European Air-Taxis

EUROPEAN AIR-TAXIS

An economic feasibility analysis in the use of Very Light Jets (VLJs)

Table of Contents

1 Executive Summary...... 3

2 Part 1: Introduction...... 4 2.1 Abstract ...... 4 2.2 Problem Statement ...... 5 2.3 Background and Context ...... 5 2.4 Focus and Objectives ...... 7 2.5 Study Scope ...... 8 2.6 Data Sources and Analysis ...... 9

3 Part 2: Value Proposition and Strategy ...... 11 3.1 Innovation in Operations ...... 11 3.2 Innovation in Service Offering ...... 12 3.3 Strategic Analysis ...... 14

4 Part 3: Market Environment Analysis ...... 15 4.2 Consumer Demand ...... 16 4.3 Competitive Environment ...... 19 4.4 Service Environment ...... 21 4.5 Legal Environment ...... 22 4.6 Operating Environment ...... 24

5 Part 4: Operational Model ...... 27 5.1 Market Approach ...... 27 5.2 Advertising strategy ...... 28 5.3 Service Models ...... 29 5.4 Owner Operator Models ...... 31 5.5 Implementation Models ...... 34

6 Part 5: Case Study Examples ...... 37 6.1 Case 1: Peak Ad-hoc ...... 37 6.2 Case 2: Fixed Schedule ...... 37 6.3 Case 3: Flexible Schedule ...... 37

7 Part 6: Conclusion and Feasibility ...... 38 7.1 Target Market and Pricing ...... 38 7.2 Ownership and Running Cost ...... 39 7.3 Profitability and Operations ...... 39

8 Recommendation...... 40

9 Future Work ...... 41

10 References ...... 42 10.1 Books and Articles ...... 42 10.2 Web sites ...... 43

11 Appendix ...... 44

1 Executive Summary

The key findings are that providing a European air taxi service is feasible, given the following conditions and considerations:

1. The choice of a VLJ able to fly under 60 gallons an hour is key to cost-effectiveness. If the average one-way price per km is at least 0.64 euro, then it is possible to breakeven.

2. Choices of routes should centre on Nice, and the Swiss region, to Corsica, and Mediterranean to target a market with high traffic density, growth, and cost per KM.

3. Entering the market to capture around 10% requires at least three aircraft with an investment of 7.5 Million Euro with estimated pay back in approximately 8 years.

4. The Eclipse 550 is controversial as the company re-started in September 2013. However, the launch of the Honda Jet HA-420 promises to be more efficient and reliable due to the lower fuel costs per hour, it could prove a lower cost per seat/km.

5. Timing is key now, taking the target market growth, there is still good indications that 2016 is likely to be the right time to enter the market.

6. Utility-based on demand models for air transport are feasible, and new more highly efficient light aircraft create new possibilities for the Air-Taxi market

7. Innovation can be provided with the Hop On Hop Off service, if operated in a one-way, one leg at a time only, using a price per seat model. This requires combined with fractional ownership, and technology for easy of booking and scheduling.

8. Fractional ownership is a risk sharing strategy, but a time-sharing rather than profit- sharing approach is initially required.

2 Part 1: Introduction

2.1 Abstract Today there is a high-density airport infrastructure in Europe, with increasing concentration and over reliance on major hub airports. Yet there remains under-utilisation in many secondary airports and aerodromes, as well as unsatisfied demand on many routes between major European cities*. Therefore, if there is air transport carriers to serve this demand such secondary airport can offer the required infrastructure. Given the configuration and capacity of aircraft currently in operation by the major Airline carriers in Europe, the use of Very Light Jets (VLJ) could provide a number of advantages over the existing aircraft and services. There are two important factors to consider in this study, firstly VLJs can land and take-off faster, increasing turnaround times. Secondly, VLJs can operate on much smaller under-utilised aerodromes, as well as traditional airports. This level of flexibility VLJs have over larger aircraft configurations could prove wider use is in fact feasible, if a number of criteria allowing for commercial viability are identified are met. As part of this study, the intention is to identify and analyse criteria for VLJ use. As well, assess conditions will determine the feasibility for use of VLJs over larger aircraft for use in Air-Taxi Shuttle Services. Primarily, the study aims determine the feasibility of the business model to provide services with route topologies such as ring routes and lines, similar to existing transport services, such as trains and buses. Secondly, this study will assess the demand and commercially viable of such service between one or more European city pairs. Lastly, this study aims to investigate the VLJ market to identify the optimum size and capacity of aircraft required for such services. *According to current European Commission Directorate General for Transport, Eurocontrol and Eurostat publically available reports, [4], [5], [6], [7], [8], [2], [9].

2.2 Problem Statement The key challenge faced by introducing any new airline service in the market is to answer the question of what value is created for the passenger. If innovation can create value for the passenger, then what type of innovation is required in the airline industry, and where should it be utilised in the service? Here the aspect of innovation that will be studied is the introduction of the concept for “Hop-On and Hop-Off” circular “ring” routes as a new service model in the European Air-taxi market. This study will compare both the route and the VLJ aircraft used to measure feasibility and efficiency compared to traditional network carriers, in terms of the key metric: ticket price and cost per seat kilometre. Such innovation in aircraft and route service models are required to replicate similar strategies employed in other industries. For example, bus line and tourist operators must differentiate on routes and services, as they have low market entry costs, and high levels of service commoditisation. For airlines, they can no longer rely on the innovation in the means of aircraft transport, and access to technology that provides such competitive advantages. The low cost trend requires the operational strategy for routes and service management to become the key differentiator to generate passenger value beyond just the comfort and experience, but a low price per seat kilometre for any give route.

2.3 Background and Context This innovation in the airline route and service model is based the premise that the airline industry is moving rapidly toward a low cost and highly commoditised transport service model. The basis for this assumption is the commoditisation of the aircraft as a means of transport means, implies technology is no longer a driver of competitive advantage. This “old world” model relies on the resource-based view of the firm, rather than the knowledge-based view relying on new strategies for operational innovation. Recent changes in the strategy of the airline industry as a whole can be seen as a general trend to move towards more the utility based (power-by-the hour) business model. This implies airlines may soon need to reflect the same innovations introduced by other low cost transport operators. In order to compete and differentiate beyond the innovation in the means of transport, airlines may need to use their routes and service models to differentiate. Of course, this low cost trend assumes that eventually price will no longer be a differentiating factor, when all operators are low cost, the price and service will be equal in the eyes of the passenger. As commoditisation of aircraft and reduced costs further reduces the competitive advantage and barrier to market entry, the aircraft will no longer be a differentiating factor. That is to say, aircraft are quickly becoming more like buses in terms of the utility-based “on-demand” means of transport. If the consumer only places value in the lowest cost per kilometre achievable, then the market for a highly efficient rationalised operational model exists. Nevertheless, once this fully symmetric perfect market for substitute services exists, and the time is maybe close, new strategies for differentiation are needed. If airline operators are indeed moving increasing towards such low cost models, similarities can be drawn to the bus operator models and the need for unique routes. This trend will certainly mean introduction of new and novel routes that will be required to differentiate the service from perfect substitute services of competitors. In such context of efficient symmetric price

© Durasee Services Limited 2014 5 competition, the only innovation the operator must rely on is not what bus is used, but how the bus is used or where it goes. Similarly, in the aviation industry, the commoditisation of the aircraft, like the bus, will in turn lead to the need for the airline industry to innovate how the aircraft is used. Airlines will need to replicate the same innovation as bus lines operators and rely on unique directions of routes at low cost, rather than by providing business class services. In a low cost environment where business class no longer exists, all quality of service and comfort is considered equivalent between operators. Without quality or price differences it becomes a trade-off not of services, but of the unique directional routes. This choice of hub and spoke route networks then becomes the deciding factor for the choice of operator, and a barrier to competitive if no other factors that can be used for differentiation. However, the hub-spoke model of the traditional network carriers has not been effective as a barrier to entry to prevent competition against low cost point-to-point operators. This collapse in the single central hub model has led to another aspect of the operational strategy that is comparable to bus line operators that can be referred to as “self-connecting”. Now, passengers can build their own network, and take the connections in the directions they need, and not pay for more. The reason this is “self-connecting” point-to-point model is evolving is because one- way routes have competitive almost symmetric prices in each direction. With this, passengers create value, by taking the cheapest and most convenient route in the directions needed, thus releasing greater value in the market for operators.

2.4 Focus and Objectives

2.4.1 OBJECTIVE The objective of this study is to take into account all the identified background and context to the problem and examine the feasibility of the approach for Air Taxis in Europe. Therefore, this study will define a data driven model to simulate and answer the critical questions. The simulation will be used to determine whether an Air Taxi in Europe is a viable business, and if so, under what conditions. If such a business is possible, the model should examine the approach and what strategies are required.

2.4.2 METHOD AND APPROACH Based on the context of the airline industry and the background in the industry trends, this study hopes to identify the factors that can measure the effectiveness and success for air-taxi business models. To summarise these success factors for different types of innovation in the air-taxi industry, this study will examine: • The low cost point-to-point airline service, with small aircraft at comparable cost. • Operating a utility-based model able to combine charter and taxi-based service models. Furthermore, the strategic choice of what innovation and where it is utilised has an impact on where value is created. What is crucial for any such service is to introduce innovation in the market, in terms of strategy and value creation to the consumer. As part of this study, these fundamental questions of value creation, and what innovation is required will be addressed. This study has identified eight main factors where innovation in the industry can influence the strategy and approach of the Air-taxi business. The ability to utilise innovation in these areas can together be used to create value for the customer in many ways. Each of these innovation areas is critical to be analysed and understood to launch such an air taxi company to operate in Europe. Firstly, the innovation factors highlight operational strategy trade-off decisions in the following areas: 1. Consumer Demand and Preferences for types of service that create new value in the segments 2. Value Creation and Service Level Model which differentiates the business and offers innovation 3. Aircraft Types and Capacity required to operate differently in the market to realise new value 4. Route Topology Model and Airport Planning which are new and optimise the choice of aircraft Secondly, groups of innovating factors influence the ability to implement the strategy, and through managing and optimising the environment in which the business operates: 5. Constraints, Limitations, and Required Complement Services to overcome the competitors 6. Substitutes and Rivals, and References in the Market which are addressed by the new services 7. Financial Return, Pricing and Cost Models to optimise the profitability to drive scale and growth 8. Strategy and Sustainability of Business Model to ensure the approach is unique can be operated in the long run beyond the short run constraints.

2.5 Study Scope

2.5.1 OVERVIEW To understand the scope and limitations of this study, the following must be considered: • Only France, UK, and Germany, were analysed in terms of choice of routes and locations • In terms of aircraft four categories were analysed, namely turbo props, VLJ, medium and large business jets and regional jets. • Only direct flight routes were analysed, as already there was a difficulty to find reliable data, although indirect flight data would yield interesting results for comparison there would no sources of such data to verify the effects of proposing direct services on indirect routes.

2.5.2 ASSUMPTIONS Although extensive work was conducted to model and simulate the feasibility of the business and choices for strategy, the following assumptions had to be made: • In Europe, the 3 largest markets for aviation in all sectors and France, UK, and Germany. Therefore, the assumption was made only to analyse traffic within these three countries. • Based on a number of reports, the decision and assumptions were taken to be based in France, as this is the largest market, and has the most frequent users of business aviation, as both a source and destination within Europe. • All prices unless otherwise indicated are in Euro.

2.5.3 DEPENDENCIES As much of the development of the study relies on data used in the simulations and models of the market, this data and its integrity is a dependency that much be acknowledged.

