Group 1 - SofiAir - Report

A fresher way to fly the Balkans
Business Plan
2012 – 2017
Group Project
MSc in Air Transport Management, 2010/11
May 2011
Project Manager: Jelte Ronner

Hediye Akyuz Karri Kauppi
Aurélien André Rob Lee
Andreu Carbonell Afeef Louis
Durvasa Dusoruth Viktoria Nestlinger
Flora Huang Nikolay Stoychev
Business Plan
2012 – 2017
EXECUTIVE SUMMARY
SofiAir will be a Bulgaria-based airline, connecting the region from its hub in Sofia.
At SofiAir our mission is to provide a safe and pleasant service, with a twist of freshness, and the
trademark sincere Balkan hospitality. The customer is central to all that we do, and they will be
offered complete freedom of choice to build the product that suits them, for each and every trip.
From Bulgaria’s capital of Sofia, we aim to make the Balkans smaller, through having an extensive
regional network. At the same time, we will bring Western Europe and the rest of the world closer
to the Balkans, offering westbound services – including routes to major hubs, to allow connections
to be made to any place in the world. The regional network and the Western European routes will
cross-feed each other, and so increase the connectivity of the region via our Sofia base.
Travelling to, from, and within the Balkan region should be a pleasant experience for everyone – no
matter the purpose of travel. SofiAir’s vision is to become the leading airline of the region, for each
market segment. Offering à la carte service will bring freedom of choice to the customer, and so
provide a tailor-made service for the traveller, making SofiAir the natural choice for air travel from
the region, to any place in the world, in co-operation with carefully selected network carriers.
Operating from one of the fastest growing areas of Europe, in economic terms, air travel demand in
the Balkans is expected to continue to grow strongly in the years to come. This will ensure that
SofiAir sees strong demand for the services we will offer.
During the company’s first five years, the focus will be on routes without heavy competition, in
order to grow the airline in a relatively quiet environment. The following destinations will be served
from Sofia, with a fleet consisting of ATR 42s, and Embraer 170s: Amsterdam, Geneva, Berlin,
Bologna, Bucharest, Istanbul, Athens, Bourgas, Belgrade, and Tirana. During the first two years,
two ATR 42s and one Embraer 170 will be leased, switching to one ATR 42 and two Embraer 170s
from the third year onwards. Keeping only two aircraft types in the fleet will keep costs down.
Looking at our expected financial performance, SofiAir will prove a strong company to invest in, and
an excellent opportunity to become part of the rapidly growing air transport industry in Eastern
Europe. To be able to start this new, fresh airline, an initial investment of €10.5 million is needed.
One-third will come from equity, and two-thirds from a long-term loan. We promise high
accumulated return on investment at the end of the five-year period, combined with attractive and
stable profit margins, and feasible exit points for our investors in both 2014 and 2017.
SofiAir, a fresher way to fly the Balkans
1 A fresher way to fly the Balkans

Business Plan
2012 – 2017
TABLE OF CONTENTS
Executive Summary .......................................................................................................................... 1
Table of Contents.............................................................................................................................. 2
List of Figures.................................................................................................................................... 4
List of Tables..................................................................................................................................... 6
List of Airport Codes ......................................................................................................................... 8
1 Corporate Strategy...................................................................................................................11
1.1 The Environment ..............................................................................................................11
1.2 Strategic Capabilities ....................................................................................................... 19
1.3 Strategic Purpose ............................................................................................................ 19
2 Regulatory Situation ............................................................................................................... 23
2.1 Regulation of Start-Ups ................................................................................................... 23
2.2 Traffic Rights ................................................................................................................... 25
2.3 Fares ................................................................................................................................ 27
2.4 Aircraft ............................................................................................................................ 27
3 Markets and Forecast .............................................................................................................. 29
3.1 Market Analysis ............................................................................................................... 29
3.2 Route Demand Forecast .................................................................................................. 36
3.3 Market Share Forecast..................................................................................................... 38
3.4 Connecting Traffic Potential ............................................................................................ 39
3.5 SofiAir Demand Forecast ................................................................................................. 41
4 Fleet Selection......................................................................................................................... 43
4.1 Selection Process............................................................................................................. 43
4.2 Coarse-cut Candidates..................................................................................................... 44
4.3 Detailed Analysis ............................................................................................................. 45
4.4 Conclusion and Recommendations .................................................................................. 50
5 Marketing................................................................................................................................ 53
5.1 Market Segmentation...................................................................................................... 53
5.2 The four P´s ..................................................................................................................... 53
5.3 Marketing Costs............................................................................................................... 62
6 Operational ............................................................................................................................. 65
6.1 Flight Operations ............................................................................................................. 65
6.2 Maintenance & Technical Support ....................................................................................71
A fresher way to fly the Balkans 2

Business Plan
2012 – 2017
6.3 Safety Management ........................................................................................................ 76

7 Human Resource Management and Organisation .................................................................... 77
7.1 Organisational Structure .................................................................................................. 77
7.2 HR Policies....................................................................................................................... 79
8 Environmental Policies ............................................................................................................ 81
8.1 EU ETS............................................................................................................................. 81
8.2 Noise ............................................................................................................................... 83
8.3 Operational Measures...................................................................................................... 83
8.4 Corporate Social Responsibility ....................................................................................... 85
9 Finance.................................................................................................................................... 89
9.1 Basic assumptions ........................................................................................................... 89
9.2 Financial Sources ............................................................................................................. 91
9.3 Leases.............................................................................................................................. 91
9.4 Depreciation .................................................................................................................... 92
9.5 Profit And Loss Statement............................................................................................... 93
9.6 Balance Sheet .................................................................................................................. 96
9.7 Cash Flow ........................................................................................................................ 98
9.8 EU Start-Up Requirements ............................................................................................ 100
9.9 Sensitivity Analysis and Risk Assessment ...................................................................... 100
9.10 Financial Performance and Investors’ Information ......................................................... 104
9.11 Milestones ...................................................................................................................... 107
Appendix 1: Markets and Forecast ................................................................................................ 109
Appendix 2: Fleet Selection............................................................................................................121
Appendix 3: Marketing .................................................................................................................. 126
Appendix 4: Operations ................................................................................................................ 129
Appendix 5: Human Resources.......................................................................................................136
Appendix 6: Environment ..............................................................................................................138
Appendix 7: Finance .......................................................................................................................139

Business Plan
2012 – 2017
LIST OF FIGURES
Figure 1.1: The layers of SofiAir’s business environment ..................................................................11
Figure 1.2: Growth in Bulgarian GDP, against Western and Eastern Europe averages .....................13
Figure 1.3: Porter’s Five Forces Model .............................................................................................15
Figure 1.4: Bulgaria Air’s Network, from Sofia (Source: OAG, May 2011).........................................17
Figure 1.5: All scheduled routes from Sofia Airport (Source: OAG, May 2011) .................................17
Figure 1.6: Positioning of competitors, based on strategy .............................................................. 18
Figure 1.7: SofiAir’s core values....................................................................................................... 20
Figure 3.1: Only O&D demand was taken into account for the forecast .......................................... 36
Figure 3.2: Historic demand and forecast, Western European routes...............................................37
Figure 3.3: Historic demand and forecast, regional routes ............................................................... 37
Figure 3.4: O&D demand on the SOF-North America market (showing routing) ............................ 39
Figure 3.5: O&D demand on the SOF-DXB market (showing routing) ............................................ 40
Figure 3.6: O&D demand on the SOF-Asia-Pacific Market (showing routing) ................................. 40
Figure 4.1: Proposed turboprops – capacity versus range ............................................................... 44
Figure 4.2: Proposed regional jets – capacity versus range ............................................................. 45
Figure 4.3: Payload-range diagram for turboprops ......................................................................... 46
Figure 4.4: Unit cost comparison, turboprops ................................................................................. 47
Figure 4.5: Annual cost breakdown, turboprops ............................................................................. 47
Figure 4.6: Payload-range diagram for CRJ700 and E170 ................................................................ 48
Figure 4.7: Unit cost comparison, regional jets ............................................................................... 49
Figure 4.8: Annual cost breakdown, regional jets (700nm) ............................................................. 49
Figure 4.9: Aircraft cabin comparison, regional jets ........................................................................ 50
Figure 4.10: proposed ATR 42-500 cabin configuration ...................................................................51
Figure 4.11: Proposed EMB170 cabin configuration .........................................................................51
Figure 5.1: Promotion: Advertising decision process ...................................................................... 61
Figure 6.1: Departure time schedule of SOF (Source: OAG) ........................................................... 66
Figure 6.2: Arrival time schedule of SOF (Source: OAG) ................................................................. 66
Figure 7.1: SofiAir’s organisational chart.......................................................................................... 77
Figure 8.1: Fuel burn and emissions................................................................................................ 82
Figure 8.2: Effects of aircraft noise ................................................................................................. 83
Figure 8.3: SofiAir's CSR model....................................................................................................... 86
Figure 9.1: USD/EUR exchange rates, historical data (source: oanda)........................................... 102

Business Plan
2012 – 2017
Figure 9.2: Fuel forecast with different scenarios (source: eia) ...................................................... 103
Figure 9.3: Route profitability evolution (compiled by the author)................................................ 106
Figure 9.4: Return on invested capital (roic) (compiled by the author) .......................................... 106

Business Plan
2012 – 2017
LIST OF TABLES
Table 1.1: SWOT analysis ............................................................................................................... 19
Table 3.1: Competition on the ATH route ....................................................................................... 30
Table 3.2: Competition on the IST route ..........................................................................................31
Table 3.3: Competition on the OTP route ....................................................................................... 32
Table 3.4: Competition on the BOJ route.........................................................................................33
Table 3.5: Competition on the BER route........................................................................................ 34
Table 3.6: Competition on the AMS route ...................................................................................... 35
Table 3.7: Forecast market share, for SofiAir, per route.................................................................. 38
Table 3.8: SofiAir demand forecast ................................................................................................. 41
Table 5.1: Product: service overview ............................................................................................... 55
Table 5.2: Product: Airport lounges on the SofiAir network ............................................................ 56
Table 5.3: SofiAir’s fare grid .............................................................................................................57
Table 5.4: SofiAir expected yield, first year of operations.................................................................57
Table 5.5: Distribution channels used by SofiAir ............................................................................. 58
Table 5.6: Promotion: Facebook penetration ................................................................................. 62
Table 5.7: Marketing costs .............................................................................................................. 62
Table 6.1: SofiAir’s planned weekly frequencies.............................................................................. 67
Table 6.2: Aircraft utilisation per aircraft type ................................................................................ 68
Table 6.3: Fleet composition .......................................................................................................... 68
Table 6.4: Fleet ops. performance analysis ..................................................................................... 68
Table 6.5: Scheduled duty hours and crew, for each aircraft type ................................................... 69
Table 6.6: Subpart Q regulations for crew scheduling .................................................................... 70
Table 6.6: Line maintenance providers and regulatory certification ............................................... 72
Table 6.7: Heavy maintenance providers and regulatory certification ............................................ 72
Table 6.8: Engine maintenance providers and regulatory certification ............................................73
Table 6.9: Maintenance intervals, SofiAir fleet................................................................................ 74
Table 6.10: Fleet annual downtime, for A-checks and C-checks ..................................................... 74
Table 6.11: Fleet maintenance cost analysis ....................................................................................75
Table 8.1: Emission monitoring and trading Activities .................................................................... 82
Table 8.2: Estimated carbon purchase costs (inflation adjusted) .................................................... 82
Table 8.3: Noise criteria .................................................................................................................. 83
Table 9.1: Bulgarian inflation data, yoy (Source: IMF, 11/05/2011) .................................................. 89

Business Plan
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Table 9.2: Exchange rates (Source: oanda, 11/05/2011)................................................................... 89

Table 9.3: Interest rates (Source: ECB, BNB, 11/05/2011) ................................................................ 90
Table 9.4: Trading periods used (compiled by the author) .............................................................. 90
Table 9.5: Start-up costs (compiled by the author) ......................................................................... 91
Table 9.6: Fleet leasing conditions (compiled by the author) .......................................................... 92
Table 9.7: Annual leasing payments (compiled by the author)........................................................ 92
Table 9.8: IT investment and depreciation (compiled by the author) .............................................. 93
Table 9.9 Forecast fuel prices (Source: U.S. EIA) ............................................................................ 95
Table 9.10: EU start-up requirements ( ompiled by the author) .................................................... 100
Table 9.11: Sensitivity breakdown (compiled by the author) ......................................................... 103
Table 9.12: SofiAir’s financial performance (compiled by the author) ........................................... 104
Table 9.13: Route profitability for 2013 network (compiled by the author) ....................................105
Table 9.14: Route profitability for 2017 network (compiled by the author) ....................................105

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2012 – 2017
LIST OF AIRPORT CODES

- AMS : Amsterdam, The Netherlands
- ATH : Athens, Greece
- BEG : Belgrade, Serbia
- BER : Berlin, Germany
- BLQ : Bologna, Italy
- BOJ : Bourgas, Bulgaria
- GVA : Geneva, Switzerland
- IST: Istanbul, Turkey
- OTP : Bucharest, Romania
- SOF : Sofia, Bulgaria
- TIA : Tirana, Albania

Business Plan
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Business Plan
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Business Plan
2012 – 2017
1 CORPORATE STRATEGY
Both Bulgaria, and the Balkan region in general, suffer from a lack of reliable transport connections
– on a regional, and also inter-regional, basis. At the same time, the region’s economies are
showing strong growth, and personal wealth is increasing rapidly. This combination of continuously
increasing demand, and poor existing connections, forms the foundation of SofiAir’s strategy; to
start an airline in the heart of the Balkans.
To be able to form a detailed corporate strategy, more insight is needed with regard to the
environment in which SofiAir will be operating (section 1.1), and what the strategic capabilities are
(section 1.2). Based on the analysis found in these two sections, SofiAir’s strategy has been set out
in section 1.3.
1.1 THE ENVIRONMENT

In order to fully understand the environment in which SofiAir will be operating, the different layers
around the business have been analysed. The three layers are summarised in Figure 1.1:
SofiAir
Competitors
Airline
Industry
The Macro-
Environment
FIGURE 1.1: THE LAYERS OF SOFIA IR’S BUSINESS ENVIRONMENT
The macro-environment layer consists of the broad environmental factors influencing most
companies operating in the same area – and the PESTEL framework was used to analyse this layer,
in section 1.1.1. The Airline Industry layer refers to all the organisations operating within this
specific industry – and, using the framework of Porter’s Five Forces, this layer was further analysed
in section 1.1.2. The layer closest to SofiAir consists of the competitors the company will face – and
a competitor analysis was performed in section 1.1.3, to understand the opportunities and threats
related to SofiAir’s competitors.
1.1.1 THE MACRO-ENVIRONMENT
The PESTEL framework helps to analyse the macro-environment, by categorising the influences
that it exerts into six types: Political, Economic, Social, Technological, Environmental and Legal.
These six categories are discussed below:

Business Plan
2012 – 2017
1.1.1.1 POLITICAL
Since the collapse of communist rule in the late 1980’s, Bulgaria took a strong leap towards the
market economy and democracy. Despite the difficult transition period, the country has proved
able to secure steady improvement in both its economic and social situation, with a major turning
point coming in early 2000 – when former king Simeon II, as prime minister, steered the country
towards the European Union. Economic reforms meant that the unemployment rate fell
significantly, and this economic and social development culminated in Bulgaria’s NATO
membership, from 2004, and the country’s signing of the EU accession treaty in April 2005 (now,
and since January 2007, Bulgaria has been a full member of the EU). The beginning of a new era in
Bulgarian history, though, has not been as successful as hoped – and concerns about organised
crime and corruption halted EU funding, in 2008. Similar concerns over corruption and organised
crime have also stalled negotiations over Bulgaria’s membership of the Schengen area (although
this delay was primarily due to concerns over border control on the country’s Turkish border), which
was due to commence in March 2011 – and, as negotiations continue, the new date for the vote on
Schengen membership is now set for June 2011. Indeed, the latest evaluations of the possibility of
Bulgaria joining Schengen express confidence that the country will join. Additionally, the party
currently ruling the Bulgarian parliament is the Europhile Citizens for European Development of
Bulgaria, who have identified the fight against corruption and organised crime as one of their main
priorities, to ensure that Bulgaria cements its position as a prominent new member of the European
Union. So far, this fight has seen some success, with a good proportion of the formerly-frozen EU
funds being unfrozen, and now available for the country’s use. The current government has strong
public support with regard to its economic policies, which lay a sound foundation for the economic
growth and stability of the country – despite the financial troubles elsewhere in Europe.
1.1.1.2 ECONOMIC
The successful economic reforms of the early 2000’s injected rapid growth into Bulgaria’s economy.
For successive years, between 2004 and 2008, Bulgaria was able to maintain over 6% annual growth
in GDP, and is expected to see 4% annual growth until at least 2020 – outperforming by far the
growth seen in Western Europe (see Figure 1.2). At the same time, the unemployment rate in the
country dropped dramatically, and is currently (at 6.8%) well below the EU average. Successive
governments have laid a solid foundation for economic reforms, and maintained responsible fiscal
policies, and so Bulgaria is in good stead with regards to meeting the EU’s standards on joining the
monetary union. The current government has set a goal of reducing the country’s deficit to 0.5% of
GDP, without making any changes to corporate or personal income tax – and what makes the
steady growth of the Bulgarian economy even more impressive and promising, is that it has proved
able to maintain this growth despite being on the receiving end of the EU sanctions mentioned
previously. Finally, if Bulgaria is able to meet the demands of EU monetary policy, by reducing its
deficit to 3% of GDP in order to be accepted to ERM II, a two-year “waiting list” would apply, with
the country expected to become a full member of the Eurozone in 2013.

