Airline. (2010). Retrieved

20 February 2010 from http://www.boeing.com/commercial/startup/index.html.

Gates, B. A Practical Guide to Starting an Airline Business in

the UK. London: Gates and Partners, 2008.

Glab, J. Inventing a dream airline. Executive Travel Magazine

15.2 (2005): 16-17.

Jones, C. Economy doesn't ground airline start-ups. USA Today 16

November (2009): A7.

McCarroll, T. You Too Can Run An Airline. Time Magazine July 19

(1993): 27-28.

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