2.5.4 CONSTRAINTS Time was a factor to the development of the strategy and business model. A number of constraints were discovered, or were subsequently identified. This prevented further development of the study: • Availability of adequate sources of aviation data from European Commission agencies and national authorities. • Specifically in the case of business aviation data, very little exists, especially in Europe. • Integrity of data sources could not be verified, as there are no mandatory reporting requirement, it is impossible to know what are the true or actual figures if no data was provided. In the case of business aviation, there is very little reliable data other than take-off and landing details provided by Eurocontrol. • Another important lack of information was around the indirect flight data. Although there are indirect routes that exist between cities, without sufficient means to calculate the number of passengers transferring on a route, it was impossible to analyse if these passengers would prefer a direct service. However, it is clear such a service would be very important future analysis of this study, but due to time, this study will only focus on direct flight routes. • The numbers of aircraft were also limited, due to the range of sources, although reliable figures can be found, there are some constraints to collect and format all the relevant data .

2.6 Data Sources and Analysis

2.6.1 OVERVIEW OF METHODOLOGY As stated one of the main efforts of this study has been in the development of a data driven model to simulate various scenarios. In order to help validate the feasibility of the Air Taxi business model in Europe, this simulator was used address the fundamental underlying questions: • Which “ring” routes are economically viable to fly between, and which city to be based? • Which aircraft types and sizes are suitable, comparing various makers and models? By addressing these questions of which aircraft to fly on which route, the feasibility of the business for Air Taxis in European market can be greatly simplified. However, behind these seemingly simple questions remains the economic factors which determine this choice, based on the following: • What is the price per seat kilometre for each combination of cities in the route? • What is the cost per seat kilometre for each combination of aircraft that could be used? Therefore, by determining the answer to these questions, there is a clear understanding that as long as the best aircraft has selected, for the given route, then the business should be profitable. There remains another set of analysis used to determine where the best location to be based for operational purposes, such as access to key routes and profitable services: • Where are the most profitable routes between any two-city pairs in the 3-city “ring”? • Where the service should be based to maximise revenue in and out of the given airport?

2.6.2 DATA TYPES AND METRICS Before any analysis can begin, the understanding of what data is needed to answer these questions regarding profitability. To determine profitability, the basic understanding of the market is required. • Passenger Volumes on routes will be used to indicate the size of the market • Pricing information for direct flights on each specific route to determine the revenue • Flight Frequency on routes will be used to determine the size of aircraft used • Seating Capacity on routes to determine loading which can imply market capacity • Market Segment Volumes in terms of type of services for business aviation verses low costs, etc. • Business Jet Volumes in terms of take offs and landing in various airports • Traffic Volume Forecasts for airports and regions based in Europe From the data provided by Eurocontrol [7] and Eurostat [2], it was possible to calculate the following metrics: • Price per seat per kilometer, based on average price and passengers per route, for the distance • Average number of flights, passengers, and seats per route and per kilometer For aircraft, a number of sources were utilised for leasing and purchasing mainly Privatefly.com. From this data, there are also interesting metrics that can be used to reveal suitability for a particular route: • Price per seat per gallon of fuel, based on the fuel price and gallons per hour consumption • Price per seat, for purchasing the aircraft, based on max speed and distance per hour

2.6.3 DATA INPUTS AND SOURCES In order to take an unbiased view of the historic data available on from public sources, this study will attempt to utilise a number of key sources of published information on the airline market in Europe. In Europe, the best sources of such information and data come from the Eurostat and Eurocontrol agencies of the European Commission. Although current data provided to the European Commission is limited and voluntarily provided by national authorities for statistical purposes, it provides view that can be used to extrapolate some meaning information. However, the integrity of such data cannot be confirmed, as there is not sufficient time to collect additional sources that can be used to correlate and verify the accuracy of such data. In addition, one aspect to remember in Europe is that there are no mandatory reporting requirements for aviation as is the case for market in other regions, namely North America. Although this is a constraint, which prevents precise analysis of the specific airlines and routes, there are other approaches possible. Given what data is provided, there are extrapolations possible to determine the key industry standard statistics such as those used by ICAO (International Civil Aviation Organization) and IATA (International Air Transport Association) that provide enough information to make comparative analysis. When making such analysis is necessary to ensure that comparisons are being made with a consistent methodology. By this means, the study will be able to show results hold under certain criteria, which can then be used to establish some facts on which to base assumptions. Due to the extensive nature of the analysis required, there are a number of simplifications to reduce the time required and produce meaningful results. As discussed, the key metrics defined are simple, yet powerful ways to determine the best aircraft for each route. Lastly, to create a realistic view of the market, all pricing information was collected and joined with the data set. Many of the publically available websites for pricing such as Google Flights and Google Explore [10] provide very complete sources of low cost flights. In addition, one of the best European search engines providing reliable pricing used was Sky Scanner [11]. At this stage of the analysis, it was necessary to separate the type of pricing and route information into direct and in-direct flights.

2.6.4 DATA PROCESSING AND CLEANING Without creating additional complexity, the idea of this method of data analysis was to create simple model that can be used to compare various factors of the market. Key to this method was to model the “ring” route topologies to analyse what is a feasible route. Before any meaningful data analysis could be commence, a number of steps were required to process the data and create the tables and joins needed. To do this, the procedure for developing the model parameters for the simulation is as follows: 1. All routes between France, UK, and Germany were filtered in the data set 2. Each route was joined with the pricing information related to direct flights only. 3. Each combination of direct city pair routes was taken and joined together. 4. Every direct flight city pair with a common city was used to form three cities in a “ring”.

3 Part 2: Value Proposition and Strategy

3.1 Innovation in Operations

3.1.1 VALUE CREATION AND SERVICE LEVELS As is typically the case for such bus operators, the route topology is based on rings or other types of configuration that consider the bus capacity. The question is whether this approach of bus line operators can creates value for airline customers. Value creation for customer and end user will be focused on trying to achieve the following: • Reduce corporate client travel expenses through committed volume/two part tariff • Allow users to work on-board, e.g. internet, in comfort, privacy, and security. Based on the possible services, what KPI and SLAs required ensuring Service Model underpins the value created for the customer: • What is the amount of availability in terms of seat capacity and planes? • Flexibility in terms of how many flights per day per city, e.g. every 30 minutes • On board services, such as internet, etc. which could attract customers, e.g. SITA aero services.

3.1.2 AIRCRAFT TYPES AND SEATING CAPACITY To choose an optimum aircraft and capacity there should focus on analysing the VLJ aircraft market, including the following factors: • Cost in both to buy, and to operate aircraft over which distances. • Capacity and configurations for seating and pilots • Operating distance (range), considering the speed, engines, and power to weight ratio The approach to this choice of optimal aircrafts should question whether there are any key elements that differentiate scale or costs that affect choice, such as: • Can a mid-range, as most cover all Europe, because all that is needed is to “hop” between cities? • Does new technology with twin engine to provide the required capacity? In addition, there are a number of other issues related to the viability of the manufacturer and the purchase of the aircraft such as: • High risk in the aircraft manufacturing market, many are bankrupt, making supply unreliable. • There are segments in the class of aircraft in the market also. • Choices of aircraft based on cost (OPEX plus CAPEX) to capacity ratio.

3.1.3 ROUTE TOPOLOGY AND AIRPORTS For route and airport planning, there needs to be some understanding of the volume or probability that people are willing to travel via another city, e.g. a detour. If the consumer is rational, all things equal, such as price, distance, and travel time- would this change demand. If so, what percentage of people would be willing to travel this way instead of directly? There needs to be a calculation of the people travelling between two cities, A and C, and the number traveling via a third city B to reach the same point, then the probability can be calculated. If the data exists, a point may exist where the route between A and C did not exist, and then a in/direct flight was introduced/removed, this would then tell us the change in demand and reveal probability for that route. This is the main task here to extrapolate this data to build a model for demand, and preferences on certain routes with characteristics. Routes and topologies focus on analysing the European market, including the following factors: • Busiest city and country route pairs in Europe, in terms of passengers, and flights • Airports/aerodrome locations, and selection for use based on infrastructure, connectivity, etc. • Distances and volume density to service in one or more geographical regions, e.g. UK, France, Germany, Belgium, Luxembourg, Netherlands, Italy. • Determining the optimum topology of routes, e.g. Ring, Star, Line, Hub-Spoke, and Spoke-to- Spoke. Based on these factors the following results were understood and used as the basis of this study: • There could be an optimal route in a straight line between at least 3 cities • There could also be a route on a ring of 3 or more cities which have a “hop on hop off” volume • The line should be a shortest-path route, maximizing the possible volume/revenue possible • There could be a base airport on the mid-point which acts as a change-over point on routes • There could be multiple ring routes interconnecting at some cities, to make a 3-leaf route • Another aspect is the number of aircraft needed to provide shuttle service, e.g. every 30 minutes.

3.1.4 CONSUMER DEMAND AND PREFERENCES From the customer perspective, this study will focus on analysing the types of customers in the market, including the following factors: • What type of people would like this service, and what are their demands? • Target corporate clients, not only executives, but working people in time charging jobs. • Highly skilled consultancies, and professionals, e.g. bankers, lawyers, doctors, experts, government advisors, • Type of activities: regular or even ad hoc meetings and multiple team/office locations • General B2B on face to face meetings and customer relationships • High current cost of travel expenses which can be offset by “sponsorship”

3.2 Innovation in Service Offering

3.2.1 SUBSTITUTES AND RIVALS Given the description and assumptions taken by the background of the market and the trends towards highly substitution services, a competitive analysis of rivals must be performed to determine the possible viable alternatives, such as: • Other modes of transport and connections between cities that would support trains and buses. What multi-modal choices can improve the overall time to travel? © Durasee Services Limited 2014 12

• Whether cost and prices can cost be held constant with competition and substitutes? • Distance, can distance increase, e.g. route length and stop overs, whilst still having acceptable time and costs for passengers • Reference models, in terms of existing services currently operating in Europe • The factors or conditions that must exist, in terms of regulation, population, wealth, volumes on routes.

3.2.2 CONSTRAINTS AND COMPLEMENTS Based on Customer Demand and Substitute analysis, there should be a model for Pricing and Costs, which provide limitations for the service provided: • Target price customers are prepared to pay as well as membership cards, and compatible points systems with existing systems. • Target price to compete with substitutes and rivals • Target costs to attain a feasible operating margin and return on investment Other non-financial services would could be limitations or factors to consider: • Connections on the ground for taxi, bus, and train to major cities if the airport is outside the centre of the city • Limitations of using aerodromes, or other locations which could be constraints for operation, such as times or costs of weight.

3.2.3 COST , PRICES , AND RETURNS Following a model where there could be company or fractional ownership sponsor, there are a number of possibilities: • In terms of incentives, it depends on the type of customer to use seating quota or sell it, versus the capacity that can be provided for sale, and returned as profit sharing • Fractional ownership, with for example 10,000 should be paid up front for fixed costs of flying, and the variable is required for simply holding the seat, non-refundable, but if the seat is not used, the quota is lost.

3.2.4 STRATEGY AND SUSTAINABILITY From a business model perspective, the number of approaches range from the level of operation and ownership: • Strictly operating a “booking system” like an air taxi broker company, where aircraft are (full or fractional) owner-operators. This is a kind of “umbrella branding” approach, which gives independent operators a single brand, but requires them to operate under a regime, such as a cartel, which the “booking system” controls. These can also be defined as air charter or air taxi brokerage companies. • Another approach can also aim to be a franchise because where the market conditions permit, the model can be replicated, rather than expanded, and e.g. you open a new brand in another area, building the business against with a new base, rather than expand the current model, because this would break the strategy . This approach aims to have very low start-up costs, with high margins, and low risk and low capital requirements, with investment of all profits into expansion of the capacity: • Start-up capital requirements, depending on optimal models. • Assessing market forces to test the market • Understand the impact of regulations or unregulated markets aspects.

Over time, there could be a mix of owned planes. To meet base demand and use subcontracted owner operators to meet peak/variable demand that can include: • Decide how to balance cost, service, and size to provide the optimum service • Full ownership verses Leasing or Fractional ownership models Also additional disruptive approaches to enter the market: • Attack and change the pricing model of return ticket prices over one-way tickets • Make it possible to always buy one-way tickets cheaper/as cheap as low cost carrier • Provide a service which can be as fast, over the same distance, at a comparable price • Provide ticket price per seat km/hr.