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10.0
8.0
6.0
4.0
Real GDP Growth
2.0
0.0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
-2.0
-4.0
-6.0
-8.0
Bulgaria Eastern Europe Western Europe
FIGURE 1.2: GROWTH IN BULGARIAN GDP, AGAINST WESTERN AND EASTERN EUROPE AVERAGES
1.1.1.3 SOCIAL
Bulgaria has over 7 million inhabitants, of which over 72% live in urban areas. The biggest city is the
capital, Sofia, with a population of nearly 2 million. However, living conditions in Bulgaria are
generally considered to be below the average for the EU25, with society’s concerns especially
concentrated on the poor transport infrastructure, and inadequate social services. In part, the high
rate of corruption is behind this situation, impacting on people’s opinion towards public services,
and leading to the freezing of the country’s EU funding. Also, despite the decrease in the overall
unemployment rate, there are serious issues when it comes to tackling long-term unemployment –
especially youth unemployment. It remains clear, though, that as the country’s economic situation
improves, these social issues will decline in significance – and thus the social wellbeing of Bulgarians
is likely to improve dramatically, within the near future.
1.1.1.4 TECHNOLOGICAL
Internet usage in Bulgaria is only a little below the EU average, and has grown significantly within
the past decade. On top of this, the country sees a higher rate of mobile phone uptake than the
Union average. So, both are clear indications that the IT infrastructure in Bulgaria is up to EU
standards, if not above. In addition, the country has a (developing) motorway network – but, while
the major highways connecting Varna and Bourgas to Sofia are under construction, no date for their
completion has been released – and so there is a clear need for alternative transport between the
country’s three biggest cities. While the Bulgarian domestic train network is extensive, no high-
speed trains are currently operative – and there is a distinct lack of rail infrastructure when it comes
to surrounding countries; such as Turkey, Serbia, and Romania. Travelling to nearby capitals, such
as Bucharest or Belgrade, can only be achieved by overnight train – and so there seems to be a clear
gap when it comes to transportation links within the Balkan region.
1.1.1.5 ENVIRONMENTAL
Bulgaria’s mountains (Rila and Pirin) are landmarks for the country, during the winter season. In the
summer, meanwhile, people flock to the blue waters along the Black Sea coast. The country’s
forests are home to rich flora and fauna, among which are now some internationally protected

Business Plan
2012 – 2017
species1. However the country’s lack of rigid environmental policies has, in the past, caused serious
air, soil, and water pollution – and large-scale deforestation, and problems of acid rain, have also
tarnished Bulgaria’s green identity. The absence of environmental incentives, such as tax rebates
and subsidies, means that research into greener technologies is not specifically encouraged.
Before joining the EU in 2007, Bulgaria received funding under the ISPA program2 to support
wastewater treatment projects for areas near the Black Sea basin, which also partly financed the
extension of Sofia airport. The SAPARD program3 helped agricultural development, forestry, and
rural expansion. Now, as an EU member, Bulgaria still receives significant EU funding to develop
modern water supply networks, and sewage treatment systems, as part of the Operational
Programme: Environment (2007–2013)4. The country is now party to many agreements to help
restore its ecosystem, among them the Aalborg Commitment on local sustainability, and the Kyoto
Protocol. Also in progress are programs to educate people about energy efficiency, and the
replacement of ageing buses with newer fleets, to improve local air quality.
At present, Sofia airport does not have any noise surcharge – which proves a good incentive for
SofiAir to plan a base there. There is, however, a night surcharge of 25% (in addition to the landing
charge), to discourage night operations. A 25% surcharge also applies to landings on weekends,
and on public holidays. Additionally, Chapter 2 aircraft have been banned from operating at the
airport since April 2002. Since then, the airport has embarked on a number of noise mitigation
programs, to lessen the impact of aviation noise on the population. Amongst these was the
replacement of wooden windows with aluminium, and the installation of a noise monitoring and
flight tracking system (in 2005) – with the maximum noise level for aircraft flying above any
territory being 85 dB(A)5. Usual noise indicators during the day are 65 dB(A), dropping to 55 dB(A)
between 11pm and 7am. Whilst many EU airports have started implementing continuous descent
approach procedures, such measures are not yet in place at Sofia.
1.1.1.6 LEGAL
The air transport industry has historically suffered from a high degree of regulation, constraining
the routes that airlines were able to fly, the capacity they were permitted to offer on those routes,
and laying down strict rules about the ownership and control of airlines. However, as Bulgaria is a
member of the EU, then carriers based there are able to benefit from a rather more liberalised
operating environment – with the measures laid out in Regulation 1008/20086 applying to Bulgaria,
as well as the rest of the EU. So, for flights operating within the area in which 1008/2008 applies,
any air carrier with a European operating licence (a Community air carrier) may operate any route
within the Community; meaning that the formerly complex web of restrictive bilateral Air Services
Agreements no longer applies, at least within the EU. Furthermore, the European Common
Aviation Area (ECAA) initiative looks to expand 1008/2008, and the whole body of related EU
aviation law, to a further group of countries – Albania, Bosnia and Herzegovina, Croatia, Macedonia,
Montenegro, Serbia, Kosovo, Norway, and Iceland. So, any Community air carrier would be able to,
1
http://www.bulgariannationalparks.org/en/bnparks.phtml?context=category&ctg_id=25
2
European Commission
3
European Commission
4
Bulgarian Ministry of Environment and Water
5
Decree No 6 of Bulgarian Law
6
Regulation (EC) No 1008/2008, on common rules for the operation of air services in the Community

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once the ECAA has been established, operate any route within this extended group of countries
without having to comply with the often-onerous restrictions laid out in Air Services Agreements.
A further issue to consider is that of airport congestion and slot restrictions. However, as Sofia
airport is only Level 2 (schedules facilitated), and not Level 3 (slot co-ordinated), there is no
mandatory allocation of slots to those carriers wishing to operate at Sofia. Instead, to cope with
peak-time congestion, carriers operating there may have to be willing to accept minor schedule
changes, to allow the airport to efficiently operate.
1.1.2 THE AIRLINE INDUSTRY – FIVE FORCES ANALYSIS
The competitive environment of Bulgaria’s aviation sector was analysed using Porter’s five forces
model (see Figure 1.3). This seeks to help identify the attractiveness of the local airline industry, in
terms of five different 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.
1.1.2.1 POTENTIAL ENTRANTS
As Bulgaria is a member of the EU, there are no legal or regulatory barriers that can bar the start up
of an airline there, unless the carrier is looking to operate routes outside the ECAA. As mentioned in
the PESTEL analysis, Bulgaria is a technologically developed country, and so there are no reasons to
assume any difficulties in terms of the distribution of airline tickets – especially if the main
distribution channel is internet sales. Perhaps the most salient barriers to entry in the Bulgarian
market, then, are the possible brand loyalty towards local carriers, and the availability of capacity at
Sofia airport.
Potential
Entrants
Competitive
Suppliers Rivalry
Buyers
Substitutes
FIGURE 1.3: PORTER’S F IVE FORCES MODEL
1.1.2.2 SUPPLIERS
In Bulgaria, the power of supplier is no different to elsewhere around the world. There is a limited
number of aircraft suppliers, which suggests that the bargaining power of the main aircraft suppliers
is significant. A similar situation exists within the aircraft leasing market, where the global demand

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of certain aircraft types directly influences lease rates. Naturally, in both cases – whether buying or
leasing – the bargaining power of the supplier is highly dependent on the current market situation.
So, generally, during a downturn, the bargaining power of the supplier is diminished – and during a
period of high growth, the opposite applies.
1.1.2.3 BUYERS
The reality of air travel is that the majority of it is not a necessity – and so this naturally enhances
the position of the buyer. The transparency brought by internet distribution has further enhanced
the customer’s position, as they are now able to easily compare fares, and evaluate their options.
On domestic routes, as well as on a majority of the routes to Western Europe, a customer wishing to
travel to or from Sofia often has more than one option – and again, as there are switching costs, the
customer holds the power. On the other hand, though, routes that currently have no direct
connection will exhibit different characteristics. On these routes, a customer has to make a decision
on whether to spend more time travelling (and so fly via another hub), or to fly directly – and so save
time. In this form of scenario, the customer loses their bargaining power – especially if there is, for
instance, a need for business travel on these routes.
1.1.2.4 SUBSTITUTES
Especially on regional routes, the main substitute for air travel is a rail service. From Sofia, the main
rail connections to nearby capitals are to Belgrade, and to Istanbul. On both routes, the rail travel
time is considerably longer than the air travel time, due to the lack of efficient rail infrastructure,
and tighter border controls as a result of travelling outside the EU.
On a smaller scale, for regional and domestic routes, travelling by car could arguably be named as a
potential substitute for air travel. However, this mode of transport faces similar problems to rail,
especially for routes leaving the EU.
So, it could be argued that the bargaining power of the substitutes in Bulgaria is rather low – and
that this is merely due to the fact that the region’s infrastructure is not as developed as that in some
of Bulgaria’s western neighbours.
1.1.2.5 COMPETITIVE RIVALRY
In Bulgaria there is no noticeable rivalry between the firms, the main reason being that the country
has not seen a major carrier other than the national carrier (Bulgaria Air). The other carriers in the
market are charter airlines, who concentrate mainly on Black Sea tourism. For Bulgaria Air,
arguably the main competing carriers are the national carriers from nearby Romania, Hungary, and
Greece, as well as the main network carriers of Western Europe, who offer connections to their
home bases and beyond, for passengers departing from Sofia. A recent addition to the Bulgarian
market, though, is the low-cost carrier Wizz Air – who have arguably had a dramatic impact on the
market, and have jeopardised the nearly monopolistic position of Bulgaria Air. Interestingly, Wizz
Air only offer routes to Western Europe, and overlook the regional potential – thus leaving Bulgaria
Air the main operator on many of their regional routes.

Business Plan
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1.1.3 COMPETITOR ANALYSIS
The biggest airline in the Bulgarian market is the national carrier, Bulgaria Air, which serves 15
destinations in Western Europe from its Sofia hub. Bulgaria Air operates an array of aircraft types,
ranging from the ATR42 and BAe 146, to the Airbus A319 and A320, as well as Boeing 737-300.
Bulgaria Air’s network is concentrated around various destinations in Western Europe, as well as a
number of medium-range routes to the east, such as Moscow and Tel Aviv (see Figure 1.4).
FIGURE 1.4: BULGARIA AIR’S NETWORK, FROM SOFIA (SOURCE: OAG, MAY 2011)
Other than Bulgaria Air, the major carriers operating to and from Sofia are the large “network”
carriers from elsewhere in Europe. Additionally, the Bulgarian aviation market has a significant
charter element, with the main carriers being BH Air, Bulgarian Air Charter and Air Via. BH Air and
Air Via operate fleets of Airbus A320 aircraft, while Bulgarian Air charter operates with an all-MD-82
fleet. Their main operations are concentrated around connecting charter traffic, from Western
Europe, to the region around the Black Sea coast. The most recent entrant in the Bulgarian market
has been the Hungarian low-cost carrier Wizz Air, which operates from Sofia to 15 different
destinations in Western Europe.
FIGURE 1.5: ALL SCHEDULED ROUTES FROM SOFIA AIRPORT (SOURCE: OAG, MAY 2011)

Business Plan
2012 – 2017
In terms of domestic routes, only two cities are currently served from Sofia – Varna and Bourgas.
The main carrier on these routes is Bulgaria Air, but there is some seasonal variation, as a number of
ad hoc charter operations occur between the capital and the Black Sea coast, especially during the
peak tourist season.
On regional routes, competition is concentrated around the large regional hubs of Athens, Istanbul,
Bucharest, and Budapest. These destinations are currently served by at least one national carrier:
either Bulgaria Air, a local carrier, or both. Other than the frequently-operated destinations, there
is also a number of regional centres that currently do not have any air connection to Sofia –
especially the former Yugoslavian countries (such as Serbia, Macedonia, Albania, and Croatia),
which are currently particularly underserved. The main competitor in these markets is the train, but
due to the tight border controls and inadequate rail infrastructure, rail travel within the Balkans
proves rather time consuming.
The majority of air services from Bulgaria are to Western Europe. In particular, the charter carriers
concentrate on operations to the UK and Germany from the Black Sea coast. On the routes to the
West, other than Bulgaria Air, it is Western European carriers such as Air France, British Airways,
and Lufthansa who are the main operators to Sofia. The latest addition to the market is the
Hungarian low-cost carrier Wizz Air, who connect Sofia with a number of destinations in Western
Europe. Figure 1.5 shows all the routes from Sofia currently served by a scheduled carrier, and in
Figure 1.6, all the competitors are positioned in a framework, based on their strategy.
FIGURE 1.6: POSITIONING OF COMPETITORS, BASED ON STRATEGY
As Figure 1.6 shows, the majority of competitors in operation in the Bulgarian market offer no
particularly attractive value proposition to the customer; primarily consisting of inefficient legacy
carriers (such as Olympic Air and TAROM), or high–cost local carriers (such as Bulgaria Air) offering

Business Plan
2012 – 2017
poor service. For those passengers choosing their airline purely on price, Wizz Air is likely to prove
popular – and Turkish Airlines are perhaps one of the most distinctive airlines operating in the
Bulgarian market; following a strategy of differentiation. What Figure 1.6 shows most clearly,
though, is the lack of any hybrid carrier – so, one able to cater to both the leisure and business
markets, and so satisfy passengers’ parallel demands for low fares, but also high service levels. It is
this niche which SofiAir should seek to satisfy.
1.2 STRATEGIC CAPABILITIES

The key issues arising from the analysis of the business environment performed above may be
summarised in the SWOT framework, which seeks to examine the strengths, weaknesses,
opportunities and threats likely to impact the development of a strategy. These factors are
summarised in Table 1.1 , below.
Strengths Weaknesses
Freedom to select optimal fleet New entrant, no brand value
Slim organisational structure Lack of choice of MRO supplier
No legacy costs (i.e. pension schemes, debt) No pre-existing rights to slots
As EU carrier, free to operate within ECAA
Relatively low labour costs
Opportunities Threats
Operate underserved or non-existent routes Competition may start operating same routes
Underdeveloped air transport market in the Balkans Uncertainty about Bulgaria’s economic recovery
No current alternative to the train on regional routes Increasing fuel prices
National carrier known as expensive and inefficient Organised crime and corruption in Bulgaria
Connect Sofia to the world via major hubs Unavailability of required aircraft
Customer-oriented service not always present Uncertainty about Bulgaria’s entry to the Eurozone
TABLE 1.1: SWOT ANALYSIS
1.3 STRATEGIC PURPOSE

Based on the analysis of SofiAir’s environment, and its strategic capabilities, the corporate strategy
has been defined and summarised in a corporate mission, vision and values.
1.3.1 MISSION
At SofiAir our mission is to provide a safe and pleasant service, with a twist of freshness, and the
trademark sincere Balkan hospitality. The customer is central to all that we do, and they will be
offered complete freedom of choice to build the product that suits them, for each and every trip.

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2012 – 2017
From Bulgaria’s capital Sofia, we aim to make the Balkans smaller, through having an extensive
regional network. At the same time, we will bring Western Europe and the rest of the world closer
to the Balkans, offering westbound services – including routes to major hubs, to allow connections
to be made to any place in the world. The regional network and the Western European routes will
cross-feed each other, and so increase the connectivity of the region via our Sofia base.
1.3.2 VISION
Travelling to, from, and within the Balkan region should be a pleasant experience for everyone – no
matter the purpose of travel. SofiAir’s vision is to become the leading airline of the region, for each
market segment. Offering à la carte service will bring freedom of choice to the customer, and so
provide a tailor-made service for traveller.
SofiAir will be the natural choice for air travel, from the region to any place in the world – through
linking the Balkans to major hub airports, and co-operating with carefully selected network carriers.
1.3.3 CORE VALUES
SofiAir operates based on a number of core values. These values are the underlying and core
principles of the airline’s strategy, and represent the very essence of what makes SofiAir – in good
and bad times, whatever happens.
1.3.3.1 SAFETY
In our operations safety is the number one priority; we accept no compromises.
1.3.3.2 OUR PEOPLE
We believe that our people are our greatest asset, and that every single member of our company
has to be able to enjoy coming to work every day. So, if we are having fun, then so is the customer.
1.3.3.3 FREEDOM OF CHOICE
For too long, the people of Bulgaria have been afflicted by bad service and high fares. This lack of
appreciation of people’s freedom of choice must come to an end – and we want to bring out a fresh,
new approach to flying, where people can make their own decisions, and maximise their own
comfort.
1.3.3.4 CONNECTIVITY
Connectivity – within the region, to Western Europe, and to the world. This is what SofiAir will
bring to the marketplace, and to the people of the Balkans.
SofiAir Core Values
Freedom of
Safety Our People Connectivity
Choice
FIGURE 1.7: SOFIAIR’S CORE VALUES

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2012 – 2017
1.3.4 OBJECTIVES
To challenge ourselves and have specific targets to be achieved, the following objectives have been
set, to provide guidance and focus regarding what actions should be taken, in order to meet all
objectives within the time limits specified:
- To fully comply with all relevant EU financial fitness regulations
- To be profitable over the full five year period
- To increase passenger numbers year-on-year
- To expand the fleet within the five year period
- To, before expanding the fleet, reach at least break-even point
- To show a decreasing trend debt to equity ratio, reaching zero before 2017
- To keep the current and quick ratios above 1.0

Business Plan
2012 – 2017

Business Plan
2012 – 2017
2 REGULATORY SITUATION
As the air transport industry has historically been highly regulated – a relic of the fading era of state-
owned flag carriers – understanding the maze of relevant regulation proves essential for any
company considering entering the market. This section seeks to examine the relevant European
and national regulation which SofiAir must follow, in order to gain the approvals needed to start
operations.
2.1 REGULATION OF START-UPS

