New Start-Up Long Haul LCC - Independent Review and Business Plan Development
Nyras worked as an independent adviser to develop a business case and plan to establish a new transatlantic start-up low-cost carrier (LCC).
The review focused on four key elements:
- Development and data gathering for a market environment background study.
- Evaluation of competitors and their impact on the low-cost airline model.
- Consideration of structural and regulatory issues to be addressed.
- Establishment of a high-level business case.
We coordinated a team of experts from within Nyras who had direct experience of airline and aircraft finance, commercial and revenue management and maintenance and regulatory issues.
By drawing on a combination of external data sources and industry knowledge from within our own team, to thoroughly assess the market and competitive environment, we were able to carry out an in-depth, independent review of the market practices and compile a high-level business case.
When conducting competitor evaluation, we developed industry benchmarks to compare the proposed LCC’s competitiveness against other comparable airlines. Specific cost benchmarking methodology was also used to compare ‘like for like’ costs with those of competing and efficient airlines, to ‘sense check’ the airline’s cost base and to identify any cost gaps between competitors.
The high-level business case addressed the following key areas:
- Selection of a base airport.
- Development of a schedule, driven by capacity and yield profile.
- Building a ‘bottom up’ cost base using the team’s industry experience across all functions.
- Establishing a pricing and yield approach that utilises the airline’s cost base and allows demand to stimulate reduced average fares.
- Development of a realistic marketing budget and route development strategy.
- Product concept definition, referenced against reviews conducted on competitor airlines.
- Definition of an economic cabin layout and seat configuration.
- Aircraft selection that ensures low ownership costs.
- Recommended start up timeframe designed to take advantage of market opportunities.
- Definition of the organisation structure.
- A clear recommendation on the upfront equity commitment required to launch the LCC.
Nyras presented the client with a comprehensive business case up to Year 6, for their start-up multi-aircraft low-cost long haul carrier. Having assessed a variety of options against competitor activity and the wider market, we put forward a proposal in which the financial forecast delivers a positive full year of EBIT in Year 4 and is cash positive in month 34 of operation. The final review presented to the client included financial return projections with an internal rate of return of between 20–25% for the investor.