3.3 Strategic Analysis

3.3.1 THREATS TO THE BUSINESS MODEL There are a number of threats and risks to the business model, and the strategy: • Customer has may choices and the market is fragmented • Current economic situation • Investment and need significant funding and return on this investment is difficult to justify • Demand wants low prices

3.3.2 MARKET OPPORTUNITIES AND GROWTH Also for the market, there are opportunities to add value for the customer • Response to the needs of speed, flexibility • Possible diversification on 3 market segment (Business, Cargo, MEDEVAC) • Many secondary airports can be used • High-density airport infrastructure in Europe • Demand moves towards the high end

3.3.3 INNOVATION STRENGTHS TO OVERCOME To bring some innovation approaches to differentiate the service of competitors • Hop-On Hop-Off concept • Price and Cost model based on per seat price • Carrying capacity on 3 city routes scheduled regularly (shuttle) • Diversity of agreements (cargo, medical, business)

3.3.4 WEAKNESS IN THE APPROACH However, there are also issues that need to be overcome through the operational strategy: • Low awareness of our brand • Network of routes must be optimal • Network and partnerships not developed yet

4 Part 3: Market Environment Analysis

4.1.1 MARKET ACTIVITY Referring recent Eurocontrol [7] and Wing-X Business aviation activity monitor [3] there is a clear indication of the size of the market. In this market survey, the largest markets in Europe are considered France, Germany, and UK. These markets and the flows between them represent the biggest business aviation volumes of movements (take-off and landings). However, from this data there is no indication of passenger volumes. For simplicity, these countries will be the focus of the study. “Europe will most likely see a 50% growth in aviation by 2035 compared to 2012. Many as an opportunity for economic growth see this. This additional demand cannot be accommodated at certain of Europe's airports with current development plans. The situation is especially urgent at the largest European hubs.” A market analysis model was given by Eurocontrol [7] and Wing-X [3], According to data from ASCEND, there were close to 1,100 charter and air taxi operators worldwide at the end of 2012. However, only 80% of these operators had aircraft fleets comprised of 10 or more aircraft. Honeywell hold the cautiously optimistic attitude for future development in the European business aviation market. According to its 2013 annual forecast report, they predict that growth has slowed near term and is projected to slow further, fleet outmigration to other regions offsets inflow of new aircraft, and the growth in the European market only expected to comprise 12% of global demand over next 5 years [13]. As result, and taking into account the impact of development and competitiveness in other markets, business aviation market is fraught with the high risk and competitiveness, especially to the field of the air taxi. In this model, business aviation market is one part of the business traffic market and has the cross with the general aviation, scheduled flight, training flight and some special application like military and health flight. It describe a general distribution of the different on-demand services market segments through this model, but it is still not clear for the air taxi. Bombardier develop another classification through analysis the different air-travel options, which was shown According to this classification, the whole business aviation market can divided into five segments, air taxi, branded charters, jet-card programs, fractional ownership, and full ownership. Actually, the first two parts more consider that the cost efficiency is the core strategy in their business model. The last two parts more focus on the high quality services. The middle segment is the mixture and shows the different trend in different companies. Since there is no further comparison with the traditional airlines and LCC in the same market dimension, it is still hardly to find the tendency of the development of the air taxi in the future. A new method is developed in this case to do deep research for market positioning by leveraging the “Cost per passenger (EUR) and average sector length for selected European legacy and low-cost carriers: 2012” [Data source [13]]. To simplify the analysis, the Jet-card programs, fractional ownership and full ownership was classified to one category that called high-end business aviation companies. The cost of the air taxi companies also can be calculated by using the cost of aircraft per flying hours divided by seas based on the different models

4.1.2 MARKET FORECAST In developing the Eurocontrol 7-year forecast [15]; the likely growth of business aviation was forecasted, taking into account past trends and the relationship with economic growth. The results can be found below. For the forecast, as in all of the business aviation statistics, ‘business aviation’ includes jet and non-jet traffic, as well as Very Light Jets (VLJs). After a 2012/2013 winter period with decline around 4.8%, business aviation traffic is not yet back to growth but has stabilized around a -1.8% in spring 2013 compared to the same period last year. Based on the Eurocontrol STATFOR forecast published, that foresees a decline in overall traffic by 1.3% for 2013 (±1.5%), business traffic is expected to decline by 1.8% in 2013. In 2014, growth is foreseen to be back with around 3.4% being a stronger growth than the 2.8% expected for all traffic (±1.2%). In later years, growth is forecasted to be around 3% to 4% per year for business aviation but the unstable economic situation increases the risk of further aggravation of delay in recovery. The outlook is not for a return to pre-2008 quite strong growth rates until 2015. What this reveals is that the time for the increase in such business aviation services is soon approaching towards 2015-2016. There will be an increase in the need for business aviation simply because point-to-point services from secondary airports will be cost-comparative. Specifically, business class services will not be provided on European domestic routes. This is a gap in the market that will be filled by business aviation, as new aircraft will be able to provide a price comparative service.

4.2 Consumer Demand The study of consumer is the starting point for the study. To launch such a project there must be sure that the demand exists and that the timing is right. The choice is make to study and take into account three different type of customers who correspond to the three market segments: the Cargo, MEDEVAC and Corporate and VIP. These various customers have common points that are the requirement on the level of quality of service, the reactivity and the customer service.

The strategy put in place result of a thorough analysis of current needs but also future needs, constantly evolving. Therefore, anticipation and innovation are at the heart of our concerns of entrepreneurs. After the study of the feasibility of the Taxi Jet project, there will be an offer even more differentiating with respect to the consumer, for example the businessman who needs to find practical, economic and original solutions. On this market, some companies have already positioned themselves on innovative offerings. “Cloudy" for example is positioned on an offer on the Net offers involving multiple transport solutions. [17]

Within ten years, the market of business aviation has evolved a lot. At the time, he was not in agreement with the request. Very few solutions were proposed services have yet demand was indeed present. The prospects of Air Taxi market are important. Some obvious reasons give us the opportunity to be enthusiastic vis-à- vis the potential of the business. In fact, they are highly dependent on this market analysis of economic factors. As positioning opportunities and growth in the long term the following reasons: the need for more frequent and move further and further, the need for the application to save time. The cost factor is also a concern of customers. Transparency of tariffs and services is a major important factor for the consumer. Customers prefer to know the rates before departure that is not necessarily always transparent; then customers can be surprised and dissatisfied.

The demand is also demanding on the level of the security. It will be important for the air taxi company to have an image of quality, thanks to some communication support, sponsor and

The consumer must have access to easy booking services, very simple and convenient. The objective of the Air Taxi is to save time; there must remain consistent with this commitment in booking and reactivity in response. Regarding the offer, users also appreciate the high end. Niche that still requires a certain performance and of course a high quality service such as security satellite phone, the ability to use an iPad, consuming champagne and other luxury goods are according to specific requirements. The private aviation sector has customers on three main segments: corporate and business, freight and cargo, and medical and evacuation transportation (MEDEVAC). These activities are at some level seasonal as illustrated it is possible to conclude that a diversified private aviation company can be active along the whole year. [18]

4.2.1 SEGMENT 1: CORPORATE AND BUSINESS USE This client proposes seasonal activity, related economic activity in Europe and France. Today, this market seems to be less important (according to interviews with Embraer and Philippe Denis Twin Jet). The crisis had its effect whether for the individual or private company that must move in the course of his work. These customers are very concerned comfort suggested by the companies. For example, the pilot can change routing in order to improve the conditions of the customer while some customers need to work on board to prepare for a meeting or even do it on the plane. The clients are very active companies whose managers must move quickly, in Europe. The areas of work are construction companies visiting different sites, industrial manufacturing companies, companies visiting different plants, automobile industry (for example Renault and factories In Slovenia, Spain, and Portugal), hedge funds, private equity firms, investments banks, exotic destinations in case of some VIP customers.

For the study the scope is in Europe, means of communication and trade implemented for the launch of the company through the main countries that the company operates. For instance, understanding the economy of the region where the company will be based in order to develop the network, to make the company well known, and study and get closer to its customer base. Therefore, developing strong relationship links is important.

To measure the potential of the region there must consider the economic fabric of the area businesses. For example, in Nice customers can be companies like Kone, Mercedes Benz, or Eiffage. Also, Arkopharma Laboratories has subsidiaries in Spain, Italy, the Netherlands, Switzerland and Ireland. Therefore, leaders or managers need transportation to get quickly on these sites. To meet this demand, there are certain types of aircraft that could be suitable: Cessna citation Excel – 7 passengers – 3.5 hours for European Market. Please refer Error! Reference source not found. .

4.2.2 SEGMENT 2: FREIGHT AND CARGO TRANSPORT There is another customer in the cargo segment. [18]This is a very interesting because complementary to Corporate and VIP activity. There is a strong need for this customer. For example, working with Renault who needs parts for its plant in Europe. There is a strong need for the customer to be fast, the consequences are very important in terms of production. Very often, these companies, which delocalized their production, manufactures in Just in Time. The seasonality for cargo segment is October, November and March, April and May.

World cargo analysis in 2013 provided by Boeing on the evolution of the market in Europe allows us to be reassured about the potential of running this segment. The study provides for an evolution of 2.4% per year. [19]

To conclude this analysis of the demand and justify the choice of the three segments, the final strategic objective is to maintain the aircraft fly and run the business in order to be profitable. The necessary steps concerning the marketing actions can be used for all three segments, without significantly increasing the activity associated in this demand is focused on five months in the year. To meet demand by offering high reactivity combined with economic performance to meet the requirements on short haul flights.

It is on this segment of customers that must be different from the other companies’ cargo liner. There must differentiation in the approach: for the transport of animals, hazardous materials, chemicals products etc. Few companies can provides this type of service because of agreements needed. Here too, the market is global but can also be known for the same customers as Corporate. For the segments cargo liner, Corporate, and VIP, there is a proposed segmentation of the customers per branch of industry: gas and oil industry (hazardous products), finances bank and real estate, automotive industry and event.

4.2.3 SEGMENT 3: MEDICAL EVACUATION (MEDEVAC) According to a study carried out by the DGAC, in Europe, emergency Medical Evacuation (MEDEVAC) represents 30% of activity of business aviation and provides transfers hospitals to hospitals, repatriation of injured people to a hospital or the transport of bodies. [21]

Beyond the health goal that interests us at the highest point, to choose this segment to be more profitable. Prices offered to customers are very high but costs are also important. Seasonality of MEDEVAC is between May and September, it is during the holiday periods that accidents are the most frequent. It is a serious sector, sensitive, where there is no room for error.

In this segment, the customers are health assistance and insurance companies: Global Support (working with assurances Axa, Generali), DAC, Europ Assistance, INTER MEDICAL ASSISTANCE (IMA), and hospitals directly. Contacting in priority all the hospitals, for example in the greater Nice area: CHU de Nice, Hospital Pasteur, Hospital Bow, Cimiez Hospital, the hospital for children and the Clinique Médicale des sources. In order to answer to such situations, MEDEVAC services area required by hospital and health carriers.

4.3 Competitive Environment

4.3.1 FRAMEWORK DESCRIPTION Considering the air industry and the business aviation market, the use of Porter`s five forces framework helps identify the attractiveness of an industry in terms of five competitive forces: the threat of entry, the threat of substitutes, the power of buyers, the power of suppliers and the extent of rivalry between competitors. In the business aviation environment, the competitors have similar products and services at the same customer group [22]. These are other air taxi and air charter companies while substitutes [22], which have similar benefit to an industry`s products or services, but by a different process, these are other airline carriers, high speed train and the person travelling with its own car. The air taxi allows more control to the customers who fly whenever they want to, from an airport that is convenient for him and to several destinations, point to point. Airline carriers do not want to commit, as these are non-hub areas while the air taxi offers security, convenience, flexibility, and efficiency. To meet the need of professionals with less delays, no congestion, no reduction in real business time although some restriction in luggage may apply according to the aircraft in use. The customer also has the advantages in terms of time as he can drive to the plan, board and fly. The time to take off can be as quick as 10 minutes. The customer also enjoys privacy and can fly to special terminals. In terms of comfort, the customer can experience the aircraft as it were his, bringing friends, pets and children, besides enjoying superior catering. The cabin of the business jets are designed for doing business, the customer can enjoy the same privacy as in his office, working either alone or with his team. Thus, for several customers flying business aviation offers many advantages over commercial airlines.