When looking to establish a new air transport undertaking, numerous regulations must be followed
– laying down aspects such as the level of capital required, the submission of business plans,
insurance requirements, etc. Those regulations which pertain to SofiAir are explained below,
whether European- or national-level.
2.1.1 EUROPEAN
At the European level, it is Regulation 1008/20087 which sets out the majority of restrictions that
SofiAir must comply with prior to start-up. Firstly, before being permitted to undertake any
commercial operations, the company must obtain an operating licence from the competent
licensing authority (the Bulgarian CAA, in SofiAir’s case). However, in order to be granted an
operating licence, then it is necessary to already hold an Air Operator’s Certificate (AOC), granted
by the same authority that grants the operating licence. Other requirements that must be
demonstrated to the competent licensing authority, prior to the granting of an operating licence,
include the undertaking having its principal place of business in a member state (in this case,
Bulgaria), and having one or more aircraft at its disposal - either through ownership or a dry lease
agreement (so, all aircraft may not be wet leased). These aircraft should be nationally registered
(so, on the Bulgarian register), or registered within the Community – at the option of the competent
licensing authority. Additionally, the undertaking’s main occupation must be the operation of air
services, and the company structure must allow implementation of the necessary provisions.
Ownership and control restrictions also exist, whereby (on top of the company having its principal
place of business in a member state) member states, or nationals of member states, must own over
50% of the undertaking, and effectively control it. In this instance, effective control must represent
the exercising of a decisive influence, and may be either direct or indirect (so, through one or more
intermediate undertakings). These ownership and control restrictions mean, effectively, that the
majority of investment in SofiAir must come from within the Community. Financial fitness
requirements are also present, and these prove especially challenging, as it is necessary for first
time applicants (such as SofiAir) to be able to meet, at any time, any actual and potential obligations
for the first 24-months of operation, under realistic assumptions. On top of this, any fixed and
operational costs must be able to be met, without operational income, for the first three months of
operation, according to the submitted business plan and realistic assumptions. Also, a business
plan must be submitted to the competent licensing authority, for a minimum period of three years.
The carrier must be insured to cover liability in the case of accidents, and it must be proved that the
7
Regulation (EC) No 1008/2008, on common rules for the operation of air services in the Community

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2012 – 2017
persons who will manage the undertaking’s operations are of good repute, and have not been
declared bankrupt.
If all such requirements are met, then the granting of an operating licence is an entitlement, thus
allowing the licensed undertaking to perform carriage, by air, of passengers, mail, and cargo, for
remuneration or hire. This licence remains valid indefinitely, as long as the carrier is able to
demonstrate continued compliance to the competent licensing authority. As part of this, the
carrier’s financial performance may be assessed at any time, with the licence suspended if financial
obligations cannot be met over a 12-month period. The competent licensing authority must also be
notified in advance of any substantial modification of activities (such as a new service to a
previously unserved region), with a revised business plan having to be submitted if the modification
is deemed to have potentially significant financial consequences.
2.1.2 BULGARIAN
Some national regulations also exist, in addition to the European regulations from 1008/2008.
These regulations are stated in Bulgaria’s Civil Aviation Act8, and would also impact the process of a
start-up airline gaining regulatory approval. The Act states that all applications for operating
licenses submitted to the CAA will be reviewed within 30 days, with – where the necessary
requirements have been met – a licence being issued within a further 10 days. Requirements in
addition to those stated in 1008/2008 include that the undertaking applying for a licence must
already be registered as a business in Bulgaria, with air transportation as its main activity, and that
any licensed carrier must have at their disposal, at all times, an amount of capital not less than
160,000BGN. This licence then remains valid until either the company no longer complies with the
necessary requirements, it transpires that the licence was issued on the basis of false documents,
there is a violation of the law, the company’s owner(s) declare(s) that they no longer wish to hold
the licence, or the entity ceases performing the licensed activities. In terms of insurance, the Act
states that licensed undertakings must insure their aviation staff against accidents, and insure their
responsibility towards passengers in the event of an accident, as well as insuring against cases of
missing or damaged luggage, cargo, or mail, and insuring their responsibility towards third parties.
8
Civil Aviation Act, available at: http://www.caa.bg/page.php?category=13

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2.2 TRAFFIC RIGHTS

As laid down in 1944’s Chicago Convention9, states retain sovereignty over the airspace above their
territory, and so any scheduled international air service operating over or into the territory of that
state must have received, from the state, special permission or other authorisation. In effect, this
means that international air transport has come to be increasingly governed by a complex web of
bilateral agreements, which lay down the routes that may be operated between states, which
carriers may operate these routes, how much capacity may be provided, and so forth. So, a start-up
carrier may have seen rather limited success in gaining the necessary authorisation to operate its
desired routes. In recent years, though, some liberalisation has occurred, especially on routes
within Europe, as is explained below.
2.2.1 INTRA-COMMUNITY
Set out in Regulation 1008/2008 is the principle that any Community air carrier shall be entitled to
operate any intra-Community air service. So, as long as a carrier holds a European operating
licence, that carrier may operate any route within the Community, with the individual member
states able to require no further permit or authorisation. This liberalisation means that, for routes
within the Community, the complex issues of bilateral agreements and the granting of traffic rights
are now no longer. However, there still remain some restrictions that may be implemented by
member states. For instance, traffic rights may still be restricted on the basis of European, national,
regional, or local regulations on safety, security, the environment, or slot allocation – and, perhaps
because of problems of congestion, member states may regulate the distribution of traffic between
different airports serving the same city or conurbation. The open-skies principles set out in
1008/2008 apply throughout the current 27 EU member states (so, including Bulgaria), plus the
three states which are members of the EEA, but not EU members; Iceland, Liechtenstein, and
Norway. Switzerland maintains a bilateral relationship with the EU, although this agreement offers
similar terms to those laid out in 1008/2008. So, if SofiAir were able to obtain a European operating
licence, then the carrier would be able to operate any route it wished within, and between, these 31
states. Additionally, the right of Community air carriers to combine air services, and enter into
codeshare agreements, is recognised.
2.2.2 EXTRA-COMMUNITY
Outside the Community, though, the situation remains rather confused. Extra-Community
destinations that SofiAir is considering operating to are Geneva (in Switzerland, although this is
governed by the liberal EU-Switzerland bilateral agreement), Istanbul (in Turkey), Belgrade (in
Serbia), and Tirana (in Albania). The latter two countries, Serbia and Albania, are signatories to the
ECAA (European Common Aviation Area) agreement, which was signed in December 2005, and
which looks to bring the full application of EU aviation law to ECAA signatories 10. Thus, ECAA
carriers would be provided with the status of Community air carriers, having full, open access to the
European single aviation market, and Community air carriers would be granted full, open access to
the newly-unified ECAA aviation market. Nine non-EU members would form the ECAA: Albania,
9 th
Convention on International Civil Aviation Signed at Chicago on 7 December, 1944
10
International Aviation – ECAA, available at:
http://ec.europa.eu/transport/air/international_aviation/country_index/ecaa_en.htm

Business Plan
2012 – 2017
Bosnia and Herzegovina, Croatia, Macedonia, Montenegro, Serbia, Kosovo, Norway, and Iceland
(with the latter two states already being EEA members). However, the implementation of the
agreement has been held up by slow ratification by member states, with the initially-expected date
of implementation (2010) having passed. However, SofiAir assume that, by the start of operations
in 2013, the ECAA will be in force, and so bilateral agreements between Bulgaria/the EU and
Serbia/Albania need not be considered. Additionally, Turkey is in talks to become part of the ECAA,
and so may have joined by 2013. If Turkey does not join the Area before SofiAir’s operations start,
though, then traffic rights will remain governed by the existing Bulgaria/EU–Turkey bilateral
agreement. Details of this agreement could not be found and, in the event that the agreement only
allows single designation – and so only one Bulgarian carrier is able to operate on the route (none
currently operate) – then the Bulgarian Civil Aviation Act states that, where bilateral agreements
state single designation, a competition will occur if more than one carrier applies to serve that
route. So, if a competing Bulgarian airline were to also apply to serve the Sofia-Istanbul route, then
SofiAir would hope to achieve the necessary traffic rights through the resulting competition – or
indeed by default, if no other carriers apply to serve the route (as is currently the case).
2.2.3 AIRPORT/SLOT RESTRICTIONS
Even if a carrier is able to secure the desired traffic rights for a route (either through bilateral
agreements, or due to the implementation of an open skies arrangement such as the ECAA), then
the issue of airport congestion, and slot restrictions, remains. The capacity of airports may be
dictated by any number of factors, such as a maximum number of runway movements permitted
per hour, the number of aircraft parking stands available, the terminal’s maximum passenger
throughput, the number of gates available, noise restrictions, or curfews. If such restrictions are in
place at a popular airport, then that airport may become so congested that it proves necessary to
strictly allocate capacity by slots, with only a finite number of slots made available, and airlines
applying for those slots – with the possession of a pair of slots (for both arrival and departure)
necessary before operations to that airport are permitted. This is the case at level 3 slot co-
ordinated airports, where slot allocation is mandatory for airlines wishing to operate there. SofiAir is
looking to fly to four such airports; Amsterdam, Geneva, Berlin, and Istanbul. These airports are all
level 3 co-ordinated11 (although it is not yet clear whether the new Berlin Brandenburg Airport, to
which SofiAir would operate, will be slot co-ordinated like its predecessor is currently, but this
seems likely and has been assumed to be the case), and so it has been assumed that SofiAir will be
able to secure slots at the desired times (as information on slot allocation is notoriously
unavailable). However, the slot situation has been considered when creating schedules – as, for
instance, flights to Istanbul are planned to increase not in frequency (which would require further
slots), but in terms of aircraft size. Additional airport restrictions considered include the minimum
ground time, between flights, mandated at Sofia airport – which is 30 minutes for low-cost
companies12 – and so this has been incorporated into the SofiAir schedules.
11
European Airport Coordinators Association, available at: http://www.euaca.org/FTableList.aspx?list=6
12
Sofia Airport Slot Coordination, available at: http://www.sofia-airport.bg/slotcoord/

Business Plan
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2.3 FARES
Regulation 1008/2008 states that fares must be freely set, with the published price to include the
fare, and all taxes, charges, surcharges and fees which are unavoidable and foreseeable at the time
of publication. The details of all price components must be given (so, a price break-down to show
fare, taxes, airport charges, handling fees etc), and there is to be no discrimination in access to fares
on the basis of place of residence, or nationality, within the Community.
2.4 AIRCRAFT
In certain instances, further regulation controls the operation of aircraft, as explained below:
2.4.1 EUROPEAN
If considering the lease of aircraft, then Regulation 1008/2008 lays down a number of further
conditions which must be followed. Dry- or wet-leased aircraft registered within the Community
may be freely operated, subject to prior approval – however, if wet-leasing aircraft registered
outside the Community, then there are numerous restrictions; with the carrier obliged to
demonstrate that safety standards are equivalent to those in force inside the Community, and that
there is either:
- An exceptional need (with a maximum term of 7 months)
- Seasonal capacity demand (not reasonably satisfied from within the Community, term
renewable)
- Operational difficulties (if impossible, or unreasonable, to take aircraft from within the
Community, with a limited duration).
However, Regulation 3922/9113 states that, at least in terms of day-to-day operations with
Community-registered aircraft, the common technical requirements and administrative procedures
for all aircraft used by Community operators means that any aircraft authorised to operate by a
member state may operate identically throughout the Community.
2.4.2 BULGARIAN
Further national-level requirements are stated in the Bulgarian Civil Aviation Act, which declares
that the CAA must be notified within 30 days of a Bulgarian carrier acquiring an aircraft, with an
aircraft registration application being lodged within that period. Additionally, the Act states that if
a Bulgarian carrier is leasing in, or out, an aircraft for over 30 days, then the lease must be registered
in the Civil Aircraft Register of Bulgaria. Also, the CAA may only approve wet leases for periods not
exceeding six months.
13
Council Regulation (EEC) No 3922/91, on the harmonization of technical requirements and administrative
procedures in the field of civil aviation

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2012 – 2017
3 MARKETS AND FORECAST

Routes to be served, from Sofia, were selected on the basis of the following four criteria:
1) Corporate Strategy
As SofiAir is planning to become the major carrier within the Balkan region, as well as the primary
airline for traffic to and from the region, any selected route should fit into this corporate strategy.
2) Qualitative Potential
Here, the qualitative indicators for potential demand on a route were evaluated – for instance, the
level of bilateral trade, investment potential, foreign population and tourism.
3) Quantitative Potential
Route potential was also analysed in a quantitative manner; through using the PaxIS database the
O&D demand on any route from Sofia could be identified, along with whether that city pair is
already (directly) served or not. Only those routes showing significant demand were selected.
4) Level of Competition
This last criterion examines the level of competition on the route. Routes with a high level of
competition (so, more than one full service carrier, or any low-cost carrier) were excluded from
further analysis – the rationale being that the yield will be lower on routes with competition, there
would be an increased risk of a surplus of supply, and last but not least, the fact that a new entrant
to the market will see difficulties in gaining market share.
3.1 MARKET ANALYSIS

Those routes that matched best with all four of the above criteria were selected as possible
destinations for the SofiAir network (although the initial selection, of course, included far more
destinations – which were all analysed), and so only the routes that SofiAir plan to eventually
operate are discussed below:
3.1.1 ATHENS, GREECE (ATH)
Greece is Bulgaria’s major investment partner. Its capital, Athens, is home to over three million
inhabitants, and around 9% of Bulgaria’s exports go to Greece, with 6% of imports (into Bulgaria)
originating from Greece. Despite the country’s current economic crisis in, Greek President
Papoulias has stated that the recession has not led to any disturbances in the trade between the
two countries. Indeed, bilateral trade hit €1.8 billion in 2009, with over 1,500 Greek companies
operating in Bulgaria, amounting to a total investment of €2.8 billion14.
The GDP of Greece is forecast to start growing continually after the year 201215, and this will
provide SofiAir with the potential to enter a growing market, and act as market stimulator. Greece
14
Hellenic Business Council in Bulgaria
15
Euromonitor

Business Plan
2012 – 2017
is home to around 50,000 Bulgarians, which will provide ethnic traffic beyond just tourism and
business16. Besides that, the Greek population’s income has been growing steadily – despite the
crisis – and so this presents an opportunity for tourism, as Bulgaria offers high-class ski resorts in
winter (which are close to Sofia airport). Furthermore, Greece is one of Bulgarians’ favourite
holiday destinations, offering a wide variety of experiences ranging from the cultural and historical,
to beach holidays. Athens also proves a popular weekend trip destination, and so would hopefully
provide SofiAir with high load factors all days of the week.
Being a route within the European Union, there will be no regulatory restrictions on air services –
however, it is this Athens route where we will be competing with the largest number of competitors
(being Bulgaria Air, Olympic Air, and Air Malta). Air Malta, being neither a Greek nor Bulgarian
carrier, and operating only 4 flights per week, is not expected to achieve a large market share in the
long-term – as national pride plays a large role in Southern Europe, in terms of airline choice.
Bulgaria Air and Olympic Air, on the other hand, are legacy carriers – both well known for their
unsatisfactory levels of service, and flight times that suit neither the business nor leisure traveller.
So, as a fresh, new, friendly airline, SofiAir has the chance to capture significant market share on
this route.
Days of Ops Departure time Aircraft type

Bulgaria Air -2345-7 11:20 BAe 146
Olympic Air 123456- 09:45 Dash 8-400 / A319
Air Malta 12-45-- 10:50 A320
SofiAir 1234567
TABLE 3.1: COMPETITION ON THE ATH ROUTE
3.1.2 ISTANBUL , T URKEY (IST)
Turkey is currently one of the few countries around the world experiencing something of an
economic boom – and has historically always been an important business partner of Bulgaria. 7.33%
of Bulgaria’s exports go to Turkey, and 5.48% of imports into Bulgaria originate from Turkey.
Economists forecast that Turkey’s growth rate will continue to either match or exceed that of most
other countries (except India and China). As a result of this high growth, Turkey has embarked on a
policy of “zero-problem politics” with its neighbours. This policy intends to make Turkey
economically attractive, and safe, for foreign direct investment. A new political direction, along
with foreign investment, has led to both GDP and annual disposable income more than tripling in
recent years17, and these figures (from 2010) are forecast to double by 2017. Such high growth
offers Bulgaria the chance to invest in Turkey, and vice versa.
Istanbul, a city of around 12 million inhabitants, has a large Bulgarian population. Turkey, as a
whole, has a foreign population of around 7–12%18, of which a major proportion are from the
Balkans (being formerly part of the Ottoman Empire). Turks are the largest minority group in
Bulgaria, numbering around 750,000, and constituting 9.4% of the total population. Besides that,
Turkey offers extensive holiday opportunities – in Istanbul and elsewhere, and so offers Bulgarians
16
Greek National Institutions for Language
17
The Economist, 2010
18
CIA, 2011

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the opportunity to take a holiday by the sea, or have an exploratory weekend trip to Istanbul. The
close proximity of Istanbul (to Sofia) will particularly interest those looking for weekend trips, and so
this will provide constant load factors throughout the week – and the close links between Turkey
and Bulgaria mean that ethnic, leisure, and business traffic will all be seen.
Turkish Airlines is the only competitor on this route. However, even though Turkish proves a strong
competitor, with good service levels, they only offer 7 flights per week (3 in the morning, and 4 in
the evening). This does not provide enough flexibility for the business passenger – and so SofiAir
plans to enter the market with double-daily flights, offering services that arrive at the right time to
connect to flights from Istanbul to Asia, Africa and the Middle East. However, Istanbul airport is slot
constrained – but SofiAir hopes that the fact that both the airport and Turkish Airlines are partly
government owned, combined with SofiAir’s plan to (after an initial start-up period) co-operate to
provide transfer passengers for Turkish Airlines’ connecting flights, might be of help to secure the
necessary slot times.

