Fortune 100500 Strategy development of Low cost carrier on Russian market
160 80 0 015 00 05-80 9% 91% : Fortune 100500
1 34 10 100 80 CAGR 7% 6% 5 60 40 015 00 05 :, Fortune 100500 3
1 100% Max. 49% : team analysis, open sources Fortune 100500 4
1 00 100 Moscow Russia 571-50% 36 86-30% 155 00 108 0 015 00 05 Domodedovo 34 138 Sheremetyevo 04 14 Vnukovo 306 11 Ramenskoye 016 00 108 Yermolino 018 186 100 : case data, team analysis, expert.ru Fortune 100500 5
: Fortune 100500 6 1, Factor 66500 Distance ( < 6000 km) Pass. traffic (target occupancy rate) 60000 Profit 47000 58600 3 Market saturation 5000, 16900 16800 63000 60000 58000 58000 57000 61000
1 Model Range, km Capacity Max. takeoff weight CASM, Cents$ Fuel consumption, l/pass/100km Exists in Transavia Price, M$ Airbus A319 6.850 156 75 7,1,95 85,8 Airbus A30 6.100 180 78 6,5,61 93,9 Boeing 737-700 Boeing 737-800 6.30 5.765 149 189 70 79 7 6,71,68 * 78,3 93,3 First year investments, M$ Annual payment, M$ Fleet upgrade flexibility Additional limitations 1. Ownership. Operational leasing 3. Financial leasing 93,3 9,3 9,3 0 9 1 Since May 015 it will be restricted to include aircraft registered abroad into Air Operator Certificate : case data, open sources, tem analysis Fortune 100500 7
1 3 4 100 80 60 15% 0% 15% 15% 54% 40 0 65% 70% 0 56% Sales costs, RUR/pass -8% 319, Offline 56,5 Online :, Fortune 100500 8
: ideaworkscompany.com, Fortune 100500 9 1 Ancillary revenue share, % Ancillary revenue sources, %
: Fortune 100500 10 1 3 160 80 9% 75% 16% 0 015 00 05-80 8 6 4 4,45 4 5,5 6,55 5,5 6 0 Projected Transavia Aeroflot
Launch Operations Sales organiz. Fortune 100500 11 Actions 015 16/18 19/1 /5 Investments Negotiation with strat. partner n/a Negotiation with hub operator n/a Registration / certificate n/a Airports negotiation n/a Aircraft leasing prepayment 3,4 mln / 3 jets Staff hiring and training 150 000 Marketing activities 1,1-1,5 mln/year IT infrastruct. setup and support 600 000 / year Domestic flights Maintenance, Repair IF airports negotiation International flights Website sales Office sales Metasearch GDS and Mobile App sales
Probability of Occurrence Fortune 100500 1 1 Risks Emergence of new competitors Ways of mitigation Occupation of unique routes. 3 4 Development of High-speed railroads Wellness decrease Delay in law passing (3 aircraft for reg. flyer) Occupation of unique routes Price war, first comer. Focus on internal market Route optimization Operation as air charter 5 6 3 1 4 5 6 Delay in strategy realization by the partn. Jet Fuel price fluctuation Hub creation in Vnukovo or Yermolino Risk hedging 7 7 Significant decrease in occupancy rate Route optimization Adjustment of price policy Impact of Risk
Fortune 100500 Attachments
Attachment 1 Attachment Attachment 3 Attachment 4 Attachment 5 Attachment 6 Attachment 7 Fortune 100500 15 All six destinations are served on daily basis is order to meet the demand and occupancy rate targets 6:00 10:00 10:00 14:00 14:00 18:00 Plane 1 Moscow Krasnoyarsk Moscow Plane Moscow Omsk Moscow Chelyabinsk Moscow Plane 3 Moscow Perm Moscow Anapa Moscow 6:00 8:00 10:00 1:00 14:00 16:00 18:00
Attachment 1 Attachment Attachment 3 Attachment 4 Attachment 5 Attachment 6 Attachment 7 Low-cost carrier project is realistic until 05 due to cost-cutting in four main categories 1 Priority cost elements that can be decreased: Operating costs, % Online sales development will allow LLC to cut sales costs by 8% Leasing of modern homogeneous fleet will allow LLC to cut leasing and maintenance costs by 45% and 56% respectively 100% 90% 80% 70% 60% 50% 40% 30% 0% 10% 0% 3 % 3% 4% 10% 14% 17% 0% 30% Кейтеринг Catering Админ. Admin. расходы costs Экипаж Crew Организация Sales продаж Лизинг Leasing и + амортизация depreciation ТО Maintenance и ремонт Аэропортовое Airport обслуж. Топливо Fuel 61% Sales costs, RUR/pass 319, Offline -8% Airport service costs can be decreased by 30% by the year 00 due to: 56,5 Online Costs for B737-800, $/flight time Leasing Maintenance -45% -56% 350 616 19 71 Avg. airport costs, RUR./flight * 100000 80000 60000 1. Infrastructure development -0% Russia Ост. AVG РФ Москва Moscow 90000 80000 70000 60000 50000 40000. Usage of low-cost airports in Moscow since 016 Moscow Москва -35% Раменское, Low-cost Ермолино airport 3. Usage of low-cost airports abroad Relative airport costs per flight 100% 80% 60% -30% 100 8 7 7 4 Fortune 100500 7 16