4.3.2 COMPETITIVE FORCES The business aviation market has some big competitors with highlights to the following companies: London Executive Aviation, Net Jets Europe, Tag Aviation and Privatair. These companies offer a wide range of aircraft in its own fleet, operate in different bases around Europe, and can offer a wide range of short, medium and long-range destinations; they also offer a wide service portfolio and sales approach, which may include full and fractional ownership business model. A selected group of big players have also applied the concept of airlines alliances as business aviation alliances; this is the case of AirClub: a business aviation alliance founded in Geneva on October 30th 2012. AirClub is the alliance of eight major European business aviation operators based in seven different countries: ACM AIR CHARTER (Germany), Air Alsie (Denmark), Air Hamburg (Germany), Flyinggroup (Belgium), GlobeAir (Austria), London Executive Aviation (United Kingdom), Masterjet (France) and PrivatAir (Switzerland). They are supposed to uphold common values of professionalism, safety and security, outstanding service, transparency and leading-edge technology. Today, the alliance represents one of the largest fleets of corporate jets in the world. Some big players have also gone out of the market in recent years; this was the case of Jet Alliance Flugbetriebs, which filed insolvency in the end of 2012. Nevertheless, it was around the year 2008 that several air taxi companies were to launch or increment it charter operations using very light jets (VLJs). The crisis affected several VLJ manufacturers; therefore, many air taxi operators had severe losses caused by non-refundable payment for aircraft that were not delivered. Some operators like AccelJet from Iceland, for example, never started operating and has no plans to re-enter the market, AirCab, located in Munich, keeps its plans on hold, Air- © Durasee Services Limited 2014 19

Cannes remains a pilot training school, Bikkair from Rotterdam, collapsed, Ambeo from Cambridge, is no longer operating, One Charter has no airplanes. JetBird went broke and cancelled its airplane orders; Wondair from Valencia also cancelled its orders [23]. According to Embraer, this market has not yet recovered [24]. The air taxi company is often a multi-purpose business aviation company. It often offers aircraft management services, maintenance, brokerage services to other business jet partners, in some cases even aircraft sales and pilot training. Some operates with focus strategy, which means a narrow segment of domain activity and tailor its products or services to the needs of that specific segment to the needs of that specific segment to the exclusion of others. For example, Zimex Aviation, from Switzerland, that provides support to the oil and gas industry, humanitarian agencies and non-governmental organizations worldwide, mainly to enable crew changes, special material, general supplies and fresh-food deliveries, as well as medical evacuation and search and rescue missions. Another example of focus strategy is ASL Private Jet Services, from Belgium, besides individual business flights within Europe and charter flights. Services include ambulance flights and organ transport, cargo and document, ASL holds a licence for the transport of dangerous goods, such as isotopes (nuclear materials) and explosives.

4.3.3 SUBSTITUTES In terms of substitutes, the main substitutes are the regular airlines and the high-speed; both are very well developed in several areas around Europe (see Rail Map in Europe 1). Airlines have advantages in terms of cost but are much less convenient. Although in crisis situation air taxi customers will probably migrate to them. The train is strong substitute, especially in terms of time. It does not require the long procedures for boarding as regular aviation and train station are mostly located in central city areas. Nevertheless, air taxi is faster than high-speed trains and it is best suited for journeys above 2 or 3 hours (around 600km in distance). Another substitute to compare is the train. Air taxi is faster than traveling by car and suits better the journeys above 2 or 3 hours (around 300km in distance), less risky, no congestion, less noise and pollution than cars. Also in case of air taxi companies, there is also the opportunity of getting customers from charter companies, customers who can no longer afford or justify travelling by larger business jets. In order to exemplify the advantages in terms of time and flexibility of air taxi services compared to scheduled flights and high-speed trains (when applicable), some different types of customer profiles and kinds were trips were fictionally created. These are also consider potential customer profiles.

4.3.4 SUPPLIER FORCES The suppliers are those who supply the organization with what it needs to produce the product or service [22]. These include the aircraft manufacturers, the MRO (maintenance and repair operators), the airports, the fuel providers, ground handling companies, the partners as executive aviation companies who can rent their aircraft to your company and vice-versa. Suppliers may also include partners as: luxury cars and shuttle providers, helicopters charters and catering companies, these are part of the solutions offered and intermediated by the air taxi to the consumers. The list of suppliers can be very extent nevertheless for small players it is the bargain power will be low with all of them. In case of big players with diversified business strategy, several services can become part of the portfolio and what is a cost for small players is revenue to the big ones.

4.3.5 BUYER FORCES Buyers are the organisation`s immediate customers, not necessarily the ultimate consumers [22]. In case of executive aviation, buyers can the passengers who purchase the tickets themselves or also the companies they work force. These buyers are not concentrated therefore, the bargain power in terms of price bargain may be low still the air taxi company must be very flexible and respond to very rapidly to these customers. Therefore, the bargain power is applied in a different way that final consumers demand a lot of dedication and time, these can characterized as high-end customers.

4.3.6 RIVAL FORCES The barriers to entry are factors that need to be overcome by new entrants if they are to compete in an industry [22]. In this executive aviation market, the main barriers include legal aspects, high investment, and tolerance to risk, time to obtain the plane and therefore be operating the aircraft. The legal aspects may include the time to get certification and licenses to operate in the market (this aspect will be further approached in the next section), the high investment is related to purchasing values of the aircraft and in infrastructure, it is a high-risk market as demand is hard to predict. The time to obtain the plane can be a challenge. According to Embraer, between 06 months to a one year for very light jets. As previously mentioned the market has many operators with one or two airplanes. New entrants take some time to enter while the high risk of the market can be a reason to be out the business very quickly as occurred with many new entrants during and after the 2008 crisis. The competitors assessed for this report are listed in Error! Reference source not found. .

4.4 Service Environment Europe has a large number of operators, most with one plane only while some operators that have large aircraft often have medium, light and very light planes. The standard service among these companies is to offer charter flights when the customer rents the whole plane for a single or multi destination trip. The customers can access the air taxi company directly to obtain a quote and make a reservation. Additionally to the air taxi, companies there are also air taxi broker that serves as a sales representative, which promises the best conditions to its customers, the passengers. There are some few cases that the air taxi company or the air taxi broker. Typically, they offer advanced online platforms that allow the customer to obtain quotes and make reservation including special online applications available for iPhones and iPads.

4.4.1 STANDARD SERVICES The standard service to the customer is charter plane; the cost will include the cost with fuel, crew, flight planning, and airport and authority taxes. Some beverages and snack are often offer as complementary. Some additional costs may occur as de-icing expenditures, which will depend on the amount of fluid, this can also be insured, taxes in the airport (other than the base airport) and refuelling when the difference in the price can sometimes be charged extra, cabin crew sometimes is offered but this will also depend on the plane size.

4.4.2 COMPLEMENTARY SERVICES Often the air taxi operators offer concierge services to its customers, it seems this service is offered at no additional cost besides the request themselves that may include catering, onward transport, car rental with or without a driver, helicopter, accommodation and further requirements. Some also offer lounges at their bases.

4.4.3 DIFFERENTIATORS AND INNOVATORS For those air taxi that operate small planes on board toilets are offered as differentiators other as 12 volt power supply in the cabin and telephone are still differentiation aspects. Other aspects can be considered as innovators as: internet connection on board, per seat purchasing option, and flexibility to schedule flights by using an application for iPhone and iPad are all rare the European market. Besides charters, some air taxi companies offer memberships and empty leg flights, which can be for the whole plane and in some rare cases per seat. Membership card allow the customers to prepay a certain number of hours to be spend for a period a time, this reduces the hour price of the flights and certain cases allow additional flexibility as change the aircraft model depending on the number of passengers the client needs. Empty leg is a round trip that is scheduled to be flown with no passengers. Typically, these legs can be chartered for a significant discount; therefore, some competitors allow this by announcing online what are the upcoming empty legs flights available. Few players in Europe offer fractional membership although this model. As mentioned before very few operate cargo services, air ambulance and transport of dangerous goods.

4.5 Legal Environment

4.5.1 LIMITATIONS AND REGULATIONS Before approaching the analysis on new entrants, this section is focused on the legal aspects that affect the new entrants in the executive aviation market in Europe. Some broad overview of the aviation regulation also is provided below. The legislation in the aerospace industry is based in international regulations that include several historical conventions: Warsaw Convention (1929), Chicago Convention (1944), Rome Convention (1952) and the Montreal Convention (1999). There is also ICAO – International Civil Aviation Organization of the United Nation to codifies the principles and techniques of international air navigation and fosters the planning and development of international air transport to ensure safe and orderly growth. In case of the countries that adhere to these conventions, there will be regional regulation, in case of Europe this done by the European Commission. The European Commission (EC) issued the regulation number 2042/2003, this refers to the on the continuing airworthiness of aircraft and aeronautical products, parts and appliances, and on the approval of organisations and personnel involved in these tasks. The regulation EC number 2027/97 refers to the air carrier liability in case of accidents. The regulation for an air taxi company is included in the civil regulation in Europe, the Regulation EC (European Commission) number 216 dated from 2008 was approved by the European Parliament and of by its council. It defines the common rules in the field of civil aviation including the establishment of the European Aviation Safety Agency (EASA). It defines the operator as any legal or natural person, operating or proposing to operate one or more aircraft while the commercial operation means any operation of an aircraft, in return for remuneration or other valuable consideration, which is available to the public or not. As long as the customer has no control over the operator, it means a commercial operator. Therefore, the air taxi company requires the licence as any other flying operator company. The Commission Regulation (EU) number 965/2012 lays down technical requirements and administrative procedures related to air operations pursuant to the regulation 216/2008 of European Parliament and of the Council. All these regulations are relevant to an air taxi operator, as they will need to

comply with it. Nevertheless, for a new entrant the main question is how to start operating in a market that means how to obtain an air operator certificate (AOC). In 1992, the European Communities created the regulation 2047/92 on licensing air carriers. The operating licence authorizes the air carrier to carry out carriage by air of passengers, mail and/or cargo for remuneration or hire. For those who are granting the licence for the first time there are several requirements. The applicant must demonstrate that it can meet at any time its actual and potential obligations for a period of 24 months from the start of operations. It must be able to meet its fixed and operational costs incurring from operations according to the business plan, even considering that there is no revenues in the first three months of operations. The business plan must consider at least the first two years of operation. There are several rules if the business plan or the ownership suffer relevant changes subs as: operation of a new scheduled or non- schedule service to a place not previously served, changes in number and type of aircraft or even change of single shareholder that represents 10% or more of the actual shareholding of the company. The licensing authority should take a decision on releasing the licence in up to 03 months. The 2047/92 also refers to suspend or cancel a licence in case of financial problems or any situation that safety is at risk. The executive aviation market is complex for the new entrants but the 2047/92 offers some flexibility to air carriers that are exclusively engaged in operations with aircraft of less than 10 tonnes of maximum take-off weight (MTO W) and/or less than 20 seats. Just to illustrate a VLJ as the Embraer Phenon 100 has maximum take-off weight of 4.750kg and the Phenon 300 7.951 Kg. The air carrier must demonstrate that their net capital is at least 80.000 Euros. In case the air carrier has, an annual turnover that exceeds 3 million Euros a year that the air carrier is required to demonstrate all the information regarding the requirements explained in the previous paragraph. The 2047/92 also requires that the undertaking, owners of the air carrier, not be declared as bankrupt, or conduct serious professional misconduct or criminal offence. Another requirement of such legislation is that the air carrier must be insured to cover liability in case of accidents, in particular in respect of passengers, luggage, cargo, mail and third parties. An interesting aspect is regarding the ownership that shall not be a condition for granting or maintaining an operating licence but the air carrier must demonstrate that it has at least one aircraft at its disposal through either ownership or any form of lease agreement. The granting and validity of any operating licence is dependent on the AOC that specifies the activities covered by the operating licence and complying with the criteria established in the relevant national regulation. In case of France, the national regulation is applied by the DGAC (Direction Generale de l’Aviation Civile). The value to obtain an AOC and to maintain includes authorized areas of operation, turnover, aircraft category, maximum take-off weight, operated aircraft, professional undertraining and several other information that compose different formulas. The rules the AOC in France are stated in the “Arrêté du 28 décembre 2005”