Turkish Airlines 1234567 10:45 / 19:15 A320 / B737
SofiAir 1234567
TABLE 3.2: COMPETITION ON THE IST ROUTE
3.1.3 BUCHAREST , R OMANIA (OTP)
Romania is one of Bulgaria’s major trading partners, with 8.52% of Bulgaria’s exports going to
Romania, and 5.65% of imports into Bulgaria originating from Romania. Romania was negatively
impacted by the economic crisis of 2008, but has since been growing rapidly – and is projected to
have one of the largest growth rates in Eastern Europe19. Both Bulgaria and Romania are part of the
EU’s Danube Strategy – a European Commission project looking to develop the region around the
River Danube (signed in March 2011), and which will create additional business opportunities
between both countries20. Additionally, both energy and energy-efficiency projects are being
developed between the two countries21 - although investment between the two states already
accounts for over €1.1 billion22. Also, Romania proves a popular holiday destination for Bulgarians,
as it offers a diverse culture, numerous sights, and the potential for holidays on the Black Sea.
Bucharest is Romania’s capital city, and is home to approximately 2.2 million people. Currently, the
Sofia-Bucharest route is served only by TAROM (the national carrier of Romania), who provide 13
flights per week (with no morning flight on Saturday). SofiAir’s advantage lies in not being an
inefficient, aging, state-owned legacy carrier – instead appealing to the younger generations of
business travellers, as well as holidaymakers. This differentiated market appeal proves crucial,
especially as the younger generations form a large proportion of both nations’ inhabitants.
Additionally, there are almost 400,000 Bulgarians living in Romania, and more than 350,000
Romanians living in Bulgaria – and these communities will provide VFR traffic.
19
IMF
20
European Commission
21
Novinite
22
Bulgarian National Statistics Institute

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TAROM 1234567 09:50 / 18:50 ATR 42
SofiAir 1234567
TABLE 3.3: COMPETITION ON THE OTP ROUTE
3.1.4 BELGRADE, SERBIA (BEG)
Serbia is forecast to double its 2010 GDP by 2016, and holds numerous opportunities for investment
from Bulgaria. In 2008, investment between Bulgaria and Serbia totalled more than €650 million23,
and there is major potential for investment in the energy and tourism sectors. On top of this, Serbia
is also part of the EU’s Danube Strategy, and thus additional business demand will be created
between both countries. Serbia is looking to transform Belgrade into a regional economic and
business centre, and the city is already a leader for FDI – and has several industrial zones located in
the outskirts24. The total value of investment projects in the capital is around $3.5 billion, with the
service sector proving most appealing to foreign investors (so, banking, retailing, and
telecommunications, along with property development and manufacturing25).
Serbia is currently not connected, by any airline, to Bulgaria (although the Sofia-Belgrade route was
previously operated, by AeroSvit of Ukraine, between January 2005 and July 2006). However, PaxIS
data shows that there is in fact significant demand between these two cities, which is currently
forced to make the journey with stopovers.
The population of Serbia is around 7.3 million, although there is no significant migration between
the two countries – but Serbia is a popular destination for Bulgarian tourists visiting the mountains
and ski resorts, and Serb tourists often holiday on Bulgaria’s Black Sea coast.
3.1.5 TIRANA, ALBANIA (TIA)
Albania was the only country in Eastern Europe not to suffer a decline in GDP as a result of the
economic crisis of 2008, and has seen steady GDP growth instead – with projections suggesting that
the country will be one of the fastest growing, in economic terms. This growth can be largely
attributed to public investment, and the development of key infrastructure and the energy sector –
as well as to the privatisation of these sectors. As a result, the total amount of foreign direct
investment reached €664.17 million in 2009. Air services connect Albania only to Western and
Northern Europe, but not to the Balkan region – which offers SofiAir the opportunity to develop
trade between both countries, and satisfy Albanians’ demands for intra-Balkan travel. In addition,
Albania’s tourism industry is currently underdeveloped, and so has investment potential. However,
there is no significant migration between Bulgaria and Albania, and the latter’s population is
approximately 3 million.
Tirana, Albania’s capital, is currently not connected to Bulgaria by air. In the past, Hemus Air, a
Bulgarian airline, did offer this route – but not since their acquisition by Bulgaria Air. PaxIS data
show that there is a great demand for air services between the two cities – and the road connection
23
24
Belgrade Investments
25
Serbia Investment and Export Promotion Agency

Business Plan
2012 – 2017
between Sofia and Tirana is insufficient, with there being no highways, and so travelling by ground
transportation may take up to one day – especially as two borders must be crossed.
3.1.6 BOURGAS , B ULGARIA (BOJ)
Bourgas is the only domestic route that SofiAir plan to offer. It is Bulgaria’s second largest city (by
area), and fourth largest (by population). Additionally, Bourgas is an important industrial centre,
being home to Bulgaria’s only duty free trade zone – which was established to attract foreign
investment. The surrounding region is one of the most developed regions of Bulgaria, contributing
highly to Bulgarian GDP, and having one of the lowest unemployment rates of the Balkan region.
On top of this, the city hosts Eastern Europe’s largest oil refinery, and the largest manufacturing
plant in the Balkans.
Bourgas does not only present business opportunities, but is also Bulgaria’s prime holiday
destination – and is already well-known to European tourists as such. Serving Bourgas will give
SofiAir the opportunity to serve the industrialised business centre of the city, alongside serving the
whole region’s tourism destinations.
Competition on the Sofia-Bourgas route comes from Bulgaria Air, who operate the routes in the
morning and evening, 5 times per week, and who offer daily flights at night. As Bourgas is not
connected to Sofia by a highway, the travel time by ground transportation is more than 5 hours.

Bulgaria Air 1234567 9:45 / 17:30 / 23:20 BAe 146
SofiAir 1234567
TABLE 3.4: COMPETITION ON THE BOJ ROUTE
3.1.7 GENEVA, SWITZERLAND (GVA)
Switzerland is investing heavily into Bulgaria’s energy sector – especially in terms of wind energy.
The incentives for this investment come from both the Bulgarian government, and the European
Commission’s Directive 2009/28/EC, on promoting renewable energy. Thus, Bulgaria is required to
achieve a 16% share of renewable energy (in terms of total internal energy consumption) by 2020.
In order to achieve this binding target, new renewable capacity must be installed in Bulgaria, and so
there is the potential that further investment from Switzerland will be attracted by this opportunity.
Furthermore, Geneva itself is home to a number of high-profile international institutions, such as
the World Economic Forum, World Trade Organization and World Health Organization (to name a
few). These institutions would be likely to prove key customers on the Sofia-Geneva route, as there
is currently no direct service on this city-pair – and, additionally, SofiAir would be able to provide
connections to a number of underserved Balkan destinations.
The tourism aspect also proves important. Switzerland offers beautiful landscapes, sporting
facilities, and cultural opportunities. For the Swiss population, Bulgaria offers attractive holiday
opportunities on both the Black Sea coast, and in the mountains. Even though there are not a
significant number of each country’s nationals living in the other state, Switzerland is home to a
large population of Albanians, numbering 250,000 which forms 2.5% of the Swiss population.
Connecting Geneva to the Balkans would create the opportunity for VFR traffic to transfer onto the
Tirana route.

Business Plan
2012 – 2017
PaxIS data shows that there is a great demand for air services between Sofia and Geneva, with
connections between the two countries currently only offered via Zurich.
3.1.8 BERLIN , GERMANY (BER)
Germany is Bulgaria’s second largest investment partner, with investments worth over €1.35 billion,
as of 200826. 11.21% of Bulgaria’s exports go to Germany, and 12.23% of imports into Bulgaria
originate from Germany. The German-Bulgarian Chamber of Industry and Commerce has drawn up
a plan for doubling the bilateral trade, and German investments in Bulgaria, by 2015.
Berlin provides potential for tourism, in both directions, as well as VFR traffic. Many Bulgarian
students make use of Germany’s top universities (located in Berlin), and so the route offers a
potential for educational exchange in both directions.
The Sofia-Berlin route is already served by Bulgaria Air, who operate 6 flights per week – either in
the morning or late afternoon. SofiAir believe that competition against Bulgaria Air, who have an
inefficient cost structure, and thus very high fares on this route, will prove successful. A further
reason for choosing Berlin was that SofiAir prefer to concentrate on niche markets, rather than
finance centres such as Frankfurt, where competition against strong carriers such as Lufthansa, and
Star Alliance, would prove challenging. Additionally, the forthcoming opening of Berlin
Brandenburg International Airport will provide SofiAir with the opportunity to use the brand new
airport facilities, while profiting from lower landing fees.

Bulgaria Air 1-34567 07:45 / 16:45 BAe 146 / B733
SofiAir 1234567
TABLE 3.5: COMPETITION ON THE BER ROUTE
3.1.9 BOLOGNA , ITALY (BLQ)
Italy is the fourth largest investment partner of Bulgaria, with trade totalling more than €2.3 billion,
in 200827. Additionally, the country is Bulgaria's third largest trading partner (after Germany and
Greece), with 9.24% of Bulgaria’s exports going to Italy, and 7.78% of imports into Bulgaria
originating from Italy28. Bologna and its surroundings, located in Italy’s prosperous North, are
potential investment partners for Bulgaria. There are currently more than 800 Italian businesses
operating in Bulgaria – and this number is predicted to soon reach 1000 or more. This development
has been triggered by firms from Northern Italy, which started outsourcing their operations.
Additionally, Albania and Serbia see around 300 active Italian businesses each – providing potential
connecting traffic for SofiAir’s flights to those countries.
Bologna also proves a persuasive choice in terms of tourism, being home to the world’s oldest
university, and ranking highly in terms of quality of life – with an extensive tourism potential for
those interested in history, art and culture. Additionally, the city is home to many migrants from
the Balkan region, who would be likely to choose SofiAir to fly to their home region.
26
27
28
Confindustria Bulgaria

Business Plan
2012 – 2017
The Sofia-Bologna city pair is currently not served by any airline, being served until 2008 by the
Italian low-cost carrier MyAir (who entered bankruptcy in 2009). Thus, SofiAir will see a monopoly
on the route – and PaxIS data show that there is significant demand for air service between the two
cities. Currently, connections between both countries are offered only via Milan or Rome.
3.1.10 AMSTERDAM, THE NETHERLANDS (AMS) – FROM YEAR 3 ONLY
The Netherlands are one of the largest foreign investors into Bulgaria, with there being currently
around 300 Dutch companies operating in Bulgaria – including Shell, ING, Heineken and Unilever 29.
The Netherlands also offer diverse opportunities for tourism, from Bulgaria – especially to
Amsterdam; a historic yet modern city. Besides that, the Dutch will be able to easily access both
the Black Sea coast (for summer), and the winter resorts (for winter), with the latter proving a viable
alternative to the high ski resort prices in Switzerland.
However, SofiAir only plan to enter the Amsterdam market in year 3; once the airline has
successfully embarked upon its growth strategy, and earned a reputation as a reliable, efficient
airline. This pause will, it is hoped, facilitate the creation of a codeshare agreement with KLM – and
thus offer SofiAir’s passengers the opportunity to connect to North and South America, and
beyond, with KLM via Amsterdam. The Sofia-Amsterdam route is currently served daily by Bulgaria
Air – although, with operations not planned to start for three years, it is essential that SofiAir’s route
analysts closely monitor developments on this route.

Bulgaria Air 1-34567 07:45 / 16:45 BAe 146 / B733
SofiAir 1234567
TABLE 3.6: COMPETITION ON THE AMS ROUTE
29
Bulgarian-Dutch Business Club

Business Plan
2012 – 2017
3.2 ROUTE DEMAND FORECAST

In order to be able to decide, per route, which aircraft type to use at what frequency, a demand
forecast was created for SofiAir’s selected routes, for the period until 2017. Due to the relatively
long period of the forecast, an econometric model was used, as time series forecasting typically
proves unreliable for periods over one year into the future.
Using the historic demand figures, along with air travel demand indicators such as GDP and
disposable income, an econometric model was developed to forecast the demand – based on these
indicators. Combining the model with the forecast for those indicators, made by Euromonitor
International, a yearly demand forecast could be made.
3.2.1 HISTORIC DEMAND
For those routes that have been operating over the last few years with a stable schedule, capacity
data from OAG was used, and combined with the average load factor on that route. By multiplying
the capacity by the load factor, the demand was derived. For this analysis, a nine-year period
(2002-2010) was used.
For those routes that did not show a stable schedule, demand data from the PaxIS database was
instead used – for the years 2006 and 2007. Based on the figures for these years, and the growth
rate of the relevant airports, an estimation was made for the historic demand between 2002 and
2010. Only the O&D demand was taken into account, to avoid overestimating potential traffic due
to connecting traffic on the route. However, passengers travelling on the city pair under
investigation, via one or more other airports, are taken into account (as shown in Figure 3.1, below).
Origin Destination
FIGURE 3.1: ONLY O&D DEMAND WAS TAKEN INTO ACCOUNT FOR THE FORECAST
The results of the forecast are shown in Figures 3.2 and 3.3 (over the page), while the details of the
statistical analysis of the econometric model may be found in Appendix 1.

Business Plan
2012 – 2017
50,000
45,000
40,000
35,000
Passengers
30,000
25,000
20,000
15,000
10,000
5,000
0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
AMS 20,441 21,389 22,787 24,665 26,647 29,146 31,700 31,434 32,020 33,421 34,793 36,102 37,481 40,883 44,493 48,242
SXF 8,322 11,709 13,681 15,498 25,807 25,405 27,733 22,363 21,416 19,189 25,552 27,301 29,077 30,881 32,685 34,411
GVA 9,406 9,956 10,723 11,683 12,620 13,707 14,725 14,623 14,847 15,366 15,854 16,302 16,756 17,218 17,680 18,122
BLQ 8,133 8,787 9,700 10,842 11,958 13,250 14,462 14,341 14,607 15,225 15,805 16,338 16,879 17,429 17,978 18,504
FIGURE 3.2: HISTORIC DEMAND AND FORECAST , WESTERN EUROPEAN ROUTES
100,000
90,000
80,000
70,000
60,000
Passengers
50,000
40,000
30,000
20,000
10,000
0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
ATH 21,676 29,160 40,522 48,639 64,464 78,105 74,125 70,347 53,817 43,291 58,713 64,595 71,472 78,541 87,845 97,608
OTP 11,143 10,951 12,906 15,325 18,541 19,907 20,815 30,071 19,808 22,880 29,872 32,091 34,512 37,158 40,008 42,939
IST 16,811 17,108 25,072 23,659 28,267 27,359 32,052 31,864 31,018 40,428 39,683 45,715 50,556 56,040 61,685 67,702
BOJ 1,810 2,225 2,929 2,480 904 10,865 14,361 6,274 12,482 29,408 33,690 37,884 42,419 47,326 52,557 57,884
BEG 2,332 2,484 2,645 2,817 3,000 3,556 3,773 4,003 4,247 4,506 5,408 6,068 6,510 6,969 7,469 8,027
TIA 960 1,302 1,780 2,379 2,963 3,640 4,275 4,211 4,351 4,675 4,979 5,258 5,541 5,829 6,117 6,392
FIGURE 3.3: HISTORIC DEMAND AND FORECAST, REGIONAL ROUTES

Business Plan
2012 – 2017
3.3 MARKET SHARE FORECAST

The demand forecast made in section 3.2 (above) is based on that route’s total demand. On some
routes, SofiAir will be the only operator and, so it can be assumed that the route demand equals the
airline demand. However, on the routes to Amsterdam, Berlin, Athens, Bucharest, and Istanbul,
competition will be faced. To divide the route demand over the individual carriers active on these
routes, a simplified Quality of Service Index (QSI) has been used, based on Wei and Hansen (2006),
and Weber and Williams (2001). A simplified version was used as there was insufficient data
available to allow the calibration of a more sophisticated model.
Parameters used in the QSI model, and so to determine market share were:
1) Weekly frequencies
2) Aircraft type
3) Average fare
4) Brand Value
These four factors led to the creation of SofiAir’s market share forecast – as shown in Table 3.7,
below.
2013 2014 2015 2016 2017

SOF-AMS - - 48% 58% 67%
SOF-BER 41% 51% 61% 61% 59%
SOF-GVA 100% 100% 100% 100% 100%
SOF-BLQ 100% 100% 100% 100% 100%
SOF-ATH 36% 43% 42% 42% 49%
SOF-OTP 44% 47% 64% 64% 63%
SOF-IST 52% 53% 60% 60% 60%
SOF-BOJ 34% 48% 54% 54% 54%
SOF-BEG 100% 100% 100% 100% 100%
SOF-TIA 100% 100% 100% 100% 100%
TABLE 3.7: FORECAST MARKET SHARE, FOR SOFIAIR , PER ROUTE

Business Plan
2012 – 2017
3.4 CONNECTING TRAFFIC POTENTIAL

On SofiAir’s flights from Sofia to Amsterdam, and Sofia to Istanbul, there is expected to be
significant potential for connecting traffic. To better understand this potential, the current traffic
flows between Sofia and North America, the Middle-East, and the Asia-Pacific region were
analysed, using the PaxIS database.
3.4.1 SOFIA – NORTH A MERICA
In 2007, the total annual O&D demand between Sofia and any airport in North America totalled just
over 60,000 passengers (one-way). Currently, only 13% of all passengers travel via Amsterdam (see
Figure 3.4), and the top destinations in North America include New York (18% of total, for both JFK
and EWR), Washington (9%), Toronto (9%), Boston (8%) and Chicago (7%).
SOF-North America: 60,234
SOF-AMS-North America: 7,748 (13%)
FIGURE 3.4: O&D DEMAND ON THE SOF-NORTH AMERICA MARKET (SHOWING ROUTING)
Interestingly, only 4% of total travellers to New York are using Amsterdam as a hub, despite KLM
alone operating four daily flights. The same is true for Sofia-Toronto (2% travel via AMS, with a
double-daily connection offered by KLM), and Los Angeles (4% travel via AMS, also a double-daily
connection offered by KLM). Appendix 1.2 includes more details on this analysis.
Clearly, then, there is potential for SofiAir to feed Sofia originating traffic into Amsterdam, to both
increase the load factors on SofiAir flights – and also increase the transatlantic market share of
KLM.
3.4.2 SOFIA – MIDDLE -EAST
The demand from Sofia to the Middle-East is concentrated on three routes: Tel Aviv, Dubai and
Beirut. The number two route, Dubai, has no direct connection. Feeding traffic to Dubai, via
Istanbul, could be an option. However, already one-in-three passengers are using Istanbul as a hub
– since this is the most direct connection (see Figure 3.5).

