Monday 25 May 2020

Ales Airlines Priyanshi Maheshwari Director Fintech Report

Business Model

The new business model is leveraging passengers to grow through ancillary businesses such as credit card partnerships.
The airlines of tomorrow will focus on growing the number of passenger seat-miles to support the new business model.
The plan for the envisaged new regional airline is an outgrowth of the market research

As with any business, the main thing to consider when looking at airline business and airline management are the most commonly used airline business models. The business model, in general, determines the way one intends to make money with the airline. ... Low cost airlines (Low Cost Carriers)
Airlines is a high cash-burn business. You spend Rs 2.5 lakh an hour to fly an Airbus A320. To fly it for 10 hours a day, you need Rs 8 crore. If you have six aircraft — airlines need to bring in six aircraft within year of starting operations — you will burn Rs 90 lakh a day or Rs 27 crore in a month.
capital is needed to start an airline?
For each aircraft, airlines have to carry initial provisioning and consumables worth $1 million and LRUs of $3.5 million for every three aircraft. the bill could be $13 million or Rs 58.50 crore a year. It costs Rs 35-40 lakh to train a pilot for A320; training an pilot would cost half.
  In starting an airline
 1: Market Analysis.
2: Operating Environment
 3: Business Planning.
 4: Airplane Selection.
 5: Airplane Sourcing. 


Cost estimation 

The airline industry is quite big and actually growing. However, the market is saturated. There are a huge number of competing airlines and little differentiation possibilities. In fact, you'll see that this kind of situation often leads to price war, lower margin and decreasing profitability. As competition became tougher, several airlines started creating alliances and partnerships
 The basic costs that usually have to be considered are:
The cost of aircraft — bought or leased.
Fuel — usually the single biggest per-flight expense for a trip of any reasonable distance.
Salaries — pilots, cabin crew, ticket and reservation agents, ramp personnel.
Maintenance — in-house or contracted out; amount of down-time required to keep each aircraft in good repair is a “cost” that has to be made up for by other means.
Landing/gate fees — vary widely by airport.
Air traffic control — some airspace is managed by fee-for-service air navigation service providers.
A key challenge is hiring experienced people - chief pilot, chief engineer and so on. This was extremely hard despite in my case having some extremely well known and reputable investors and being located in a pretty attractive location. There are probably about 8 roles that are very hard to fill where you really want someone who has been a head of department in an airline before. And then another 20 or so where you will still need to find experienced people (beyond pilots and engineers that is - for those you always need quite a lot of experience and only a small share of the total can be new. )
The air operators certificate, aircraft maintenance organisation certificates, and the permission to commercially fly on various routes are the main approvals you need. (The last one really depends a lot on the particular country or countries you are in.)

The major expenses that affect companies in the airline industry are labor and fuel costs. Labor costs are largely fixed in the short-term, while fuel costs can swing wildly based on the price of oil.
Cost of Labor for Airlines
Labor accounts for approximately 35% of the total of airlines' operating expenses. Operating expenses account for roughly 75% of all non-fixed costs.
During downturns, management looks to cut labor costs by laying off workers or reducing their pay or benefits. This is a consequence of being in a competitive business where customers have little brand loyalty – airlines generally have to compete on price rather than quality. Since growing profits is difficult, companies are forced to cut costs to be more profitable. 
Some of the lesser expenses for airlines are maintenance, parts and labor, handling luggage, airport fees, taxes, marketing, promotions, travel agent commissions and passenger expenses. As a whole, these account for nearly 55% of total operating costs.

Cost of Fuel for Airlines
Fuel costs account for 10% to 12% of operating expenses. Many companies have programs to hedge fuel costs. They buy futures contracts to lock in their costs for a set period of time, turning it into fixed expense. When fuel prices rise, this behavior is rewarded. When fuel prices decline, this is punished as the market price of fuel is less than what they are paying.
Some of the worst times for airlines have been when oil prices spiked up. Airline companies can prepare for slowly rising prices by charging more for tickets or by reducing the amount of flights, but sudden moves higher lead many airlines to lose money.


CREW
You will employ atleast 120 people per aircraft( may vary) . You have to pay them salaries and as a new startup you would have to lure them with fancy perks which would hit you financials hard. Remember experienced pilots , engineers, would take a paycheque in lakhs. A typical jet aircraft captain would be required to pay atleast 5 lakh rupees per month. Each aircraft shall have 14 pilots (7 being captains and 7 FO’s) For a typical 5- fleet airline you would employ nearly 10 crore rupees would be spent even before your revenue flights starts.

Infrastructure
You need to have a office and a training centre for your crew with all necessary equipments like simulators and what not. Which is again going to cost nearly 20 crore rupees

Advertisements
Thanks to the digital marketing it costs much less but you would have to pay renowned pages on facebook, Instagram, youtube to advertise your airline

Ticketing
To make your airline more accesible to people you have to use platforms like amadeus(google it) which would cost another 20 crores roughly

Aircrafts
The most important let’s say will fly a ATR 42/72 or maybe a A320/B737 get to ready to pay atleast 10% of the amount of aircraft even if you lease it. A typical aircraft costs around 100 million USD. Sale and lease back method would cost even more

Other Stuff
There are million other things which are hard to write here or maybe unknown to us which can cost upto as much as 50 crores
Also a fresh capital of 500 crores as the airline is not at all going to be profitable as soon as it is introduced.
So, around 800 crore  easily needed to start a airline.
Last but not least, the airline industry  is characterized with huge fixed costs. Therefore, in order to open an airline, significant capital requirements is must.



Priyanshi Maheshwari
Director FinTech
Ales Airline Inc. USA

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Priyanshi Maheshwari
Director FinTech
Ales Airline Inc. USA
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Disclaimer  :
Note : This is just an Aviation  Fictional Corporate Game not a Real One . As an MBA students Interns are playing different Roles Play. 

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