4.5.2 CERTIFICATION AND LEGISLATION According to EASA, if a complex motor-powered aircraft is certified with at least one of the following criteria, it is considered by as an aeroplane. A maximum certificated take-off mass exceeding 5 700 kg, or certificated for a maximum seat capacity of more than 19 passengers. If it also requires a minimum crew of at least two pilots, or it is equipped with a turbo jet engine(s) or more than one turboprop engine. According to the European legislation, an air taxi company will need to operate with two pilots, including VLJ as these have two turbo jet engines. In the USA, the regulation allows VLJ jets to fly with one pilot while in Europe this remains a constraint. Until the date this report was prepared, the only aircrafts that were certified in Europe © Durasee Services Limited 2014 23

are the Embraer Phenon 100 and Phenon 300. In October 2013, EASA has certified, based upon cockpit equipment arrangement installation. Arrangement evaluated during certification testing requires the Phenon 100 and 300 the minimum flight crew as one pilot. The choice of the aircraft to operate in this Air Taxi will be commented in further a section of this report. According to Embraer, the operators for Phenon 100 and 300 seem to fly them with two pilots when transporting passengers and one when only positioning the airplane.

4.6 Operating Environment

4.6.1 ANALYSIS To master the best service operations Air Taxi, be as productive as possible and develop our competitive advantage, the study of 4 V's can highlight the characteristics of the activity.

In Air Taxi Market, the volume can be considered as medium, for this type of Air Taxi operations. For the Air Taxi Company as it is a launch of a new business in the early years of the activity, it will focus on a specific routes and a segment of customer and the volume will be lower than the market.

The variety dimension is high as the market responds to ad hoc service, the Air Taxi Company stands in a lower position compared to the market. This was strategically chosen while it still requires flexibility in operations management.

Regarding the variation in demand, the global activity in the market is a non-predictable business, it is important to anticipate as much as possible and remain flexible for unexpected requirements. The Air Taxi Company`s strategic vision as operating ring routes creates a lower variation on the demand compared to the usual charter market. In order to mitigate the lack of variation in demand the Air Taxi Company can project to diversify market segment.

The visibility dimension is quite low, so it is important to offer a high quality service, to develop a close and frequent relationship with the customer. Starting a new business does not allow us to have real time visibility but there is a plan to increase it.

4.6.2 ROUTES AND CITIES By examining the Eurocontrol analysis of the 150 busiest routes in Europe for Business Aviation [7], a clear trend of airport congestion emerges. By also validating this with the data of passenger volumes, there is a surprising concentration of routes between a numbers of European cities that are relatively close together. This trend of high volume business aviation is clearest between London, Paris, Nice, Brussels, Basel, Geneva, Milan, and Rome. However, within each of these countries, there are city pairs, and some additional phenomena that can explain some of these routes. • On many parts of this map there is a need for business aviation due to the remoteness and inaccessibility for fast trains or other reliable means over land, e.g. only by sea. • The other aspect which is the concentration of areas with high GDP per capita, and centralization of industries which require frequent travel and international mobility. Apart from the routes that are shown to have high density, there are two areas of interest, highlighted on the map shown, for these two aforementioned reasons. From the analysis of the routes and prices per kilometer, the best in terms of prices profitability and traffic are between: • Scotland (Aberdeen) and the northern Orkney Islands, and north UK (Leeds, Manchester) • Corsica (Ajaccio, Figari, Calvi), Cote d'Azur (Nice/Cannes), and Switzerland (Basel/Geneva) © Durasee Services Limited 2014 24

4.6.3 AIRPORTS UTILISATION Concentrating now on the scope of this study, within the UK, France, and Germany. When examining the concentration of airports in Europe a number of factors: • Firstly, that France, although density is many times the European average, much of the new growth is in utilization of secondary airports, whilst traditional airports are decreasing In use. This indicates that there is a spillover effect of traffic from these primary airports into the nearby secondary airports. • Since these secondary airports are under-utilized, they provide the best availability for business aviation to increase use and compete with traditional carriers. • Taking the chart below, there is an obvious relationship between these high utilized airports of Nice and Geneva, and the passenger volumes in the geographic region which indicates demand is increasing and spilling over into neighbouring airports. • Here there is also a view of the growth of the airports, which show the main airport growth is decreasing. However, the secondary airports in the region are still increasing, which indicates the market overall is still increasing. • Based on these increase airport and passenger volumes, the main market is in the France geographic region of Nice, and Switzerland

4.6.4 ROUTES TYPOLOGIES

The passenger volumes in the geographic regions are shown in each circle on the map below, to scale of 200km in diameter. Although only France here is within the scope of the target markets, there is a cluster of options for expansion in neighbouring countries. Since data on Italy was not analysis, it is not possible to validate this assumption. Base on the choice of Nice, as an operating base, perhaps future locations could also include Milan or Turin to provide a centralised equal-distance hub within the centre of the cluster.

4.6.5 ROUTE SELECTION In fact, there are many factors can influence the basement and route decision. For instance, the overall economic environment in Europe, legal and tax policy, the airport location and passenger throughput, aircraft model, flight distance, frequency and business passengers demand, etc. Based on market analysis and strategy decision, there are some options for the routes selection. The flight distance will be around 1000km. Operating a number of routes at same time to improve the frequency and decrease the empty leg. Small airport with the convenience ground transportation.

4.6.6 AIRCRAFT TYPE AND RANGE Referring to Error! Reference source not found. , Error! Reference source not found. , and Error! Reference source not found. , and the analysis shows the Eclipse 550 is the best aircraft choice for the operating environment and constraints faced, validating the assumptions regarding VLJs. The actual range of the Eclipse 500 will vary based on flight conditions, actual winds, passenger loading, optional equipment, etc. The max ranges shown correspond to an NBAA range of 1,125 nm and a 45 min IFR range of 1,300 nm. Assumed pilot weight is 200lb, and passenger weight is 170lb each.

On an efficiency basis, the comparison between Eclipse and the market in Appendix H.The Eclipse Jet is 30% less fuel than the Cessna Mustang and 50% of the Embraer Phenon 100 while providing similar range, speed and payload. Eurocontrol [7] data suggests that: • 80% of all business jet flights undertaken in Europe have 4 or less occupants (including pilot) • 80% have a duration of less than 2 hours, average flight time of 1 hour 40 min for 750nm • Eurocontrol and handling/ landing fees are less because they are based on weight;

4.6.7 PASSENGERS AND SEATING The Eurocontrol analysis of the size of aircraft in the market, it has been identified there is a gap at the lower and middle market for less than six seat aircraft, and 12-19 seat. Here in this graph from Eurocontrol it is visible that there is two main segments, in the above 6-seat and below 12 seat, and then all aircraft up to 19 seats, and above. This implies the bulk of the Jet aircraft used in the market for European destinations are between 6-12 seats. Furthermore, the mid-range about 12 seats is typically for international and Trans-Atlantic flight, here this shows that 19 seats are most used. Therefore VLJs under 6-seat are more suitable for air taxi routes within Europe.

5 Part 4: Operational Model

5.1 Market Approach Since 2001, NASA had launched SATS (Small Aircraft Transportation System) projects to conceive a safe travel alternative, freeing people and products from existing transportation system delays, by creating access to more communities in less time [25]. Nowadays, more and more operators and companies have accepted the concept of the air taxi and have put it into the implementation. Although there is, a range of definitions followed the general rule; air taxi and traditional business aviation trend to convergence and become more tendencies of homogenization in the operation level. Three specific trends seem to appear throughout the air taxi sector of private aviation [26]. Operating a homogeneous fleet [26] ; The use of Very Light Jets (VLJs [26] ); Strategically positioning aircraft in "hubs" on popular routes. [26] Air-taxi operators offer competitively priced point-to-point transportation between local and regional airports at their customers' convenience. Sometimes called fly-on-demand, air taxis are frequently the most time and cost effective way for business people to get from one suburban or rural community to another on short notice. Unfortunately, due to the immaturity of the market and economic downturn pressure, the values and ideals of air taxi were never fully realized, even the great company DAYJET which provide the real pre-seat service also has bankruptcy. According to the forecast from NBAA, the pipelines of new models are still important tendency for longer-term growth in the future [13]. Therefore, the deep research of the air taxi companies will still focus on the business model that based on the route topology, cost model and service level. Different types of business jets through the “Fractional Ownership (Definition, FAR PART 91K)” business model will be provided, which can give the customers diversity of flying experience and add more value to their trips. Though this way, the customers can use less money to purchase a part of the “using the right” of jets which compared with buying the whole airplane. The butler service will be also provided to aircraft and charge some management fees (maintenance, preservation) annually. Through aircrafts portfolio management, provide safe, fast, total flexibility, cost-effective, high performance and reliable access to travellers’ demand of choice , provide the ability to conduct business privately during flights, more direct access to companies’ sites, and reduced fatigue on a company’s most frequent travellers, which can achieve customers’ value and vision. The high efficient price model has been developed which named SFAR-P. It will support the choice of airport basement and route topology, and the identification of the frequency. This model will integrate with the serviced model to meet the value creation in business.

5.2 Advertising strategy

5.2.1 DEVELOP AWARENESS AND GENERATE TRAFFIC The focus of how to develop the communication strategy is shown below. For this, there is an emphasis on the approach in seven steps The targets are European and local customers:

VIP: Individuals (senior level professional and high class) Corporate: Business leaders , managers or general services for the business segment Cargo: Purchasing areas of companies Medevac: Hospitals and health carrier, insurance and emergency repatriation

Firstly, choose the appropriate media that is accessed by the customers. Despite the limited budget communication, the aim is to meet different objectives through following steps: the cognitive step to develop brand awareness through advertising, and the conative step to generate traffic on the company hotline and website. The priority for the launch phase is to raise awareness and generate business contacts. Hereafter, there will be defined the approach to "multi-media - communication", this is to determine all the media that can be used. The communication budget will fit into the overall financial forecast, with investment: 9 000 euros x 8 months = 72 000 euros / year. Given the limited budget that is fixed at 9 000 euros per month, for the communication over the first year studied in detail the action plan of communication which will be chosen. This advertising plan and communication must be accompanied by a strong commercial activity, a prospecting work fine and precise. It will indeed develop strong business relationships with customers and prospects. The approach to the customer is essential to the success of the business.

There are usually six months to measure the results of the investments in communication. For the Corporate and VIP customers, the visual for the publications press and sales brochures in the trade press and target magazines.

5.2.2 COMPETITIVE ADVANTAGE Chartering an airplane typically involves paying a fixed per hour charge for the aircraft and crew. Air taxi operators usually charge by the seat-mile or have a fixed rate for flights between given airports. Some air-taxi operators will also try to sell vacant seats to bring the price per person down even further [27]. However, this area is full of fierce competition, and profit margins have been greatly compressed. Compared to most of the LCC and legacy airlines, because of the air taxi operator lack of insufficient economic scale, they have disadvantage in the competition. An effective strategy is to provide the better service and comparable prices that can attract more passengers in this “Death Zone [28]” segment. The second path is providing the better price and comparable service to compete with the high- end business aviation companies. In fact, many high-end operators are using this type of strategy to attract more business passengers from the schemed flight and compete with full service companies. Based on our high efficient price model SFAR-P, it is believed that the advantage in competition will be more than other air taxi companies in the market segments. At the same time, to consider the main rival is high-end business aviation companies that also provide diversity services. Of course, when new company enters the market, if there are enough financial support to get the economic scale, a strong position and advantage will occur in both paths.