Business Plan
2012 – 2017
SOF-DXB: 5,942
SOF-IST-DXB: 1,908 (32%)
FIGURE 3.5: O&D DEMAND ON THE SOF-DXB MARKET (SHOWING ROUTING)
3.4.3 SOFIA – ASIA-PACIFIC
The market between Sofia and the Asia-Pacific region is significant, with nearly 35,000 annual
passengers. The five most popular destinations account for 65% of total traffic, and are:
1) Shanghai (21% - 7,319 passengers)
2) Beijing (20% - 6,864 passengers)
3) Tokyo (12% - 4,286 passengers)
4) Seoul (6% - 2,042 passengers)
5) Hong Kong (5% - 1,844 passengers)
Turkish Airlines offer non-stop flights to all these destinations, from their Istanbul hub, and a
codeshare agreement with them could prove fruitful not only for Turkish, but also for SofiAir.
Currently, only 7% of total traffic between Sofia and the Asia-Pacific region travels via Istanbul (see
Figure 3.6), with the most popular hub currently being Moscow (SVO), handling 52% of all traffic
between Sofia and the Asia-Pacific region. One of the reasons for this is that the shortest flight
times will be achieved by flying over Russia – and so this will prove a drawback for travel from Sofia,
via Istanbul, to the Asia-Pacific region – as flight time will increase. Appendix 1.3 includes more
details on this analysis.
SOF-Asia-Pacific: 34,328
SOF-IST-Asia-Pacfic: 2,270 (7%)

SOF-SVO-Asia-Pacific: 17,916 (52%)
FIGURE 3.6: O&D DEMAND ON THE SOF-ASIA-PACIFIC MARKET (SHOWING ROUTING)

Business Plan
2012 – 2017
3.5 SOFIAIR DEMAND FORECAST

Combining the demand forecast with the expected market shares, the forecast demand for each
route SofiAir will operate can be calculated. Table 3.8, below, gives an overview of this final demand
forecast. This has been the input for fleet planning to choose the optimal aircraft type(s) for the
route network.
2013 2014 2015 2016 2017

Network 254,509 293,968 391,648 430,532 482,163
SOF-AMS 0 0 39,053 51,462 64,924
SOF-BER 22,319 29,606 37,594 39,790 40,880
SOF-GVA 32,603 33,513 34,436 35,360 36,244
SOF-BLQ 32,676 33,758 34,857 35,957 37,008
SOF-ATH 47,074 53,728 65,701 73,484 95,031
SOF-OTP 28,080 32,211 47,292 50,919 53,728
SOF-IST 47,190 53,728 67,248 74,022 81,242
SOF-BOJ 21,916 33,322 40,016 43,086 46,242
SOF-BEG 12,137 13,020 13,937 14,939 15,351
SOF-TIA 10,515 11,082 11,513 11,513 11,513
TABLE 3.8: SOFIAIR DEMAND FORECAST

Business Plan
2012 – 2017

Business Plan
2012 – 2017
4 FLEET SELECTION
4.1 SELECTION PROCESS
The objectives of the fleet planning committee were to provide a suitable selection of aircraft in
order to comply with SofiAir’s strategy to be both a regional and medium-haul player. A number of
aircraft were chosen for the coarse-cut phase, so as to meet the requirements laid down by the
Strategy and Marketing and Forecasting departments. Then, in the detailed analysis, the
shortlisted aircraft were evaluated based on SofiAir’s proposed network, in terms of performance
and costs. The final section includes recommendations of aircraft that best suit the airline’s
strategic objectives.
4.1.1 MARKET FORECASTS
SofiAir’s strategy involves both flying regionally (within the Balkan Peninsula), and serving longer
routes to Western Europe. The marketing department analysed the potentially profitable routes,
and provided the route structure and expected demand on each route for the 5 year period from
2013-2017. Based on the predicted passenger numbers and desired frequencies, it was decided that
two aircraft types would be required, to best serve the network. The regional intra-Balkan routes
would be best served by a 50-seat aircraft, while the longer routes to Western Europe would require
a 70-seater.
4.1.2 ROUTE NETWORK
SofiAir’s network involves flying daily from Sofia to Belgrade, Tirana, Athens, Istanbul and
Bucharest as part of the regional network. These are relatively short sectors, with an average
distance of 250nm. The shortest runway is at Tirana Airport, with a length of 2,750m30, and the
maximum temperature deviation, for the regional network, is ISA +19, at Athens31. The shortest
runway and highest ISA deviation were used when comparing the take-off and landing performance
of aircraft, for the regional network.
The international network includes flying to Amsterdam, Geneva, Bologna and Berlin (Brandenburg
International). The average sector length is 700nm, with the shortest runway in Bologna (2,805m),
and the highest ISA deviation (+15) also at Bologna. It is these conditions which were considered
when comparing take-off and landing performance for the 70-seater candidate aircraft, for the
international network.
4.1.3 AIRCRAFT REQUIREMENTS
From the forecast results, two candidate aircraft capacity vectors were selected – a 40-50-seater to
serve the short sectors on the regional network, and one 70-seater to serve the international routes.
Both aircraft must operate economically on their respective routes, have a favourable combination
of high cruising speed and low fuel consumption (to account for the expected increase in fuel prices
after 2013), and have relatively low maintenance requirements.
30
See Appendix 2
31
See Appendix 2

Business Plan
2012 – 2017
In addition, SofiAir’s strategy is to appeal to both business and leisure passengers, while minimizing
expenses. Thus, it was decided to use a single cabin for all passengers, but use a lengthened seat
pitch (of 32”). The aircraft must also have sufficient range for flying the sectors, with a high enough
payload to produce sustainable revenues. Additionally, since the airline’s financial plan calls for
minimizing yearly costs, it was decided to lease the airplanes in brand new condition – and so
aircraft availability for lease (and re-lease) was also a criterion for the selection.
4.2 COARSE-CUT CANDIDATES

Based on the aircraft requirements stated above, a list of aircraft, for evaluation, was drawn up.
Both turboprops and regional jets were considered during the aircraft selection process, with
turboprops operating routes with a short sector length, and a small number of passengers, since
they prove more efficient for this type of operation than the regional jets. On the other hand, the
regional jets will operate routes with a longer sector length, or higher number of passengers. So, a
first evaluation of the selected aircraft was performed, based on their maximum ranges and
capacity, in terms of the number of seats at 32” seat pitch (according to SofiAir seating standards).
4.2.1 TURBOPROPS
Figure 4.1, below, shows the regional aircraft that satisfy SofiAir’s requirements, in terms of range
and capacity, for the regional operations.
Based on the market and forecasting output for the regional network, the required number of seats
per aircraft is between 40 and 50, and the maximum range around 350nm. Consequently, as the
chart shows, there are 4 aircraft types satisfy these requirements – AN140-100, ATR42-500, DASH-
Q300, and CASA-CN-235. However, the AN140-100 is out of production; with there being only 54
aircraft currently in service, and the newest example was produced in 1999. So, there would be
difficulties in the maintenance and re-leasing of the aircraft. The CASA-CN-235 is a 3o-year old
design, so will prove inefficient in terms of fuel consumption and maintenance costs, when
compared with the newer aircraft generations. As a result, aircraft that satisfy SofiAir’s
requirements are the ATR42-500 and DASH-Q300, and they will be proposed for the detailed
analysis phase.
80
AN 140-100
70 ATR42-500
ATR42-300
60
ATR72-200
Number of seats
50
ATR72-500
40 SAAB 2000
30 CASA-CN-235
dash-q-200
20
dash-q-300
10 dash-q-400
0
0 500 1,000 1,500 2,000 2,500 3,000
Range [nm]
FIGURE 4.1: PROPOSED TURBOPROPS – CAPACITY VERSUS RANGE

Business Plan
2012 – 2017
4.2.2 REGIONAL JETS
Figure 4.2, below, shows the regional jets that satisfy SofiAir’s requirements, in terms of range and
capacity for the medium-haul network.
140
DO 728-100
120 DO 728-200
EMB170
100 EMB175
Number of seats
EMB190
80
EMB195
60 ERJ-145ER
A318
40
ARJ21-900
CRJ900
20
CRJ700
0
0 500 1,000 1,500 2,000 2,500 3,000 3,500
Range [nm]
FIGURE 4.2: PROPOSED REGIONAL JETS – CAPACITY VERSUS RANGE
Based on the market and forecasting output for the medium-haul network, the required number of
seats per aircraft is around 70, and the maximum range is around 700nm. Consequently, as the
chart shows, there are 4 aircraft types that satisfy these requirements; the DO728-100, DO728-200,
CRJ-700, and EMB-170. However, the two Dornier series are out of production, with the company
having entered bankruptcy in the beginning of 2000, and so there will be difficulties in the
maintenance and the re-leasing of these aircraft. As a result, regional jets that satisfy SofiAir’s
requirements for the medium-haul network are the CRJ700 and the EMB170, and they will be
proposed for the detailed analysis phase.
4.3 DETAILED ANALYSIS

This phase aims to evaluate the four aircraft, proposed in the previous coarse-cut phase, from the
perspective of economic efficiency. For this purpose, an economic analysis has been performed for
the aircraft, based on economic ground rules provided by the finance department. The proposed
aircraft for these stages are:
- Turboprops:
o ATR42-500
o Dash-Q-300
- Regional jets:
o EMB-170
o CRJ-700

Business Plan
2012 – 2017
Aircraft cost efficiencies were evaluated using the weighted average sector length for the regional
network (250nm), and the weighted average sector length for the medium-haul network (700nm).
The calculation was performed on a yearly basis, and then cost per aircraft per trip, and cost per
aircraft per seat-mile, were derived. The cost efficiency calculations took into account all costs
related to aircraft operation, including: annual lease cost, hull insurance, fuel cost, flight and cabin
crew salaries per block hour, estimated maintenance costs, navigation costs, landing costs, and
handling costs. The remaining costs are mainly passenger-related (handling, boarding fees,
catering, distribution, etc.), and so should not vary as a function of aircraft design. Aircraft
utilisation has been calculated based on the sector block time, derived from the performance
parameters of the aircraft provided by the manufacturer. A comparison of cost breakdowns
between aircraft for each type (turboprop and regional jet) is presented in figures below, as well as
in a cost per seat-mile versus range comparison.
4.3.1 TURBOPROPS
The 40-50-seater aircraft candidates, after the coarse-cut, were the Dash 8 Q300 and the ATR 42-
500. These two turboprop families are the most successful examples on the market today, thanks
to their cost efficiency, payload-range characteristics, and relatively low maintenance and servicing
requirements32. Figure 4.3, below, shows the payload-range characteristics of the Q300 and ATR
42-500. The regional sectors which SofiAir serves are within the range of 188-303 nm33. Within this
range, the ATR 42 offers a 400kg greater payload capability than the Q30034.
6,000
5,000
4,000
Payload (kg)
3,000
ATR42
Q300
2,000
1,000
0
0 200 400 600 800 1,000 1,200 1,400 1,600 1,800
Range (nm)
FIGURE 4.3: PAYLOAD-RANGE DIAGRAM FOR TURBOPROPS
Figure 4.4 presents the aircraft-related cost per seat-nm, for both the ATR42-500 and the Dash-
Q300. It is clear from the chart that the ATR42-500 is more cost efficient than the Dash-Q300 – at all
ranges.
32
Jane’s All The World’s Aircraft
33
See Appendix 2
34
Data compiled using both manufacturers’ performance data

Business Plan
2012 – 2017
Figure 4.5 presents the aircraft-related cost breakdown per annum for both the ATR42-500 and
Dash-Q300, calculated from the weighted average sector length of SofiAir’s regional network. The
chart shows that the difference in cost per seat-nm between the aircraft is mainly due to the higher
lease cost of the Dash- Q300 than the ATR42-500, and the fact that the ATR42 burns less fuel per
nm than the Dash-Q300.
USD 0.60
USD 0.50
Cost per seat-nm
USD 0.40
USD 0.30
USD 0.20
USD 0.10
USD 0.00
100 200 300 400 500 600 700 800
Range [nm]
ATR-42-500 DQ-300
FIGURE 4.4: UNIT COST COMPARISON, TURBOPROPS
USD 2,500
Annual Costs (thousands)
USD 2,000
USD 1,500
USD 1,000
ATR-42-500
DQ- 300
USD 500
USD 0
FIGURE 4.5: ANNUAL COST BREAKDOWN, TURBOPROPS

Business Plan
2012 – 2017
4.3.2 REGIONAL JETS
The two regional jet candidates chosen for analysis were the Bombardier CRJ700, and the Embraer
E170. The CRJ700 is a 1995-era design, and is based on a stretched CRJ200. The Embraer 170 was
designed in 1999, as the core of the E-jet family35.
The constructed payload-range diagram for both aircraft36 (see Figure 4.6) shows that, for SofiAir’s
medium-haul sectors (which range from 569 to 969nm37), the E170 has a greater payload capability
(being 200 kg more than the CRJ700).
10,000
9,000
8,000
7,000
Payload (kg)
6,000
5,000
EMB170
4,000
CRJ700
3,000
2,000
1,000
0
0 500 1,000 1,500 2,000 2,500
Range (nm)
FIGURE 4.6: PAYLOAD-RANGE DIAGRAM FOR CRJ700 AND E170
Part of SofiAir’s strategy is to minimize costs, by maximizing aircraft productivity. One of the ways
to achieve this is to reduce the turnaround times at airports. The E170 was designed with two
passenger doors (fore and aft, on the port side of the aircraft), and two service doors (on the
starboard side of the aircraft), which allows a 14.3 minute turnaround – compared to 16.6 minutes
for the CRJ700. The latter has only one passenger, and one service, door – increasing turnaround
time38.
Figure 4.7 presents aircraft related cost per seat-nm for both the EMB170 and the CRJ700. It is clear
from the chart that the EMB170 is more cost efficient than the CRJ700 at all ranges; although the
difference in unit cost becomes smaller when the sector range is increased.
Figure 4.8 presents the aircraft related cost breakdown per annum for both the EMB170 and the
CRJ700, calculated at the weighted average sector length of the medium-haul network. The chart
shows that there is no significant difference in the cost breakdown of both aircraft – however, the
CRJ700 burns more fuel per year than the EMB170, and so will see significantly higher fuel costs, in
the long-term. Both the CRJ700 and the E170 are relatively cheap to maintain, with the CRJ700
recently having been approved for 6000 flight hours before the first line check, and the E170 being
approved for 7500 flight hours before its first check (effective from 201339). Thus, the maintenance
35
Jane’s All the World’s Aircraft
36
Using manufacturer data
37
See Appendix 2
38
Data from manufacturers, and Jane’s All The World’s Aircraft
39
E-Jets Maintenance plan overview, Embraer; Owner’s and operator’s guide: E-jet family

Business Plan
2012 – 2017
cost per year will be higher for the CRJ than for the EMB170, due to the lower number of flying
hours before the first line check.
Overall, the higher fuel and maintenance costs of the CRJ-700 will make the higher lease cost of the
EMB170 seem more attractive.
USD 0.30
USD 0.25
Cost per seat- nm
USD 0.20
USD 0.15
EMB 170
USD 0.10 CRJ 700
USD 0.05
USD 0.00
300 400 500 600 700 800 900 1,000 1,100 1,200
Range (nm)
FIGURE 4.7: UNIT COST COMPARISON, REGIONAL JETS
USD 6,000
USD 5,000
Annual Costs (thousands)
USD 4,000
USD 3,000 EMB 170

CRJ- 700
USD 2,000
USD 1,000
USD 0
FIGURE 4.8: ANNUAL COST BREAKDOWN, REGIONAL JETS (700NM)

Business Plan
2012 – 2017
Moreover, the cabin of the Embraer 170 (see Figure 4.9, below) has a wider cross-sectional area, and
offers 16% more personal space, than the CRJ700 – and a bigger seat pitch for the same number of
seats (70 seats at 32”). Also, the seat width is higher for the Embraer (at 18.25”) than the CRJ 700 (at
17.3”)40.
FIGURE 4.9: AIRCRAFT CABIN COMPARISON, REGIONAL JETS
Overall, the E170, with its wider and more spacious cabin, better payload-range capability, and
superior cost efficiency, makes it the most attractive candidate in the 70-seater aircraft selection
process.
4.4 CONCLUSION AND RECOMMENDATIONS

The requirements from the marketing and forecasting departments left a small number of aircraft
types to choose from, due to the region’s demand particularities.
For the 40-50-seater aircraft, the ATR 42-500 was recommended, due to having both greater cost
efficiency, and lower direct operating costs, than the Q300.
For the 70-seater aircraft, the E170 was selected, due to its wider cabin and better cost efficiency
over long sectors than the CRJ700. In addition, the maintenance costs are lower for the E170 than
the CRJ700.
The route performance analysis of the ATR 42-500 and E170 operating the proposed routes41 shows
that they are able to both land and take-off, without MTOW/MLW limitations, on all SofiAir routes,
at all times of year42.
40
Data from manufacturers
41
See Appendix 2
42
See Appendix 2

Business Plan
2012 – 2017
4.4.1 CABIN LAYOUTS
The proposed cabin layouts are offered as the standard option by the manufacturers, and have been
selected to comply with SofiAir strategy.
4.4.1.1 ATR 42-500
A 46-seat configuration at 32” pitch was selected for the ATR 42 (see Figure 4.10, below). If, in the
long-term, SofiAir needs to increase capacity on a route at short notice, then the cabin may be
reconfigured to either a 48-seat (at 31” pitch), or a 50-seat (at 30” pitch) configuration.
FIGURE 4.10: PROPOSED ATR 42-500 CABIN CONFIGURATION
4.4.1.2 EMB170
The proposed seating configuration for the EMB170 is 70 seats, at a 32” pitch. This can be
reconfigured (if necessary) to 78 seats, at a 31” pitch (see Figure 4.11, below).
FIGURE 4.11: PROPOSED EMB170 CABIN CONFIGURATION