Attachment 1 Attachment Attachment 3 Attachment 4 Attachment 5 Attachment 6 Attachment 7 Profit is the main factor of deciding on the route map 1 Profitability of the destinations depends on the traffic, current average level of prices and costs Everything in RUR/Flight (Passengers Price + Additional revenue) (Airport costs + Fuel + Staff + Leasing + Sales) = Profit Novosibirsk St. P Direction Kazan Total revenue Airport expenditures 13% Fuel Sales Staff Leasing + Amortisation St. Petersburg 377,59 14,859 109,13 9,077 16,08 1,696 114,56-34,954 Krasnodar 731,366 116,339 3,886 9,077 16,08 1,696 149,108 5,068 Sochi Omsk 639,001 14,336 81,8 9,077 16,08 1,696 171,588-30,749 Yekaterinburg 435,683 134,64 91,544 9,077 16,08 1,696 17,196-91,34 Yekaterinburg Novosibirsk 871,366 149,804 540,784 9,077 16,08 1,696 51,517-64,77 Rostov-on-Don Krasnodar 551,865 10,951 179,533 9,077 16,08 1,696 134,486-9,090 Mineralnye Vody 68,570 143,718 63,50 9,077 16,08 1,696 166,51-11,465 Sochi Samara 551,865 10,39 169,638 9,077 16,08 1,696 131,349-5,093 Ufa 435,683 111,011 19,430 9,077 16,08 1,696 143,473-54,715 Krasnoyarsk 1,43,30 16,331 646,651 9,077 16,08 1,696 76,35 66,533 Kazan 580,910 119,566 135,431 9,077 16,08 1,696 10,839 16,845 Kaliningrad 64,479 113,774 1,664 9,077 16,08 1,696 144,97-1,097 Chelyabinsk 813,75 146,790 86,669 9,077 16,08 1,696 174,378 16,95 Perm 84,30 109,65 33,984 9,077 16,08 1,696 147,315 59,986 Irkutsk 1,379,66 13,184 836,366 9,077 16,08 1,696 334,905-1,057 Omsk 1,13,775 165,658 434,949 9,077 16,08 1,696 4,5 47,013 Tyumen 464,78 148,043 34,918 9,077 16,08 1,696 191,69-107,548 Volgograd 464,78 11,103 165,103 9,077 16,08 1,696 17,50-5,818 Anapa 871,366 114,93 54,18 9,077 16,08 1,696 155,07 58,643 Surgut 943,979 186,53 466,38 9,077 16,08 1,696 40,169-8,456 Other 17% 30% % 9% 0% 30% Fortune 100500 Profit 17
Attachment 1 Attachment Attachment 3 Attachment 4 Attachment 5 Attachment 6 Attachment 7 Source: case data, team analysis, open sources Fortune 100500 18 1 Major assumptions used in calculating profit model 3 Other costs calculations LLC/Legacy price ratio 80% Additional revenue 13% Occupancy rate 85% RUR/EUR exchange rate 65 WACC 7.5% Max flight hours per crew, h/month 100 Max flight hour per aircraft, h/day 1 Staff costs calculations Fuel cost = Fuel consumption [t/km] Distance Price [RUR/t] Airport cost = MTW AP(1,) per MTW + Pass AP(1,) per pass Sales = 56 RUR/passenger, in case of 100% online sales Other cost account for 30% of total cost All fixed costs are allocated per flight Total flight hours per month 300 Required numbers or crew 3 Captain wage, RUR/month 500,000 Second pilot wage, RUR/month 300,000 Flight attendant wage, RUR/month 60,000 Number of flight attendants 3 Total crew wage, RUR/month,940,000 Taxes and benefits, RUR/month 1,470,000 Total crew expenditure, RUR/month 4,410,000
Source: team analysis, open sources Fortune 100500 19 Attachment 1 Attachment Attachment 3 Attachment 4 Attachment 5 Attachment 6 Attachment 7 Organizational structure of the new LCC should be designed to leverage competitive advantages of parent company 1 IT, Operations and Procurement should be centralized in Transavia CV to maintain low cost level and share knowhow Transavia CV CEO Not exclusive COO IT development Transavia Rus CEO Public relations HR Procurement Engineering and maintenance IT implementation Operations Officer External relations Legal Finance and planning Marketing and sales Management control Functional control
Attachment 1 Attachment Attachment 3 Attachment 4 Attachment 5 Attachment 6 Attachment 7 Source: case data, open sources Fortune 100500 0 1 Route Paris-Aurillac is operated by Air France s branch Hop! and generates about 30% of average operational profit per flight within the company 1 143 however during previous 6 years the traffic has increased by 30% while the number of flights remained the same, that suggests operational profitability increase of the route. +5% -71% 0 47 1 891 6 585 6 60 3 958 6 606 37 3 Industrial average Paris- Aurillac Moreover, the fleet is based on ATR-4 500, which does not comply with selected strategy of LCC development in Russia 00 9 01 0 01 1 01 01 3 01 4 ATR-4 500 B737-700 Capacity, people 50 149 Range, km 1500 630 Cancellation of Paris-Aurillac is pointless due to increased operational profit of the route for Hop! (Air-France KLM) and incompliance of the fleet, operating on the route and projected for new Russian low-cost carrier. CASM, U.S. cents 10 7
Attachment 1 Attachment Attachment 3 Attachment 4 Attachment 5 Attachment 6 Attachment 7 Source: open sources Fortune 100500 1 1 Breach between target audience of Nice and clients of low-cost carriers Relatively low traffic and its lowering dynamics 400 00 3 There is a potential for growth and market penetration after 018