The business model can initially start by two VLJs, one dedicated to the ring route (per seat is available) and the other to charter (empty legs are available). One aircraft can be acquired by leasing and the other by fractional ownership model. The core service to the passenger include: transportation, reservation per mobile phone apps, 247 reservation per phone and email, on board connectivity and exclusive website login (owners and members) and also complimentary services as catering and concierge services. The company can extend its services including ground handling, training, aircraft sales brokerage and maintenance along its future years.

5.3 Service Models A Service Model describes how a service provider creates value for a given portfolio of customer contracts by connecting the demand for service from the assets of its customers with the service provider’s service assets. It describes both the structure and the dynamics of the service. Once defined, variants of a service model can be created in order to tailor a service to a customer’s specific needs. There is no “One-Shoe-Fits-All” in the service industry. Each team within the organization may have to adapt their services to best suit the needs of the customer for whom the service is being created [29]. Since last two decades, because the high efficient and low cost VLJ were put into use, air taxis are a fundamental change from the air-charter business, even though many air-charter operators are jumping into the fray, adding “air taxi” to their marketing. The real issue is not which specific business models “qualify” as air taxis, but rather the advantages/disadvantages of each, and more importantly, how well each company implements the model it chooses [30] . It’s clear that higher utilization, greater public accessibility (mostly online), and smaller, cheaper aircraft will force a sea change of lower prices and dramatic growth in the low end of the charter market, even as traditional airlines and privately owned aircraft continue on their own trajectories. [30]

In air taxi industry, each company has its unique understanding of the market and a lot of new service model was developed with new entrants. Joe Leader, the president of Air Taxi Association, think that “the other thing that’s very refreshing is that the operators aren’t taking a cookie-cutter approach to the business, they’re each selecting a unique business model, value proposition and pricing profile that they think will work best in their market” [31]. In the air taxi approach, there are three main different take on business models. They are: Large-fleet (in relative terms) air- taxi operators which targeting business travellers originating close to urban areas, who will be serviced within a well-defined region (this permits a high utilization rate). These include DayJet, Linear Air… [30] Smaller fleet operators targeting rural business travellers or niche markets of high-net-worth individuals; like SATSair and Way To Go. [30] Small hybrid charter/air- taxi services that will opportunistically fill planes with on-demand passengers on a best-efforts basis when the occasion arises. [30] In the charter approach, the various options available to customers to best meet on-demand business travel needs, including: On-Demand Charter (Delta Private Jets, Avinode and Air Partner etc.) [32] Jet Card Programs (Delta Private Jets, NetJets Marquis Jets, and FlexJet25 etc.) [32] Fractional Aircraft Ownership (NetJets, Avantair, and Executive AirShare etc.) [32] Joint Aircraft Ownership [32] Full Aircraft Ownership [32] In this case, a hybrid air- taxi /charter services model was developed based on the fractional aircraft ownership which can provide higher competitive advantage by leverage the high utilization rate of the air taxi. © Durasee Services Limited 2014 29

5.3.1 SERVICE PRINCIPALS Service Models are a valuable tool for understanding the market and strategy of an organization. According to our market analysis, there are four rules in a framework, which are the assumptions behind the basic elements of a successful, high-service model. The capability for rapid expansion of the economic scale: In the support of this ability, company can easily to develop from a small company to an international enterprise without having to re-transformation of the business model. The capability to continue providing the valuable services: This capability will allow an enterprise provide the variety of valuable services to attract the potential customers instead only through the low fares to compete with other rivals. The capability to maintain the advantages in different market segments: This capability will provide the flexibility to enter quickly, or emerge from market and make profit. The capability to form a network and alliance with other reliable partners: Through this ability, the company can get enough support to extend service with high quality.

5.3.2 SERVICES CATEGORIES Based on the analysis of the customers demand, the company will provide the on-demand service and pre-seats service as the top service level. The sublevel is cargo, special flight including Hospital flights, Emergency events flight, Training flights, Charity flights and the passenger service including Business flights, Leisure flights, Pre-seats and Schemed flights. Cargo, special flight and some part of the passenger service as the business flight belong to the on-demand service. In fact, some on-board service like the telecommunication and internet access will charge some fees depend on different situation. Cargo flight is mainly focus on the cargo transfer. The customers can use ownership sharing programme, pre-pay card and other legitimate financial payment to pay for flight. Of course, all the flying cost will convert to the ton/hours/km. All the transport goods must comply with the requirements of laws and regulations. Hospital flights are mainly providing the service to the hospital. The ownership-sharing programme is the main mode of cooperation. Business flights are mainly focus on the passengers and big enterprise. The ownership-sharing programme and the pre-pay card are the two options provide to the customers. Leisure flights are mainly focus on the travellers, this type of flight will fly on-demand. Pre-seats are mainly focus on the passengers and big enterprise. With this type of service, the passengers have the right to book seats instead of charting the whole aircraft for flying. When there are enough passengers waiting to fill the aircraft, then the passengers will enplane and be transported to their destination. In our price model, the loading factors must higher than 50%. Schemed flights are focus on some “popular destinations”. The object is try to use competitive prices to attract customers that are more ordinary in order to get economies of scale. Emergency events, which means scheduled just a few hours before the flight, will be more cooperate with the government, social organizations and private companies. Training flights will serve to the individual pilot study. The service model can be the on-demand service, hours paying basis or schemed flight. Charity flights are the total free flight, it can be thought as the advertisement flying.

5.3.3 SERVICES LEVEL STRUCTURE According to the service category, a four-layer service structure was defined in this case. Butler and customized services is mainly focus on the high-end customers. Actually, the company will provide customized service solutions for each of our ownership-sharing participants. A professional manager will fully understand the customer's real needs, and help customers choose an optimal sharing service package to provide on-demand service. Call center and On-line service will provide 7 days and 24 hours high efficient service feedback. Whatever the customers stay in which place, at what stage of our service, they will easily access our service system to query, order and ask for help. Membership card and Reward Program: All of the customers who have pay for our service will enjoy our service reward. The membership card is more focus on the high-end customers, they will enjoy the dividends and a certain free flying hours depend on their membership level. The reward program is more focus to the frequent flyer and our loyalty customers. Mileage awards program will include three parts (fig 8). The first part is accumulating by the flying hours. The second is come from service using. In fact, all the passengers can buy the service card to use the diversity service that also will give them mileage awards. The third will award by using our financial product such as joint credit card, fund products etc. The category of the mileage awards program Pre-pay and buyback service is the kind of service to make the customers investment more valuable. Through the pre-pay system, the customer will enjoy a certain discount and will enjoy the high efficient flight booking service avoid the complex one by one booking process. The buyback service will give the customers right to sell the rest fractional ownership to the company with the fair price in market that allowed the customers obtain the maximum benefit.

5.4 Owner Operator Models

5.4.1 FRACTIONAL OWNERSHIP Fractional Ownership time-sharing program will be our core service module. All main service activities will be orientated around approach. This concept of ownership sharing is not complicated and is commonly used for such services. For example, if the company tries to sell a business jet to four people at the very beginning, everyone only pays 1/4 but can always use this aircraft within a certain flying hours. If there are two buyers who need to use jet at the same time, the company will provide another same model or similar one to ensure that customers can use simultaneously. Famous Buffett even recommends this purchase mode to shareholders on the board. In fact, in this case, the joint ownership (FAR 91 PART) sharing program will not be adopted, that means the ownership of the aircrafts still belong to the company. The company only sells the whole using right and share it to the different customers. For instance, the annual flying hours for a "shared ownership" jets around 800 hours. A quarter of the ownership will be 200 hours per year of the use rights. The owner also will enjoy the dividends if they invest trough the financial products that maybe banded with flying package. Normally, the sharing program also will time period requirement to the customers. For example, all the customers should sign a contract with three to five years promise. Therefore, when the contract is signed, all the expenditure is foreseeable and the fix cost will be distributed to the participants. At the same time, there are two evolution Fractional Ownership to focus the two typical customers: Membership Service (Enterprise Customer): the company provides flying package that include both on-demand and per-seats flights to meet the business demand for the enterprise. This program also requires a monthly membership fee and management fee to cover direct costs

of operating the aircraft as well as components like maintenance and crewing. However, the enterprise can share the flying hours with the internal staffs. Pre-pay card service: This type of customers will get a certain flying hours through buying the flying membership card. The customers should update their flying plan and re-purchase the pre-pay card every year. They will enjoy the some reward through our mileage awards.

5.4.2 ATTRACTING INVESTORS Based on this analysis and the understanding of the market, the wealthy and the business people who have a very high value on the time efficiency are the main customers for this industry. Notably, there are two tendency should be considered, one is the most of billionaires and international enterprises owned their own business jet. The only reason, which allowed them takes others air taxi is the high service quality for the on-demand travelling with the lower cost, compared with their own planes. Another is the low fare with comparable quality of service, which will bring a fatal attraction to those people who want to save time but cannot afford a whole airplane. Since 1986, the theory of the ownership sharing of the aircraft was created by Net Jet, this concept soon have been adopted by many companies because it gives good answers to those two tendencies and also bring many advantages like high capital utilization, foreseeable expenditure, and the guaranteed liquidity to the company. With fractional jets, customers (referred to as "owners") buy a “share” of a plane, rather than an entire plane. The price is pro-rated from the market price of a full aircraft. Owners then have guaranteed access (for 50–400 hours annually or a certain number of days of the year, depending on share size) to that plane, or a similar plane in the operator fleet, with as little as four hour notice. Fractional owners pay a monthly maintenance fee and an “occupied” hourly operating fee. Usually the latter is charged only when an owner or guest is on board, not when the plane is flying to a pick up point, or returning to base after completing a mission [33]. Owners have access to the full fleet of planes and may upgrade or downgrade for specific flights. At the end of the contract the owner can sell their share either back to the company or to another owner waiting for a position, most companies charge a re-marketing fee to do this [33]. In this case, a service model was developed based on the framework of the Fractional Ownership (FAR Part 91K). Actually, when the implementation of the Fractional Ownership from the perspective of the air taxi company instead of a charter’s view, a very compelling service model was born. Hence, based on this frame, there are three categories, the ownership customers, the pre-pay flight card customers and the ordinary customers. Ownership customers are the people who have been participated in our Fractional Ownership sharing programme. Most of them are the rich people like billionaires and millionaires or the top level of the big enterprise like CEO and CFO. At the same time, some of the department of the government and private association also will become our customers because of some particular reasons like budge control, restriction of the resource and emergent events. They are more care about the high quality on-demand services and distinctive personalized experience with a comparable price range. They are not only the customers but also the partners. If they keep showing their Loyalty, they will enjoy a certain dividends like the free flying hours with the contract Pre-pay flight card customers are the people who have no ability or do not want to join the ownership- sharing programme. However, they like to pay for a small amount of flying hours like 25 hours per year. Most of them are the frequent business flyers or the customers who have some unique demand. They have a strict budget control, while the flight time and frequency fluctuate. In fact, many middle level manager in the big enterprise or some smaller private companies that have demand to transfer © Durasee Services Limited 2014 32

some important cargo. Some of this type of customers will change to the ownership customers if they think this kind of service is worthy. Moreover, some of them will shift to become the ordinary customers because of the cost factors. Ordinary customers are the people only fly with a certain reasons like very low fares. The demand for such passengers is hard to forecast. Most of time, the price is a very powerful tools to attract them.