Business Plan
2012 – 2017

Business Plan
2012 – 2017
5 MARKETING
5.1 MARKET SEGMENTATION
The airline industry is dominated by a relatively small number of major carriers, and is an industry
characterized by an ongoing process of mergers, acquisition s, and consolidation. Like so many
other industries, it has quickly evolved into one that has room only for major players, and smaller
"speciality" or "niche" participants – and there are two speciality segments that have typically been
exploited by new entrants. One is the "price" niche, and the other is the "route" niche. The former
focuses on charging less than competitors, and the latter on providing either the only service
between two given points, or else superior, more convenient, or less costly service between two
heavily travelled destinations.
"Price" positioning, in itself, is no longer a sufficient concept on which to build an airline. Since de-
regulation, the travelling public has become inundated with low fares – and so they have become an
expectation, rather than a promise. Thus, the true market segment opportunities today are a
combination of service mix, price, and route selection.
SofiAir will seek to be a truly different kind of player in the Balkan region, opening up new markets,
and serving all markets better than our competitors.
5.2 THE FOUR P´S

SofiAir will offer ten destinations from Sofia – five of which are located in Eastern Europe. This
network reflects our strategy of focusing on regional destinations which are not currently served, or
which are served by other carriers at a poor frequency. The goal is to come to dominate the Balkan
regional market for business travel, as well as for leisure and VFR traffic, within the next 5 years – by
serving popular new destinations, and increasing market share.
SofiAir intends to set new standards in the Bulgarian market. Although other airlines do operate on
a number of our routes, we believe that we will be able to compete with them on both price and
service level. Through focusing on business, as well as on leisure and VFR travellers, Sofiair offers an
excellent level of service for all target groups.
5.2.1 PRODUCT
The product we offer reflects our core values, by providing safe and customer-oriented air travel,
and supplying our customers with an excellent level of value for money. Two different fare families,
and à la carte service, puts maximum choice in the passenger’s hands. Quality, friendliness,
hospitality, and connectivity complete our values.
5.2.1.1 TWO FARE FAMILIES
As part of our revenue management and pricing strategy, two fare families will be offered:
1) SofiPlus – A premium economy product, designed for the business traveller

Business Plan
2012 – 2017
2) SofiLight – The standard economy product, and the most affordable option for both
business and leisure travellers. Ensuring you make it from A to B, with a minimum of cost,
but still the trademark SofiAir freshness
5.2.1.2 CABIN
Each aircraft cabin will be of a single class configuration, with a seat pitch of 32 inches (allowing
both maximum seating capacity, and increased comfort). Furthermore, all aircraft offer a seat
width of 18.25 inches – well above the average of 17 inches. Flexible cabin dividers, which can be
adjusted to the demand, will be used to divide passengers travelling in SofiPlus from those in
SofiLight. All aircraft are equipped with comfortable, smart leather seats, in tones of grey, with the
headrest reflecting the colours and logo of SofiAir.
5.2.1.3 FOOD AND BEVERAGE
Free catering will be provided to all SofiPlus passengers, including a variety of traditional Bulgarian
meals, sandwiches, or snacks – depending on the travel time. Non-alcoholic drinks will include tea,
coffee, fruit juices, water and soft drinks, and alcoholic drinks will be limited to wine and beer only.
There will be no complimentary catering service for customers travelling in SofiLight. However,
there will be the option to purchase a variety of meals, snacks, and beverages. Furthermore, all
SofiLight passengers have the option to choose their desired meal via our website, with a
discounted price being offered for pre-booking.
5.2.1.4 MERCHANDISE AND DUTY-FREE
SofiAir-branded products, such as clothing and aircraft models, will be available for sale on board.
No duty-free goods will be sold, due to the short stage lengths involved.
5.2.1.5 ENTERTAINMENT
No in-flight entertainment system will be offered, due to the short stage length of SofiAir flights.
However, passengers will be provided with an in-flight magazine – which will contain useful and
entertaining information from the worlds of travel, fashion, music, sport, science, and politics. The
magazine has a section dedicated solely to cities from SofiAir’s network; so, where one might go,
and what is worth seeing and doing. The magazine also offers an added value to the airline, by
providing extra advertising space which may be sold. Furthermore, it will be used to promote
SofiAir’s network.
5.2.1.6 SEAT ALLOCATION
SofiPlus Passengers can choose their seat, for free, via our website, or via the check-in facilities
provided at the airport – and they will enjoy front-of-cabin convenience. SofiLight passengers have
the option to pre-book seats via our website, as well as at the airport – both of which will involve an
additional charge. If passengers have not pre-booked their seat in advance, then they will be
assigned one at random, free of charge. SofiAir’s policy of pre-assigned seats for all means a hassle-
free boarding experience for our customers.

Business Plan
2012 – 2017
5.2.1.7 TICKET FLEXIBILITY
SofiPlus tickets may be changed, at no additional charge. Furthermore, the ticket is fully
refundable.
SofiLight tickets are non –refundable. Tickets may be changed, with an additional charge levied of
€40 per passenger, per single flight sector, plus any difference between the fare paid and the lowest
available fare for the new flight. If the new fare is lower, then no refund applies.
5.2.1.8 BAGGAGE
SofiPlus passengers are allowed to check-in up to 30kg of baggage free of charge. Furthermore,
they are permitted to bring on-board one piece of hand baggage, plus one handbag or laptop.
SofiLight passengers may check-in up to 20kg of baggage by paying an additional charge. Pre-
booking this service via the airline’s website offers a discounted price. However, if passengers
exceed the maximum weight allowance (so, 20 kg for SofiLight, 30 kg for SofiPlus), they will be
liable for an excess baggage charge for every kilogram above the weight limit.
Table 5.1, below, gives an overview of the services offered to the two fare families:
SofiPlus SofiLight
The Cabin Seat pitch: 32” Seat pitch: 32”
Seat width: 18.25” Seat width: 18.25”
Ticket Flexibility Full refund, full flexibility No refund; Rebooking possible
with restrictions*
Seat Allocation Free €5**
Checked-in Baggage 1x 30 kg 20kg, for €10***
allowance
Hand Baggage allowance 1***plus handbag or laptop 1****
On-board catering Free On purchase
Entertainment In-flight Magazine In-flight Magazine
Lounge access Free -------
Fast-Track Security Free -------
TABLE 5.1: PRODUCT: SERVICE OVERVIEW
*) fee of €40 charged per passenger, per single flight sector, plus any difference between the fare paid and the lowest available fare for your
sssnew flights. If the new fare is lower, then no refund applies
**) €5 online; €8 at the airport
***) €10 online; €20 at the airport;
****) 50 x 35 x 23cm and it should not exceed 10 kilos in weight
5.2.1.9 CHECK-IN FACILITIES
In order to avoid long queues at airport check-in desks, SofiAir’s passengers will have the
opportunity to check-in online, via the airline’s website. Moreover, SofiAir will enable its customers
to check-in via Facebook. However, for technology and security reasons, this service can only be
provided at a later stage. Currently, though, SofiAir’s passengers will find a link for booking on
SofiAir’s Facebook page. However, two manned check-in desks will be provided at each airport, to
ensure that this service is available to those customers requiring it – and also to allow customers to
drop-off any checked baggage.

Business Plan
2012 – 2017
5.2.1.10 AIRPORT LOUNGES, FAST-TRACK SECURITY
SofiAir has contracts with the airports throughout its network, shown in Table 5.2 (below), to allow
free access to the relevant airport lounge for passengers holding a SofiPlus ticket. Furthermore,
these passengers also benefit from access to the Fast-Track security channel, at each airport.
Destination Airport Code Lounge

Athens ATH Goldair Handling Business Lounge
Belgrade BEG Business Club
Berlin BER BerlinAirportClub Lounge
Bologna BLQ Marconi Business Lounge
Bucharest OTP Bucharest Henri Coanda International Airport Business Lounge
Geneva GVA Salon Skyview Lounge
Istanbul IST Millenium Lounge
Sofia SOF Sofia Lounge
Tirana TIA Tirana Business Lounge
TABLE 5.2: PRODUCT: AIRPORT LOUNGES ON THE SOFIAIR NETWORK
5.2.1.11 ADDITIONAL PRODUCTS
For start-up airlines, it is essential to keep operating costs as low as possible. Hence, SofiAir is
planning to introduce its own Frequent Flyer Programme, SofiAirMiles – but not before 2018.
5.2.2 PRICING: REVENUE MANAGEMENT
In order to optimise yield, load factor, and eventually the revenue per available seat kilometre
(RASK), a pricing and revenue management system will be used by SofiAir. To be able to offer the
right price, at the right time, to the right customer, different fares have been created – and,
depending on the actual and forecast demand, the revenue management system will decide which
fare to distribute to which market.
The revenue management system is based around ten booking classes; with the three highest being
for SofiPlus, and the remainder for SofiLight. We will use a simple, one-way fare structure, as this
makes it easier to compete with competitors, and is clearer to the customer. However, the lowest
two booking classes will be return fares, with the reason for this being that those fares (the promo
fare and the lead fare) are designed for the leisure market, and not for the business traveller. To
dissuade business passengers from buying these lowest fares, a Saturday night rule applies – along
with an advance purchase (Apex) limitation of, respectively, 30 and 45 days, to further limit the use
of these fares by business passengers (see Table 5.3).
Depending on the demand, type of flight (business or leisure), and number of days before
departure, the revenue management system will update the availability of the booking classes.
Because we use two fare families, there will always be two fare levels available in the published
market: a SofiPlus fare and a SofiLight fare. So, even when a flight has low demand, the yield may
be increased by upselling the SofiPlus product to the business market.

Business Plan
2012 – 2017
Booking Refundable Flexible Apex Saturday

Class Night Rule
SofiPlus 1 Yes Yes No No
2 Yes Yes No No
3 Yes Yes No No
SofiLight 1 No Yes (at a fee) No No
2 No Yes (at a fee) No No
6 No No 30 days Yes
7 No No 45 days Yes
TABLE 5.3: SOFIAIR’S FARE GRID
The fares per booking class, and per route, were set based on competitors’ fare grids – publicly
available via GDS. The main principle applied by SofiAir was to undercut the competitors with our
promotional and lead fare, but to have the same fare level at the top of the grid, in order to be able
to maximise revenues when demand exceeds supply. On top of the fare, a fuel surcharge is added,
according to the sector length – and ranging from €25 one-way on SOF-AMS, to €6 one-way on
SOF-BOJ. We also assume the generation of €6 of ancillary revenue per passenger. Main sources of
ancillary revenue are the fees for checked baggage, food and beverage, seat selection, and
merchandise.
The average yield per route is calculated on the assumption that most passengers will be able to
book tickets in the lower booking classes, and that only 6% of bookings will be in SofiPlus.
However, as we assume we will be able to increase the yield over time, a 3% per annum yield
increase is used. The total average yield per route is calculated by adding the fuel surcharge and
ancillary revenues to the average fare on that route – and the results for the first year of operation
are shown in Table 5.4, below:
Yield Fuel Ancillary Total

AMS € 106 € 25 € 6 € 137
BER € 92 € 10 € 6 € 108
BLQ € 75 € 20 € 6 € 101
GVA € 104 € 17 € 6 € 127
ATH € 58 € 12 € 6 € 76
OTP € 89 € 20 € 6 € 115
BEG € 70 € 10 € 6 € 86
IST € 69 € 18 € 6 € 93
TIA € 83 € 10 € 6 € 99
BOJ € 46 € 6 € 6 € 58
TABLE 5.4: SOFIAIR EXPECTED YIELD, FIRST YEAR OF OPERATIONS
To further exploit the opportunities presented by market segmentation, corporate contracts will be
sought by our Sales department, with larger companies. Based on the volume of business they
expect to generate, the company will get discounts on the higher fare levels – and so this will be an

Business Plan
2012 – 2017
incentive for companies to keep flying with SofiAir, and to also make use of the higher, more flexible
fare classes.
A further way of attracting more business is through the use of codeshare agreements, on our
flights to KLM’s hub in Amsterdam, and to Turkish Airlines’ hub in Istanbul. We expect to be able to
sign a codeshare agreement in the third year of operation, with the KL or TK code being put on our
flights, so that they can be sold via the global distribution channels of both KLM and Turkish
Airlines. This will help those companies to feed more traffic into their hubs, and it will help us to
increase the load factor on our flights to Amsterdam and Istanbul, from Sofia.
5.2.3 PLACE: DISTRIBUTION
SofiAir seeks a presence in every market segment, from leisure, to VFR, to the business market. To
reach all these different customers, a mix of sales channels will be used in order to distribute tickets
(see Table 5.5, below):
Online Offline
Direct Company website Call centre;
Sales Representatives
Indirect Online travel agencies; Travel agencies;
GDS GDS
TABLE 5.5: DISTRIBUTION CHANNELS USED BY SOFIAIR
5.2.3.1 DIRECT DISTRIBUTION CHANNELS
Direct distribution simply means that the airline sells tickets directly to its customers, without
dealing with intermediaries such as travel agencies, tour operators or Global Distribution System
(GDS) companies – which enables the airline to eliminate the commission fees typically paid to such
intermediaries. Direct sales have been prioritised by airlines for years; either through sales offices in
airports and city centres or, increasingly, via the internet, and so the airline’s dedicated website.
There are some significant advantages for a start-up airline, such as SofiAir, in building up direct
distribution channels. Firstly, we can build the initial relationship directly with our customers, while
at the same time establishing a customer database, to store their profiles, contacts, travelling
purposes, etc. As a result, it becomes possible for us to understand our customers’ unique travel
patterns, and their real needs – which will definitely boost our Customer Relations Management
(CRM) strategy. In the meantime, it is essential to lower the cost of commission fees paid to travel
agencies, and GDS companies, for booking services – with passengers instead booking tickets
directly on our website, or via our call centre. Moreover, ancillary revenues could be generated
through selling extra services on our website, whilst no cost would be brought about through
advertising there. Finally, we can earn commission fees when passengers book flights through our
website in combination with other services, such as hotels (provided by co-operating companies).
SofiAir has decided to adopt three methods to allow direct sales; setting up call centres, employing
sales representatives, and creating an official website. City-centre ticket offices will not be
established, as the cost of office rental is likely to prove too high for a low-cost start-up airline such
as SofiAir. The chosen three direct distribution channels are detailed below:

Business Plan
2012 – 2017
1) Call centre
The call centre proves one of the simplest ways for our customers to communicate directly with our
staff. We plan to employ two staff in the call centre, for the first five years of operations, with their
main responsibilities being ticketing, reservations, and customer services. Further responsibilities
include handling group bookings enquiries, compiling monthly/annual sales statistics, designing trip
products (including hotels), offering destination advice, and e-ticket booking fulfilment.
2) Sales representatives
Sales representatives are crucial, as a point of contact between the airline and the companies that
will be approached regarding corporate contracts. We will designate two or three sales
representatives, to be in charge of negotiating and dealing with companies and corporate clients,
and who would be authorised to agree discounts. As a start-up airline, our sales representatives are
likely to be of great importance, as they will look for target companies in our destination cities, and
provide the first contact with companies and industries, in many cases.
3) Official company website
Keeping costs low is one of our main objectives, and so a crucial component of such a strategy is
allowing online sales. Therefore, we have decided to build our official website, through which
customers can view the latest offers, route maps, schedules, and destination advice, as well as
reserving flight tickets, booking hotels, managing bookings, and checking-in. As the operator, we
are able to generate an enhanced level of ancillary revenue from our own websites; and we will also
introduce Paypal payment, which is an alternative payment method that typically involves bank
transfers, without a credit card charge. Appendix 3 shows an example of SofiAir’s website.
5.2.3.2 INDIRECT DISTRIBUTION CHANNELS
Recently, American Airlines' Direct Connect concept has brought about a great disturbance in the
distribution industry. However, on the whole airlines must still rely on Global Distribution Systems
(GDS), which can deliver our schedule, fares, and availability to a large number of travel agencies
around the world – in real-time. Aside from the traditional travel agencies, SofiAir will also sell
tickets to some GDS-powered online travel agencies. The indirect distribution channels to be used
and summarised below:
1) GDS and online travel agencies
SofiAir is determined to co-operate with Amadeus, as our IT and distribution solution supplier.
During the first five years, we will implement the Amadeus Stand Alone IT Solutions package, along
with the distribution package. The reason why we choose Amadeus is that both KLM and Turkish
Airlines (our potential codeshare partners) have signed full content contracts with Amadeus.
Moreover, some European low-cost carriers (LCC) have proved the potential to generate
incremental revenues with Amadeus technology and consulting services. Nevertheless, since
corporate travel agencies are expected to be our main customers, it seems that participating in a
GDS is necessary, and so the objective of co-operating with Amadeus is to optimise our network, to
access different market segments, to develop ancillary revenues, and to focus on increased
efficiency. As for the online travel agencies, we will mainly consider those who are supported by

Business Plan
2012 – 2017
Amadeus; for instance Expedia and Opodo, which is helpful to give global exposure to SofiAir’s
network.
2) Traditional, offline travel agencies
Since we have decided not to establish sales offices in central Sofia, or indeed at the airport, travel
agencies would act as our representative for dealing with customers directly. Travel agents can
provide passengers with personalised sources of tickets, as well as advice, and help by selling tickets
on behalf of us, and by offering other services such as hotels, destination guides, and car rental. In
addition, agents can identify niche markets via their sales, and even emphasise suitable services for
particular ethnic groups.
Furthermore, travel agencies should not become costly burdens for SofiAir, because their income
from us is strongly related to their performance (unlike airline-owned sales offices, where
employees are paid a fixed salary regardless of their performance). Communication between the
travel agencies and SofiAir will be carried out via GDS as well.
5.2.4 PROMOTION AND ADVERTISING
Advertising is essential, especially for any start-up airline, to gain public awareness. The overall aim
is to persuade a customer to buy your product; which can be achieved by promoting the corporate
image, brand values, and of course how the product is going to satisfy (or indeed exceed)
customers’ needs.
However, it is important to find the right balance between long-term and short-term advertising
objectives. Long-term advertisements are used for brand building, by promoting the corporate
image and corporate brand values. In contrast, short-term adverts are used to inform the public
about new routes, special offers, and services.
Launching an advertising campaign is important for any start-up airline, so as to reach the highest
possible level of public awareness. Although advertising may be seen as relatively cost-intensive, it
is a highly professional discipline and so an advertising agency will be hired. Before choosing an
agency, though, all objectives must be discussed, and agreed, within a brief. Regarding the choice
of an agency, it is recommended to choose one which has well-established links with other agencies
in the countries served by SofiAir. One potential advertising agency in Sofia could be Raitz2
Advertising & PR Agency, who meet all the company’s needs. Furthermore, the agency will be
responsible for the internet presence of the airline. In co-operation with the agency, the next step
will be the selection of appropriate media – which depends on the market segmentation. Generally,
all campaigns should be based on market research, in order to ensure the highest possible reach.
Furthermore, it is important that all promises made in advertising are honest – as otherwise this will
only cause dissatisfaction amongst customers. Finally, each campaign has to be monitored to see if
it proves successful or not.
Promotion strategies are built on the concept and design of the airline, with marketing and
promotion highlighting SofiAir’s unique qualities. Therefore, it is essential to focus on strong public
relations, combined with well-designed and well-placed adverts which appeal directly to the
airline’s future customers.