Generally, there are five main question should be answered in order to find the viability of the operating. Why this service model can attract customers? What is the optimum number of the shared owners? What is the optimum period for the fractional ownership? What is the main risk in the operating and how to handle it? According to the research of the operator module of GAIS (general aviation implement support) programme that was funded by the USTDA (The US Trade and Development Agency). This study showed that as described in the Federal Aviation Regulations (FAR) Part 91, The Fractional Ownership factors should include the two or more certificated aircraft and Ensure that each participant shared ownership patterns in an aircraft in operation or at least have the smallest share (aircraft defined as 1/16, the helicopter is defined as 1/32) [34]. Since Net Jet Europe also uses a similar mode, so this kind of business model will be legally regulated and protected. Based on the result of its research, the fractional ownership program can be significantly to decrease costs and operating expenses for each participant who has join the programme. An example of the comparison between the full ownership with 1/8 ownership by using the Gulfstream 5 was shown on Fig 27. Almost 80% will be saved in the operating cost. [34].

5.4.3 SHARE TIME AND PROFITS Obviously, the more ownership shared, the more cost saved. However, the probability of using the aircraft at the same time will bring the risk to day-to-day operating like scheduling flight and arrangements for aircraft. If there are 4, 6, 8 or 16 people sharing one airplane with 1000 total flying hours per year. The probability of two people using the plane is 0.5%, 0.5%, 0.6%, and 0.6%. Based on calculation, optimum number of shared owners should be around 4 to 6, because the conflicting probability with other users will around 0.5%, and the difficulty of ownership management is moderate. The result was showed in table below for the comparison among the 1/4, 1/6, 1/8, and 1/16 fractional sharing programme. (Normally, an accurate assessment is to establish an approximate mathematical model to simulate/forecast the customers’ actual demand, which can be compared with the real demand based on the market research. That can be the next further research) Fractional sharing 1/4 1/6 1/8 1/16 Cost saving for Participants 75% 83.3% 87.5% 93.8% Probability of Collision between 2 0.5% 0. 5% 0.6% 0.6% Participants

The original formula for fractional flight is similar to its present incarnation: customers purchase pro-rata portions of aircraft that is 100% guaranteed to be available. The fractional jet provider then purchases an additional 26% of capacity (over and above the fleet purchased by clients) to fulfil that guarantee. These extra planes bring the guarantee to 98% statistically. The last 2% of the guarantee represents holidays and other worst-case situations. To close this gap in the guarantee, the company relies on “supplemental lift” from charter -– either from affiliated © Durasee Services Limited 2014 33

companies, or trusted third-party charter operators. As more client-owners join, a network effect results in a reduction of expensive empty legs: with a critical mass of customers, the theory is that it becomes more likely that a particular trip can be accommodated with minimal deadheading. In reality, it is not clear how many aircraft is required to reach an efficient scale, whether it is 50 aircraft, 400 aircraft, or whether it ever happens [33].

5.4.4 INVEST AND REAP RETURNS For the period of the fractional ownership, if the period is very short, large quantity of time and money will be spent on the coordination with the customer is new as there can be frequent changes of aircraft owners. On the other hand, if the period is too long, it will reduce the interesting of the customers who want to invest in our airplanes and it is difficult to attract their attention. Taking into account 10-year is our breakeven point for the each airplane (based on our NPV calculation); 5-year will be the reasonable period for the customers. If the customers satisfy with the high quality services in the first contract period, the cash flow level will make breakeven at the fifth year when the second fractional ownership contract will be signed. It will bring extremely advantage for the liquidity. At the same time, we also can provide the option for buyback right with the fair price in the market, which also can contribute to decrease the customers’ worries for their investment.

5.4.5 MANAGE RISKS AND REWARDS It is easily to find that this kind of service model can make huge benefits, but at the same time, it also brings operational risk. One of the main unavoidable issue is how to deal with the conflict of the demand. Obviously, one or two planes cannot eliminate the problem. A large or sufficient scale fleet is necessary which allow the company have enough space to find the same or better aircraft alternatives. Intelligent IT systems will be useful to analyse and find the potential needs of customers in advance. At the same time, the high efficient scheduling management system will help to find the optimal solution. Pre-paid flight time cards will provide to the certain customers who just want to fly and do not want to join the ownership-sharing program. This approach would be the supplement for the sharing plan, and will reduce some of idle time risk that due to the fractional ownership participants’ defaults. Another approach is to change some of the customers to collaborate through the joint ownership. They will not only take flight, but also will share the costs of the property and the operating costs. Under the condition of the Profitability, the conflict can be reduced. Nevertheless, it would bring some other operational issues such as the breach of contract. Everything needs to practice in the real therefore there will be a learning curve regarding this aspect.

5.5 Implementation Models

5.5.1 ROADMAP FOR FUTURE The focus on efficient passenger movement to support business and to realize the on-demand door to door service, the company provides extend services by itself or the service come from partnerships such as taxi, hotel booking and shuttle service. The following additional can be developed to satisfy customer’s specific demand and be charged additionally: Knowledgeable staff with local resources (hotels, car services, catering). On-site Customs and Immigration services. Passenger and crew facilities. On-board services (medical service, internet access etc.). © Durasee Services Limited 2014 34

Flight Planning Services (trip and performance planning, permit processing, etc.). Maintenance and aircraft cleaning service. The company will strengthen cooperation in various types of advertising media, and leverage various internet tools such as Facebook, Twitter in order to enlarge our influence. The service will also expand to cooperate with banks, through the issuance of common related financial derivative products. The company will provide high quality on-demand service to high-end customers such as billionaires. In fact, Europe was always going to be a harder market for air taxi operators to crack than the US. Distances are shorter, ground transport speedier and more plentiful. And while airports that can take jets are less plentiful than in the southern states of the US, for example, fears were raised by the European authorities of overcrowded skies [35] . Therefore, the right product and right time is particularly important.

5.5.2 PLAN WITH EXPANSION If the air taxi company start with only one or two aircrafts like most of such companies at present, it is hardly to provide much diversity products to the end user. The right time rely on the good macroeconomic situation. That means the proportion of the passenger who wants to pay for the good service with a little higher fare will increase with the economic growth. Carefully to select the base and routes, try to lower the cost as possible as it can, and diversify the services in order to acquire additional revenue. Pay more attention on the cash flow especially in the bad economic situation. These factors will be the key for success. The target is to survive and hold a certain market share at beginning. Then it needs to find the chance to expand the scale and follow the roadmap to develop the business. If the air taxi company can find enough financial support, which means that the Fractional Ownership model will be adopted by most of partners and customers. The operating fleet can exceed 10 aircrafts or more. A relatively stable customer base and markets will be formed with a certain scale through the variety of the services (3 or more). The right time for the company means how to quickly expand the fleet`s scale through the merge or acquisitions with low cost. The other key issue is as same as the small air taxi company is, but the operating margin will higher than those do. According to our market analysis and service model, a bold and ambitious implementation roadmap is defined.

5.5.3 GOALS FOR GROWTH In this roadmap, the whole development is divided to three stages. The first stage is pioneering period. In this period, the company has entered the market and need to occupy a certain market share from other competitors. The main strategy is to enlarge the share and using high quality service and comparable price to compete in business aviation area in Europe`s market. Due to immature technology and other reasons like the customers traditional habits, the LCC and traditional full service airlines are not the main rivals because the different market segments. The second stage is growing period. There first signal come from the market in this period, is the technology breakthrough make the new high efficiency business jet come true. This will give the operators’ chance to keep lower the cost. In this stage, the company need to influence more to the manufactory in order to make design more suitable for the company operating model. Expand the business to other potential market like the traditional market of the LCC and legacy airlines because the technical ability provides the competitive prices. The second signal is the opportunity of merge and acquisitions, air taxi companies can become big enough and quickly expand the business to other country. The “death zone” will not as dangerous as before. The third stage is network period. Why it is called a “network”? Because in this period, people’s concepts and habits have changed and air taxi will be one of main travelling way can be selected

by them. Passengers are accustomed to selecting air taxi as same as to select high-speed train for their travelling. Thanks for the open sky agreement of the air taxi service cross-different countries; this type of transport also will be adopted by most countries all over the world. The opportunity of setting the new regulation for the international air taxi alliance like star alliance comes to mature. A “hub” based network for air taxi maybe realized in the global transport.

5.5.4 INNOVATION FOR SUCCESS According to the Joe Leader, the president of the Air Taxi Association, he said,” Our first and most important role is to facilitate the development of common goals and standards for the next- generation air-taxi industry. ” In addition “… … the best example is the Air Taxi Connect-IT System that’s been designed by our Advisory Board. Connect-IT is a set of open-source protocols that will allow our member companies’ computer systems to talk to one another regardless of differences in the operators’ software platforms. As the industry continues to grow, Connect-IT will allow operators to utilize any reservation system, any common reservation broker, and any direct web service. ” [31] People can transfer in different air taxi airport, change different business jet (long range or short range) with different air taxi carriers. People can go to any place at any time without any wasting time on the turnover by using air taxi that this model only can provide to billionaires with luxury fares at present. Until that day, the dream of the air taxi will come true. Actually, the air taxi market is more depended on the good modelling which include the business strategy and day- to-day operations [30]. When the Fractional Ownership mixed with the advantages of air taxi, which are high utilization, the advantage and good position, will be naturally got in the air taxi segments. Another aspect must be noted that is the biggest challenge does not come from the competition among the air taxi companies towards the future development of the air taxi industry. The vision of the air taxi industry should be how to work together to expand the market. Through the Fractional Ownership, which mixed with the high utilization concept of the air taxi, the advantage will be against the traditional airline and subsidies because economic scale will help us to lower the operating cost and better cash flow situation. Of course, the assumption is to operate the company at least as same as other air taxi companies.

6 Part 5: Case Study Examples

Airline passenger need to arrive with one hour in advance for boarding and security check, while this takes around 20 minutes in case of business jets, after flying an airline it takes 20 minutes to exit the terminal and get a taxi, in case of business jet a chauffeur is the tarmac 10 minutes after landing, the flight time of business jets are usually shorter but for these examples the flight duration was considered to be the same, the airline flights were based in existent direct flights, the other distances covered were considered to be the same, except when flying a business jet offered an option of an airport more convenient than the airlines.

6.1 Case 1: Peak Ad-hoc Marc is a manager at a private bank based in Zurich, Switzerland. Marc is a frequent flyer, one his overseas client calls him and suggests a meeting that takes places in Cannes in the following morning, in 24 hours. Otherwise, his client will not be available while he also has a meeting in Zurich in the same afternoon. Marc is a business class flier and already with priority boarding and other advantages. Still, he cannot afford to miss such meetings and the time to go to the airport and boarding could jeopardize his duties. High-speed trains are not applicable in this case. When these situations occur Marc decides to travel by taxi, he can call them and schedule the flight to the next morning.

6.2 Case 2: Fixed Schedule Pierre is an entrepreneur. He lives in Nice but has a perfume manufacturing Grasse. He is working in a new perfume fragrance and he travels a lot to visit his suppliers who a very much spread in this meeting he also takes his assistant, purchasing manager and product manager. He also visits important retailers in Paris. He can either be absent from his main office for long. He can be up to two away and he also wants to be able to keep his quality time with his family. The upcoming week he has planned a visit to suppliers in Toulouse, Clermont-Ferrand and Paris. He is already a frequent flyer in air charter and holds his membership card. He calls the air taxi and rent the plane for these two days trips to travel with his three employees.

6.3 Case 3: Flexible Schedule Julia is a financial consultant for a hedge fund based in Basel, Switzerland. She is very dynamic, aggressive in business and travels very often to visit different companies to identify business opportunities and keep a close eye on the health of her business clients. One of the areas of investment is the hotel industry, her fund already control a hotel in Nice and another in Ajaccio in Corsica is under construction. She doesn`t want to waste time and wishes to visit both locations and discuss with both main local leader in the same day but she knows that due to transportation means, she may need to stay two days away. However, she realizes that with air taxi she can just stay one day.