Business Plan
2012 – 2017
Agency Media Creative

Brief Monitoring
Selection Selection Strategies
FIGURE 5.1: PROMOTION: ADVERTISING DECISION PROCESS
5.2.4.1 PRINT AND ONLINE MEDIA
Print media is perhaps the most affordable way of advertising. 45% of the Bulgarian population
read newspapers daily or, every two days. This suggests that sales of newspapers throughout
Bulgaria are relatively high, and so brand awareness could be achieved over a relatively short period
of time. Regarding SofiAir’s target market, national newspapers are the most appropriate choice
for advertising, with business-oriented newspapers especially taken into consideration – such as The
Sofia Echo and ITK Pari, as well as weekend or lifestyle magazines to target our leisure customers.
In addition, banners will be used on online newspapers, and SofiAir will publish an in-flight magazine
on a regular basis to promote its services and special offers, as well as selling advertising space to
generate additional revenue.
5.2.4.2 RADIO ADVERTISEMENTS
58% of Bulgaria’s population listens to the radio. Using this type of media allows market presence
to be increased, and for the SofiAir product to be promoted to a large audience. SofiAir will not
advertise on TV, as this proves highly cost-intensive for a start-up airline, and typically doesn’t
deliver satisfactory value-for-money.
5.2.4.3 OUTDOOR POSTERS
Part of SofiAir’s start-up campaign will be the use of billboards and outdoor posters, which are very
powerful in terms of attracting attention. Advertisements will be placed in populated areas, as well
as on public transport in Sofia, to ensure a large audience is reached.
5.2.4.4 SOCIAL MEDIA
When starting-up an airline, minimising start-up costs should be one of the top priorities – and
reducing promotion expenses would help in this regard. However, such a move does not imply that
promotion is not needed – but means that less expensive promotional methods can be chosen. So,
promotion of the airline can be undertaken (for free) with social networking sites such as Facebook
and Twitter – and such a promotional strategy offers several advantages:
1) Make it fun: Through Facebook, it is possible to devise games or lotteries, to attract

customers while letting them have fun. Surveys about SofiAir’s service could be posted, or
customers could be asked for new route proposals. Facebook allows companies to show
customers the importance of their opinion; to get the customer involved.
2) Events and invites: Facebook allows invites to events to be sent, which are sponsored by
the airline. This is a relatively easy, and very inexpensive, way to give out information, and
promote the airline.

Business Plan
2012 – 2017
3) Blogs: Facebook can be used as a company blog. It has the capacity to attract more
followers than ordinary blogs, and means that customers can be kept up-to-date.
Table 5.6, below, demonstrates a relatively high Facebook penetration in all of SofiAir’s target
markets; which will steadily increase. Please refer to Appendix 3 for more information on SofiAir’s
Facebook account.
Population Facebook Penetration

(Est. 2010) Users (% Population)
Bulgaria 7,148,785 1,594,840 22%
Germany 82,282,988 10,889,960 13%
Greece 10,749,943 2,934,800 27%
Italy 58,090,681 16,888,600 29%
Romania 21,959,278 1,640,580 8%
Serbia 7,344,847 2,237,680 31%
Switzerland 7,623,438 2,252,100 31%
Turkey 77,804,122 23,516,140 30%
TABLE 5.6: PROMOTION: FACEBOOK PENETRATION43
5.2.4.5 PUBLIC RELATIONS AND SPONSORSHIP
PR events will be used to significantly enhance the awareness of the airline, through extensive
media coverage. Furthermore, partnerships with hotels and tourist agencies will be evaluated, and
SofiAir will look to sponsor Bulgarian cultural events such as “The Festival of the Rose” and “St Cyril
and Methodius Day”.
5.3 MARKETING COSTS

In order to estimate the marketing budget, research was conducted in order to gain a general idea
of airline marketing expenses. To simplify the process, expenses were divided into advertising &
promotion, and other marketing expenses (with the latter including commissions and sales
expenses.)
2012 2013 2014 2015 2016 2017

Advertising & 280,668 481,145 463,118 493,602 542,609 607,680
Promotion
Other Marketing 120,286 721,717 694,677 740,404 813,913 911,521
Expenses
Total Costs 400,954 1,202,862 1,157,794 1,234,006 1,356,522 1,519,201
Cost per PAX N/A 4.73 3.94 3.15 3.15 3.15
TABLE 5.7: MARKETING COSTS
It was decided that a marketing cost, per passenger, of €4.73 would be appropriate for a start-up
airline trying to achieve public awareness (i.e. SofiAir). Appendix 3 gives on overview of different
(UK-based) airlines’ marketing expenses, and indicates that SofiAir’s marketing expenses sit at the
43 http://www.internetworldstats.com/stats4.htm#europe

Business Plan
2012 – 2017
lower edge of other airlines’. However, marketing costs as low as those seen by low-cost carriers
are not possible, due to the fact that SofiAir is also focusing on more traditional methods of
advertising, to attract a wider passenger base.

Business Plan
2012 – 2017

Business Plan
2012 – 2017
6 OPERATIONAL
6.1 FLIGHT OPERATIONS
6.1.1 FLIGHT SCHEDULING
6.1.1.1 FREQUENCIES
Our market analysis selected 10 destinations (BLQ, GVA, BER, BEG, TIA, ATH, OTP, IST, and BOJ in
Year 1, and then AMS in Year 3), where the demand from Sofia is high – but also constant
throughout the year. Indeed, in our network selection we tried to avoid any particularly seasonal
destinations, as we sought regular demand. For this reason, we serve most routes – like ATH, IST,
OTP, BOJ, or AMS – with a high frequency (so, a minimum of double-daily return flights).
It is important to carefully allocate the right capacity to each route, in order to match our weekly
capacity target. The process of fleet planning has also taken into account this factor, in order to
allocate each aircraft to cost optimal routes, and also guarantee high daily utilisation. Considering
all these factors, the fleet choice is a practical one; using ATRs for shorter routes, with less demand,
and using Embraers for the longer, higher-demand routes. This latter aircraft has an 11% higher
payload, and a greater range, when compared to the CRJ-700 – but also a 9% higher MTOW and a
higher cabin (for the same number of passengers), and these points justify the aircraft choice.
6.1.1.2 SLOT AVAILABILITY
As we operate regional (short-haul and medium-haul) flights, most of SofiAir’s flights are operated
during the day – so, when there is no limitation on airports’ opening hours. However, the scheduled
presented here may be forced to undergo minor changes, since slot negotiations must take place
with the relevant airport authorities. So, we cannot guarantee all the flight times shown as, at the
time the schedule was created, slots had not been approved by the airport authorities. However, as
we seek (on the whole) to operate to airports which are not congested; except perhaps for Istanbul
or Amsterdam, one can assume that only a few minor schedule changes would be necessary, in the
schedule to and from Sofia. Regarding obtaining slots, a planning request is addressed to each
airport’s scheduling coordinator, through a Schedule Clearances Request, in autumn for the
following summer (and spring for the following winter).
The following figures (6.1 and 6.2) show the arrival and departure flight times operating to and from
Sofia airport. This clearly shows that the airport is not congested, and so the allocation of slots (at
least at Sofia) should not dramatically change SofiAir’s schedule:

Business Plan
2012 – 2017
6
5
4
3
2
1
0
FIGURE 6.1: DEPARTURE TIME SCHEDULE OF SOF (SOURCE: OAG)
7
6
5
4
3
2
1
0
FIGURE 6.2: ARRIVAL TIME SCHEDULE OF SOF (SOURCE: OAG)
6.1.1.3 FLIGHT PLANNING
When establishing SofiAir’s flight rotation times, a number of factors were taken into consideration.
The routes and daily frequencies have been determined according to the forecast daily demand,
and the schedule planning was based on a wish to reduce overlap, and ensure as many departure
time options as possible, for routes where multiple frequencies are operated. Moreover, we
analysed our competitors’ schedules (especially where SofiAir operate a low number of daily
frequencies), in order to provide a better schedule, and better timetable, than our competitors on
these routes. Then, as a strategic development goal of SofiAir, we also took into account the
connections offered by Turkish Airlines, to Asia, at IST – and KLM’s connections to South and North
America, at AMS, in order to schedule our flights to these airports to permit such connections, and
so allow our customers to organise their trip in a more efficient way, without longer connections
than necessary. Table 6.1, below, summarises SofiAir’s routes and frequencies:

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2012 – 2017
Route 2013 2014 2015 2016 2017

SOF – AMS None None 12 12 12
SOF – BER 7 7 7 7 7
SOF – GVA 7 7 7 7 7
SOF – BLQ 7 7 7 7 7
SOF – IST 14 14 14 14 14
SOF – ATH 14 14 14 14 21
SOF – OTP 14 14 14 14 14
SOF – BOJ 14 14 14 14 14
SOF – BEG 4 4 4 4 4
SOF – TIA 3 3 3 3 3
TABLE 6.1: SOFIA IR’S PLANNED WEEKLY FREQUENCIES
Operations will start with 9 routes in 2013 (3 “medium-haul” routes, and 6 regional routes), and then
will increase to 10 routes from 2014 – with the introduction of a new route to AMS. The total daily
frequencies are 12 in 2013, increasing to 14 daily frequencies in 2015, and then 15 in 2017.
The schedule (see Appendix 4.1, 4.2, and 4.3) shows the departure time from Sofia, and then the
return departure time from the destination airport – which includes the turnaround time for that
destination, plotted on a timeline per aircraft. This turnaround time has been determined to be 30
minutes, in order to maximise aircraft utilisation (and indeed, this is the minimum turnaround time
at Sofia). Overnight, no flying is scheduled and so maintenance may be performed if necessary. A
few hours of scheduled aircraft inactivity during the day may additionally be used for maintenance,
if necessary, or for charter operations.
The rotation schedule shown in Appendix 4 will require 3 aircraft in 2013 (2x ATR 42-500 and 1x
Embraer 170), and then 4 aircraft from 2015 (1x ATR 42-500 and 3x Embraer 170).
6.1.2 CREW MANAGEMENT
6.1.2.1 CREW SCHEDULING
The crew plan is defined by the number of planned hours per aircraft, and per day. The first step
was the calculation of the annual flight hours for each aircraft type. This then enabled calculation of
the number of duty hours per function on board (so, for Captain, First Officer, and Cabin Crew), and
per aircraft type. It is only very recently (since 2008) that flight time limitation rules have been
standardised in all EU member states; and now the new EU-OPS regulation, in subpart Q, must be
followed. The main points of this regulation are presented below:
- Maximum Daily Flight Duty Period: Subpart Q has a blanket maximum of 13 hours FDP,
which can be extended by the Operator for a further hour. Some reductions are made after
the third flight, and when duty period is in the Window of Circadian Low (WOCL: so from
02:00 to 06:00), which is the period of least effectiveness, when body temperature is low.
- Maximum Cumulative Duty Hours: Subpart Q permits up to 190 hours of duty in any 28
consecutive days. There is also a 7 consecutive day limit of 60 hours.

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2012 – 2017
- Maximum Flying: Subpart Q states a maximum of 100 block hours, for 28 consecutive days -
and 900 block hours for one calendar year.
- Minimum Days-Off: The only requirement from subpart Q is 3x36 hours rest periods in any
28 days.
- Minimum Rest Periods: Subpart Q requires a minimum of 12 hours rest, at home base,
when the previous duty is more than 12 hours. It also allows a minimum of 10 hours rest if
the crew is away from their home base, with at least eight hours of sleep opportunity.
The allocation of flight hours, for each type of aircraft, is laid out below, in Table 6.2:
FH / Year per 2013 2014 2015 2016 2017

aircraft type
ATR 42-500 1748 1748 1408 1408 1408
EMB 170 3680 3680 2850 2850 3020

TABLE 6.2: AIRCRAFT UTILISATION PER AIRCRAFT TYPE
FH / Day per 2013 2014 2015 2016 2017

aircraft type
ATR 42-500 2 2 1 1 1
EMB 170 1 1 3 3 3
TABLE 6.3: FLEET COMPOSITION
SofiAir’s daily utilisation is around 8 block hours for an ATR 42-500, and 12 hours for a EMB 170 (in
2013), dropping to around 7 block hours for an ATR 42-500, and 10 hours for a EMB 170 (in 2015).
For the fleet composition, see above (Table 6.3).
Crew scheduling directly depends on the number of planned hours for each aircraft type – and the
methodology was explained at the beginning of the paragraph; now with a target of 900 yearly
block hours per crew member.
Cycles 2013 2014 2015 2016 2017

ATR 42-500 6570 6570 3650 3650 3650
EMB 170 2190 2190 6358 6358 7088
Block Hours 2013 2014 2015 2016 2017

ATR 42-500 5686 5686 2625 2625 2625
EMB 170 4410 4410 10672 10672 11422
Flight Hours 2013 2014 2015 2016 2017

ATR 42-500 3496 3496 1408 1408 1408
EMB 170 3680 3680 8552 8552 9060
TABLE 6.4: FLEET OPS . PERFORMANCE ANALYSIS

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2012 – 2017
Now it is possible to define the number of crew per aircraft type, as presented in Table 6.5, below:
Yearly scheduled duty Captain First Officer Flight Attendant

hours (Turboprop) (Turboprop) (Turboprop)
2013 5686 5686 5686
2014 5686 5686 5686
2015 2625 2625 2625
2016 2625 2625 2625
2017 2625 2625 2625
Total yearly staff Captain First Officer Flight Attendant
(Turboprop) (Turboprop) (Turboprop)
2013 7 7 7
2014 7 7 7
2015 3 3 3
2016 3 3 3
2017 3 3 3
Yearly scheduled duty Captain First Officer Flight Attendant
hours (Jet) (Jet) (Jet)
2013 4410 4410 8820
2014 4410 4410 8820
2015 10672 10672 21344
2016 10672 10672 21344
2017 11422 11422 22844
Total yearly staff Captain First Officer Flight Attendant
(Jet) (Jet) (Jet)
2013 5 5 10
2014 5 5 10
2015 12 12 24
2016 12 12 24
2017 13 13 26
TABLE 6.5: SCHEDULED DUTY HOURS AND CREW , FOR EACH AIRCRAFT TYPE
Of course, as a start-up airline, operations will be carried out according to maximum reasonable
limitations based on the flying duty time limits. For SofiAir’s aircraft, the crew complement is:
- For the ATR 42-500: one captain, one first officer, and one flight attendant
- For the Embraer 170: one captain, one first officer, and two flight attendants
The rules limit the maximum duty time allowed for the flight crew, and so the crew schedule is
based on a maximum duty time of 13 hours (subpart Q).