7 Part 6: Conclusion and Feasibility

7.1 Target Market and Pricing Based on the assumptions from Error! Reference source not found. shows that with an aircraft capable of providing four seats, with four flights per day, there is a good possibility to capture at least 10% of the market. The market as it is defined will focus on Nice and the surrounding destinations, specifically Corsica, and cities on the Swiss border with France and Germany. Referring to Error! Reference source not found. using a distance of 1288 km, below the pricing has variation caused by a number of factors. The use of yield management systems from an external perspective makes is difficult to reverse engineer the financial model and price structure. Especially factors related to seasonality, and time to fly result in large variations, however, where possible these have been minimised. However, from Error! Reference source not found. the estimated (*) pricing for route Nice- Corsica-Switzerland shows an average price per km of 0.26 based on the average on each leg (0.43, 0.23, and 0.12, respectively) over 1342 km. Note this estimate is only purchase and fuel costs, normally representing only 50% of costs. This not what ICAO would consider full Direct Operating Cost (DOC), which includes pilot and maintenance, which is assumed to be 50% of DOC. Avg. Median Max Max price Route Price per Price Per Ticket Median per KM KM KM Price Ticket Price One-way 0.64 0.76 0.52 977.60 666.50 Return 0.51 0.58 0.43 1490.56 1106.18 Estimated* 0.26 0.43 0.23 577.06 308.66

By aiming for price per km cost-efficiency, competitive fares can compete with the legacy and LCC companies. In the model, results show average price per seat/km/hour (DOC) is 0.62 euro by using the Eclipse Aerospace Eclipse 550. Using a Small Jet, such as the Eclipse with the ability to fly at a maximum cruise speed of 692 km/hr., on 59 gallons of fuel per hour significantly reduces cost. The choice of a VLJ able to fly under 60 gallons an hour is key to cost- effectiveness. This model proves the claim that the Eclipse 550 is the most efficient twin-engine jet on the market. It is less expensive than any other twin-engine jet to buy, highest fuel-efficiency. Eclipse Aerospace claims $1.68 / nm DOC or 0.66 euro/km or 452.73 euro/h. Although the Honda Jet HA-420 will be even more efficient, such jet will not be available in the next years.

7.2 Ownership and Running Cost

If the average one-way price per km is at least 0.64 euro, then it is feasible to breakeven. Based on this estimation, and referring to Error! Reference source not found. , the feasibility of Small Jet is shown to be the lowest price category, and the only one to come close to breakeven on a price per km basis. Here, these costs can be multiplied by two, to arrive at the full DOC. Aircraft Small Prop Small Jet Medium Jet Long Range Jet Regional Airliner Cost per route/km/hr. 0.57 0.31 1.03 1.54 1.88 Cost per seat 246.85 122.25 320.66 289.15 55.76 DOC seat km/hr. 1.14 0.62 2.06 3.08 3.76 DOC seat cost 493.7 244.5 641.32 578.3 111.52

Referring to Error! Reference source not found. , and Error! Reference source not found. , there is a comparison of the leasing costs verses those of purchase. There is no incentive to Wet Lease Small Prop, Small Jets, or Regional Airliners, since investment in aircraft increases operating margin, and can provide sufficient return on investment to be feasible. Although, this shows that for Medium and long jets it is probably feasible to wet lease rather than invest in capital to operate and maintain. Small Long Range Regional Prop Small jet Medium Jet Jet Airliner OPEX (wet 0.63 0.87 0.55 0.76 1.50 lease) CAPEX 0.001 0.032 0.047 0.076 0.015 (purchase) Factor of 630 27 12 10 100

7.3 Profitability and Operations

Referring to Error! Reference source not found. and Error! Reference source not found. the profitability was examined with a fixed 10% margin, but on a daily basis to determine the NPV over compound a 30-day period for 10 years, the following profit and payback period were determined: Aircraft Small Prop Small Jet Medium Jet Long Range Jet Regional Airliner profit for flight 85.31 43.03 153.71 224.19 277.94 170.62 172.13 922.28 1,569.30 1,389.69 profit per day Payback period (years) 1.00 8.15 7.87 8.65 8.62

8 Recommendation

From the analysis, modelling performed, and reviews, the following recommendations are: 1. Timing is key now, as indications of growth in the market are starting, the predications that 2014 will see the returns to levels seen in 2008 is maybe pre-mature. Taking the target market growth, there is still good indications that 2016 is likely to be the right time to enter the market, so the time to prepare such as business model is now.

2. Utility-based on demand models for air transport are feasible, as shown. A new revolution of low cost point to point travel is around the corner, as new more highly efficient light aircraft create new possibilities for the Air-Taxi market, key to their success is the climate both in terms of technology, services, and consumers, as well as legal, environmental, and political concerns. Utilisation of national infrastructure such as secondary airports needs to be promoted above the interest of national carrier airlines to release value and productivity in the economy.

3. Choice and evaluation of aircraft is important, and actual accessibility is an issue as many aircraft manufactures have been bankrupt. The choice of the Eclipse 550 is controversial as Eclipse Aviation went bankrupt in 2009. New owner restarted production in September 2013 as Eclipse Aerospace, with a new model called Eclipse 550. However, the launch of the Honda Jet HA-420 promises to be more efficient, and Honda as a manufacturer is considerably more reliable. Although the Honda Jet is not available yet, the timing to order the purchase of such aircraft is soon approaching.

4. Innovation can be provided in two approaches though the use of the Hop On Hop Off service, which if operated in a one-way, one leg at a time only model, is considered feasible. Furthermore the price per seat model proposed for such a service can also be a source of innovation, when combined with fractional ownership, and other technology required for easy of booking and scheduling to meet demand.

5. Fractional ownership as a model is required as a strategy for risk sharing. Although the service needs to be investigated for how to propose a time-sharing approach, a profit- sharing approach initially is not advised. Since expansion is key to protecting market share, profit needs to be re-invested at least in the initial phases to develop services.

6. The start-up phase to enter the market with force to capture around 10% requires at least two aircraft to ensure there is a sufficient service level possible, in order to achieve two- hourly shuttle service. Then it must be possible to scale up to three planes to operate an hourly service. Adding additional aircraft should be considered, as well as completing services, and a spare aircraft to have spare capacity for fractional owners [36]

9 Future Work

There is still considerable work to perform, and given the nature of the changing industry, a number of key points need to be highlighted for future areas of investigation:

• Expanding the study and analysis to include the other major countries in Europe, such as Belgium, Spain, Italy, and Switzerland, as well as the newly joined Eastern and Balkan states of Europe. • Future sources of growth are also coming from Ukraine and Russia, due to poor air and rail transport links. In addition, high net wealth individuals from this region are travelling with private aviation more frequently due to business interests in Europe, and security concerns in their home countries. • Development of Japanese manufacturers such as Honda Jet and Mitsubishi Regional Jets, which are at least of paper showing promise of great fuel efficiencies.

10 References

10.1 Books and Articles

[4] Eurocontrol, “Getting to the point: Business Aviation in Europe,” 2006. [5] Eurocontrol, “A Place to Stand: Airports in the European Air Network,” 2007 . [6] Eurocontrol, “Business Aviation in Europe,” 2009. [7] Eurocontrol, “Briefings: Business Aviation in Europe in 2011-12,” 2011-12. [9] European Commission, “European Observatory on Airport Capacity,” November 2013. [12] W. S. Johson, Exploring strategy, London: Pearson Education Limited, 2011. [13] Honeywell, “NBAA 2013 Market Update,” Honeywell, 2013. [16] Eurocontrol, “Seven-Year Forecast 2013-2019,” 2013. [18] P. Denis, Interview Feb, 2014 [19] Wikipedia, “Beech 1900,” January 2014. [20] Boeing, “World Air Cargo Forecast 2013,” 2013. [22] M. Porter, The five competitive forces that shape strategy, Harvard Business Review, 2008, pp. 58-77. [24] J. R. M. Rego, Interviewee, [Interview]. 27 01 2014. [28] J. M. M. Edward Tse, “How to handle the crisis when the airline facing the "death zone"(Chinese version).,” booz&co., 2008. [30] E. DYSON, "Visible Demand: The New Air-Taxi Market," Release 1.0® (ISSN 1047-935X), pp. VOLUME 25, NO. 2, 6 2006. [32] GBTA, “General Aviation Options for Business,” 2011. [34] booz&co., "General Aviation Implementation Support (GAIS)," 2011. [37] Eurocontrol, “More to the Point:Business Aviation in Europe,” 2007. [38] Bombardier, "BUSINESS AIRCRAFT Market Forecast 2013-2032," 2013. [41] W. S. Johson, EXPLORING STRATEGY, London: Pearson Education Limited, 2011.

10.2 Web sites

[1] "Statfor," 2014. [Online]. Available: https://www.eurocontrol.int/statfor. [2] "Eurostat," 2013. [Online]. Available: http://epp.eurostat.ec.europa.eu/statistics_explained/index.php/Air_transport_statistics. [3] Wing-X, "Business Aviation Monitor," 2014. [Online]. Available: http://wingx- advance.com/?key-product=business-aviation-monitor. [10] Google, "Flights and Explore," 2014. [Online]. Available: www.google.com/flights. [11] Sky Scanner, 2013. [Online]. Available: www.skyscanner.net. [17] cloudy.fr, March 2014. [Online]. Available: https://cloudy.fr/. [21] DGAC, "Evasan, DGAC," March 2014. [Online]. Available: http://www.developpement- durable.gouv.fr/IMG/pdf/dast_n5.pdf. [23] K. Sarsfield, "Flight Global," 04 May 2009. [Online]. Available: http://www.flightglobal.com/news/articles/a-bumpy-ride-for-air-taxis-325916/. [Accessed 18 03 2014]. [25] NASA, "SATS: A bold vision," 3 2001. [Online]. Available: http://www.nasa.gov/centers/langley/news/factsheets/SATS.html. [Accessed 2 MARCH 2014]. [26] C. Hayes, "Striving for Efficiency: The Air Taxi Concept," 3 October 2013. [Online]. Available: http://www.stratajet.com/blog/striving-for-efficiency. [Accessed 2 3 2014]. [27] airtaxiflights.com, "FAQ:WHY IS AIR-TAXI SERVICE USUALLY MUCH LESS EXPENSE THAN CHARTERING A PLANE?," [Online]. Available: http://airtaxiflights.com/faq.php. [Accessed 2 march 2014]. [29] ITIL Definition, "Service Model," 19 december 2011. [Online]. Available: http://learnitilv3.blogspot.fr/2011/12/service-model.html. [Accessed 1 march 2014]. [31] A. T. S. W. Elliot Borin, "AirTaxiFlights.com Interview: Air Tax i Association President Joe Leader," 8 june 2009. [Online]. Available: http://www.airtaxiflights.com/interview-joe- leader-1.php. [Accessed 1 march 2014]. [33] Wikimedia Foundation, Inc., "Fractional ownership of aircraft," 24 December 2013. [Online]. Available: http://en.wikipedia.org/wiki/Fractional_Jets. [Accessed 2 March 2014]. [35] R. Jaggi, "Air taxis: Room for manoeuvre in taxi model," 11 may 2009. [Online]. Available: http://www.ft.com/cms/s/0/a2081d52-3dcd-11de-a85e- 00144feabdc0.html#axzz2uhbOzJdz. [Accessed 1 march 2014]. [36] "Netjets," 2014. [Online]. Available: www.netjets.com. [39] "World Stat," 2014. [Online]. Available: http://en.worldstat.info/Europe/List_of_countries_by_Density_of_airports. [40] "Private Fly," 2014. [Online]. Available: www.privatefly.com.

11 Appendix

• VLJs : Very Light Jets • OPEX : operational expense • CAPEX : Capital Expenditure • B2B : Business to business • MRO : Maintenance, repair, and operations • MEDEVAC : Medical evacuation • LCC : Low Cost Carrier • AOC : Air Operator Certificate • DGAC : Direction Générale de l’aviation Civile • DAC : Direction de l’aviation civile • ICAO : International Civil Aviation Organisation • EC : European Commission • EASA : European Aviation Safety Agency • MTOW : maximum take-off weight • SATS : Small Aircraft Transportation System • GAIS : General aviation implement support • DOC : Direct Operating Cost