Business Plan
2012 – 2017
Fortunately, as we only plan to operate regional routes and “medium-haul” flights, with a maximum
time change of +/- 1 hour (between SOF and AMS, GVA, or BER), our crew will remain acclimatised
during all sectors. This also means less onerous restrictions in terms of crew rest.
In terms of days off, a minimum of 1 day a week must be granted – as well as the legal minimum of
4.5 days in every 28 days. We took these regulations into account in our schedule, and allocated
more days off than the mandatory minima, in order to conform to the limit of 60 duty hours in 7
consecutive days. We have also allocated each crew to a different roster each week, to equalise the
number of duty hours per month between all our crew members.
Calendar Period Maximum Duty Hours
1 day 13
1 month 100
1 year 900
Last scheduled flight length (h) Rest length (h)
Below 8 9
Between 8 and 12 10
Above 12 12
TABLE 6.6: SUBPART Q REGULATIONS FOR CREW SCHEDULING
As we cannot afford to have flight crew who exceed their maximum duty period, we must also
recruit stand-by crew, to support operations. On top of this, we must be sure that we have enough
crew members to operate all flights, even in the case of mandatory rest for some of them; and so
this is why the EASA Subpart Q maximum duty period has been followed – which means that we
have at least four pilots, and two flight attendants, for each ATR 42-500, and at least four pilots and
four flight attendants qualified for each Embraer 170 – at all times.
In order to simplify the model, limitations have been taken into account, with no consideration for
extra days off for holidays; which is an additional constraint that must, of course, be considered in
actuality. Calculating the yearly limitations on a weekly and a monthly basis shows that flight crew
cannot fly more than 75 hours per month, and 19 hours per week. So, as an example for the first
operating month, the rotating roster for each crew has been shown (see Appendix 4.4), for the first
year. Of course, in actuality, this roster would have to be corrected – by adding extra days off for
holidays, as otherwise they would exceed the mandatory maximum 900 block hours of duty in a
year. So, we consider the first operating month to be a “maximum busy” month (without any
holidays for any crew), as a start-up airline such as SofiAir may initially see some problems with crew
recruitment, or retention. However, after a few months, crew will start to take holidays, and so
further crew must be recruited to permit this, whilst allowing the same schedule to be operated.
6.1.2.2 CREW TRAINING
For safety and reliability reasons it is evident that training on the selected aircraft must be provided,
both for our pilots and cabin crew members. There are two possibilities: either the purchase of a

Business Plan
2012 – 2017
simulator, or the organisation of a training session in a dedicated centre. As the purchase of a

simulator would prove too costly for a start-up airline, then training will instead be undertaken in a
dedicated crew training centre. For the Embraer 170, there is a training centre with FFS at Zurich
(established since December 2004), which is owned by Embraer training providers. Training
programs are given to pilots and flight attendants on a 15-day basis of ground school, and then
combined with computer-based training and instruction. Finally, there are also around 10 sessions
of simulator training, per crew. For the ATR 42-500, the mayor training centre is in Toulouse,
France (at ATR’s headquarters), and the programme includes flight crew courses, cabin crew
courses, and also maintenance and operations courses. Both training programmes, of course, have
been certified by EASA, and both pilots and cabin crew must annually refresh their training (for
some basic skills) – with other skills practiced every few months (such as fire training, or emergency
landings). The cost of such additional training is included in the crew costs.
6.1.3 GROUND HANDLING
Ground handling will be outsourced to 3rd party contractors, with this service agreement providing
passenger, baggage, and ramp handling services at the airport. Passenger handling includes
terminal services such as departure and arrival services performed by customer service agents,
including check-in, boarding, and flight closure. Baggage handling includes those processes
designed to ensure the safe departure and arrival of luggage, and ramp handling services include
aircraft towing, lavatory drainage, water and fuel services, and ground power. The costs for these
services are approximately €7 per seat, across the SofiAir network (this figure has been derived from
one Bulgarian airport which performs in-house handling).
6.2 MAINTENANCE & TECHNICAL SUPPORT

6.2.1 MAINTENANCE REQUIREMENTS
In order to maintain high standards, in terms of reliability and airworthiness, conducting regular
maintenance work is essential. The European Community Regulation, in terms of maintenance
provisions for air transport, is given by Part M and associated subparts, for responsibilities and
continuing airworthiness. In addition, the Maintenance Policy Development is presented in the
MSG-3 Process – which enables an MRO organisation to manage the maintenance provision, and
also to organise the engineering development. According to this regulation, it is specified that a
Part 6 approved maintenance organisation, which undertakes maintenance work, needs to be
approved by the European authority. As a start-up airline, it was decided to outsource the
maintenance work to a competent MRO organisation; and so SofiAir must to be sure that this
maintenance organisation has competently trained staff, adequate facilities, and proper equipment
– to handle the Embraer 170 and the ATR 42-500. On top of this, all maintenance must be carried
out according to the certificate holder’s manual. After the work has been done, a certificate of
release is given by the maintenance organisation to the airline, so that the aircraft can re-enter
service. Mandatory requirements also state that any work carried out during maintenance activities
must be documented, with the records kept and archived by the airline.

Business Plan
2012 – 2017
6.2.2 MAINTENANCE & E NGINEERING FACILITIES
Setting up an in-house maintenance infrastructure represents a significant capital investment, in

terms of having all the necessary facilities (such as hangar space, spares, and labour). For a start-up
airline such as SofiAir, with a small fleet, such in-house maintenance would not prove financially
feasible. So, the outsourcing of maintenance is justified – which also enables the reduction of
operating costs. Considering the different MRO organisations certified by EASA, the following
solutions were decided upon for the two types of aircraft in the SofiAir fleet:
- For the ATR 42-500, the easiest solution (both in terms of proximity and practicality) for
outsourcing all the maintenance (Line checks, routine checks, basic and heavy
maintenance) was the Balkan Aviation Group, based in Sofia, Bulgaria.
- For the Embraer 170, a good solution in terms of proximity is the new MRO company,
Lufthansa Technik Sofia. However, only line maintenance can be outsourced there, as only
limited services can be provided for the Embraer aircraft (see Appendix 4.5). So, this means
that another organisation must also be chosen, which is certified for performing all basic
and heavy maintenance (so, A-checks, C-checks, heavy checks) for the Embraer 170. For
simplicity reasons (as this is the same MRO group), Lufthansa Technik Germany was chosen
to outsource this part of the maintenance work.
Aircraft Type Provider Location Regulatory Certification
ATR 42-500 Sofia EASA by 2013 (to be

Balkan Aviation Group
confirmed)
Embraer 170 Lufthansa Technik Sofia Sofia EASA, CAAP, FAA

TABLE 6.6: LINE MAINTENANCE PROVIDERS AND REGULATORY CERTIFICATION
ATR 42-500 Sofia EASA by 2013 (to be

Aviation Balkan Group
confirmed)
Embraer 170 Lufthansa Technik Hamburg EASA, CAAP, FAA

TABLE 6.7: HEAVY MAINTENANCE PROVIDERS AND REGULATORY CERTIFICATION
The heavy maintenance of the engines will also be outsourced. To improve efficiency, the airline
will aim to contract engine maintenance to the same MRO, and so the maintenance organisations
shown in Table 6.8 (below) were chosen for engine maintenance.
Finally, technical support is needed at the different outstations, in order to satisfy the requirements
for aircraft turnarounds. On top of this, relevant maintenance providers at each destination must
also be selected. As all SofiAir’s flight sectors are either regional, or intra-European, to airports used
by many other airlines, then the less costly solution would be to enter into both line maintenance

Business Plan
2012 – 2017
and parts-pooling agreements for spares and rotables with other carriers, to take advantage of
economies of scale.
ATR 42-500 Balkan Aviation Group Sofia Not yet

or
Airframer France EASA, CAAP, FAA
Embraer 170 Lufthansa Technik Hamburg EASA, CAAP, FAA

TABLE 6.8: ENGINE MAINTENANCE PROVIDERS AND REGULATORY CERTIFICATION
6.2.3 ENGINEERING REQUIREMENTS
It is also the airline’s responsibility to develop the required maintenance scheduling, monitoring of
airworthiness, reliability, and other safety checks as mandated by the European authority. SofiAir
has decided to keep in-house some of the engineering requirements to perform maintenance
related services, in order to have at least some view, from within company, on the different
outsourced maintenance work and checks being performed. In relation with the different MRO
organisations, SofiAir’s Technical & Maintenance Director, along with the carrier’s Engineers, will be
responsible for:
- setting up the Maintenance Control Centre
- monitoring and archiving airworthiness directives and service bulletins
- creating customised maintenance & modification programs
- developing, establishing and supporting modification programs
- controlling aircraft-related records
These employees will oversee the maintenance provisions performed by the selected outsourced
providers, and it is SofiAir’s responsibility to establish a maintenance schedule based on the
Maintenance Planning Document (MPD), published by the aircraft manufacturers Embraer and
ATR. These MPDs have previously been approved by EASA.
6.2.4 MAINTENANCE SCHEDULING
To establish the maintenance schedule, the maintenance intervals given by the manufacturers, in
the relevant MPDs, were followed. The maintenance procedure used will be a block maintenance
program, which allows less frequent maintenance activities (important, as they are being
outsourced). Routine checks, and A-checks, can be performed overnight – while C-checks must be
performed in 5 days, at the maintenance locations previously listed. During this time, additional
aircraft will be leased on a very-short term basis in order to ensure an uninterrupted schedule. The
annual downtime of each aircraft for C-checks has been calculated in Table 6.10, below (also see the
maintenance schedule in Appendix 4.6). It is important to note that line maintenance, daily checks,

Business Plan
2012 – 2017
or turnaround checks are not mentioned in the maintenance schedule, as these maintenance works
are only performed after each cycle, or before the start of each operating day.
Maintenance Intervals ATR 42-500 Embraer 170 (released on 1st Q 2013)
Service Checks 48 Hrs 48 Hrs
Routine Checks 7 Days 120 FH or 14 Days
Intermediate Checks 500 FH 750 FH
Basic Checks 4000 FH 7,500 FH
Heavy (Structural) 18,000 FC 20,000 FC
Heavy (CPCP) 65-70 months 72 & 96 & 120 months thresholds

TABLE 6.9: MAINTENANCE INTERVALS , SOFIAIR FLEET
ATR n°1 ATR n°2 E170 n°1 E170 n°2 & n°3
YEAR
Downtime Downtime Downtime Downtime
2013 7 7 6
2014 12 12 11
2015 12 11 5
2016 12 11 11
2017 12 11 6
TABLE 6.10: FLEET ANNUAL DOWNTIME, FOR A-CHECKS AND C-CHECKS
6.2.5 MAINTENANCE COST ANALYSIS
In general, even if engine maintenance (CF34-8E for the E-170, PW127 E/F for the ATR 42-500)
accounts for nearly 40% of overall maintenance costs, labour costs for airframe and component
maintenance proves the most costly component of any maintenance. The advantage of being
based in Sofia, and of using local MRO organisations such as Balkan Aviation Group or Lufthansa
Technik Sofia, is that labour costs per man-hour are significantly less than in North America, or
Western Europe (around 15-20% lower). So, SofiAir is able to significantly decrease the overall
maintenance cost as a result. However, this competitive cost advantage is not true for heavy and
engine maintenance work on the Embraer aircraft, which will be done at Lufthansa Technik, in
Germany. Table 6.11, below, shows the year-by-year total maintenance costs for each aircraft type,
taking into account the total maintenance costs per flight hour, and the total maintenance costs per
flight cycle. Below Table 6.11 are the total maintenance costs, with expected inflation accounted
for.

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2012 – 2017
ATR 42-500 Embraer 170 Total
FC FC
FH Costs Total FH Costs Total
Year FC Costs FH FC Costs FH (in $)
(in $) (in $) (in $) (in $)
(in $) (in $)
2013 6570 187,245 3496 2,253,172 2,440,417 2190 79,059 3680 2,881,440 2,960,499 5,400,916
2014 6570 187,245 3496 2,253,172 2,440,417 2190 79,059 3680 2,881,440 2,960,499 5,400,916
2015 3650 104,025 1408 907,456 1,011,481 6358 229,524 8552 6,696,216 6,925,740 7,937,221
2016 3650 104,025 1408 907,456 1,011,481 6358 229,524 8552 6,696,216 6,925,740 7,937,221
2017 3650 104,025 1408 907,456 1,011,481 7088 255,877 9060 7,093,980 7,349,857 8,361,338
TABLE 6.11: FLEET MAINTENANCE COST ANALYSIS

Business Plan
2012 – 2017
6.3 SAFETY MANAGEMENT

6.3.1 SAFETY MANAGEMENT REGULATION
Safety management is an extremely broad issue, with this topic being regulated in all the regions of
the world. The International Civil Aviation Organisation (ICAO) has mandated the application of a
Safety Management System for all air transport operators, and so in order to comply with this
regulatory environment, SofiAir has decided to implement a Safety Management System (SMS).
6.3.2 SAFETY MANAGEMENT SYSTEM (SMS)
A Safety Management System is a global, active approach to hazard and risk determination and
management. Typically, every area of the airline should have an SMS, as risks and dangers may be
present throughout the organisation. One of the main goals of an SMS is to be sure that risks and
dangers are as low as possible, or at least that their impacts can be controlled, in order to ensure
maximum safety throughout the airline. The SMS can prove a very useful way of developing
systematic practices and procedures. It is essential that an SMS is managed by experienced and
highly-skilled managers, and promoted throughout the airline, in order to have maximum effect.
6.3.3 IMPLEMENTATION & BENEFITS OF THE SMS FOR SOFIAIR
Currently, the Balkan air transport market sees some problems with safety in certain regions;
especially those just recovering from war. SofiAir’s SMS could help in increasing safety standards in
these regions.
The implementation of an SMS can also be an opportunity for cost reduction, as the system can
prevent an accident from happening, and so avoid any collateral costs. Besides, an active SMS can
provide proof against claims, and may also be a decisive marketing tool, as SofiAir will be able to say
that the airline has one of the safest services in the region.
The SMS cycle will include continuous monitoring and improvement procedures, and finally an
emergency response policy will need to be defined, laying down procedures to be followed if an
unexpected event were to occur.
Substantial help in implementing an SMS may be found in the documentations from ICAO’s Safety
Management Manual, or information from the relevant regulatory authorities.

Business Plan
2012 – 2017
7 HUMAN RESOURCE MANAGEMENT AND ORGANISATION

SofiAir is committed to constructing an efficient organisational structure, and employing highly-
skilled personnel, to provide for efficient planning and operations. By outsourcing certain activities,
SofiAir will be able to focus on its core competencies – such as strategic management and financing,
in order to succeed in the start-up stage. Such outsourcing will also improve flexibility and the
decision-making process, through having fewer (and shorter) internal channels of communication.
7.1 ORGANISATIONAL STRUCTURE

As a company with only three aircraft, initially, SofiAir’s organisational hierarchy will be kept flat, to
allow for short decision-making processes, to permit immediate reaction to changes, to encourage
and enable creative solutions from the workforce to be implemented, and to facilitate easier
management. This will also keep the company’s costs down, as there will be fewer employees in
expensive managerial positions. Once the company develops and grows, though, the
organisation’s structure can easily be restructured.
CEO
CCO COO CHRO CFO
Crew Rostering / HR Finance

Marketing
Scheduling department department
Revenue OCC
Management
Engineers
Sales
Customer
Services
FIGURE 7.1: SOFIAIR’S ORGANISATIONAL CHART
The CEO will manage the company; with the inputs they receive from the Chief Commercial Officer,
Chief Financial Officer, Chief Human Resources Officer, and Chief Operating Officer. These Officers
will act as managing directors, conversing with each other, as well as with the CEO – with such
behaviour enabled by the flat hierarchy. Each of the directors will manage employees hired under
their departments, and the fact that the number of employees will be very low will enable co-
operation between all employees.
In the following sections, the departments under each Officer will be explained:

Business Plan
2012 – 2017
7.1.1 CEO
The Chief Executive Officer is the highest employee in the hierarchy, and is responsible for the
general management of SofiAir. Their aim is the maximisation of profit, and the CEO interacts with
the next level of the hierarchy to discuss strategic decisions, to confirm that the company is moving
in the right direction, and to receive feedback. The CEO will also be the highest earning employee,
with a monthly gross wage of €3,600.
7.1.2 CCO
The Chief Commercial Officer will control the Sales and Marketing department, as well as the
Revenue Management department. They will be responsible for monitoring market development,
and for identifying threats and opportunities. They will employ the Marketing Officer, who
determines the product which SofiAir will offer, and its distribution channels, and who will give out
advice regarding pricing to the Revenue Management team. The Marketing Officer will also directly
supervise the outsourced Marketing activities, and report to the CCO. The outsourced Marketing
department will be responsible for applying SofiAir’s inputs to the establishment of the brand, the
advertising, design, and administration of the booking engine on the company webpage.
The Sales team consists of 2 sales representatives, who are in charge of key business and leisure
customers: The Sales Manager Bulgaria will be responsible for the whole of Bulgaria, while the
Sales Manager Europe will be responsible for the customers based elsewhere. They will undertake
extensive travel on SofiAir’s own aircraft. On top of this, there will be 2 Customer Service and Sales
employees, who will handle complaints, and deal with customers wanting to buy tickets. They will
also be in charge of answering the phones of SofiAir’s call centre hotline. In addition, the Revenue
Management department will consist of 2 employees.
The CCO will work closely with other departments, such as Operations, to develop the flight
schedule. As SofiAir is still a small company, the workload will be manageable for this number of
employees. The salaries of each employee are based on the Bulgarian average wage44, and can be
found in Appendix 5.
7.1.3 CFO
The Chief Financial Officer will report to the CEO, and execute financial strategy with regard to
revenue, budgeting, and general financial risk management. They will supervise the Finance
department which, for now, will employ only one accountant, to be in charge of the profit and loss
accounts and the balance sheet. None of the financial tasks will be outsourced.
7.1.4 CHRO
The Chief Human Resources Officer will report directly to the CEO, and will be in charge of the HR
department. Their tasks are to make sure that the legal requirements on working conditions are
met, appropriate training is provided, and that employee turnover is kept to a minimum.
44
Invest Bulgaria

Business Plan
2012 – 2017
The HR department consists of 2 employees, one of which is responsible for recruitment, training,
and payroll issues – whereas the other is in charge of general staff administration; such as welfare,
CSR projects, and the corporate intranet (to keep staff up-to-date, and promote the SofiAir
corporate culture).
7.1.5 COO
The Chief Operating Officer will manage the operations side of the business, which will be
completely outsourced.
For maintenance, the COO will ensure that the MRO to which SofiAir’s maintenance is outsourced is
in compliance with the regulatory standards, as per EASA Part M on Continued Airworthiness. The
employees of this MRO will be responsible for signing off SofiAir aircraft back into operations.
Safety is crucial for the successful operation and growth of the airline, and so the safety and quality
of maintenance will be closely monitored by the COO, through safety audits.
For operations, the COO will be responsible for the actions of SofiAir’s outsourced flight and ground
operations, and will make sure that the outsourced Station Managers (from the ground handling
providers) deal properly with the daily operations at the airport.
In addition, the COO will supervise the Crew Scheduling and Rostering Officer, the Operations
Control Officer, and the Engineers. The Chief Pilot will recommend and implement new safety
procedures in liaison with the COO, as well as dealing with pilot issues. The cabin crew employees
will instead be managed by the Crew Scheduling and Rostering Officer. The implementation of
cabin crew safety procedures and service standards will be decided by the COO.
7.2 HR POLICIES
SofiAir’s HR policies will reflect the company’s corporate culture, with the main objective being the
implementation of recruitment, training, and reward standards – which all look to work towards the
goal of profit maximisation. It is important for the airline to have a motivated work force, and
friendly corporate culture, which makes each employee feel an integral part of the company,
working towards achieving the common goals. This is why, at all times, SofiAir will adhere to
regulatory requirements, and provide rewards for extraordinary performance.
7.2.1 RECRUITMENT AND T RAINING
SofiAir will hire employees for the company’s Sofia headquarters, with all positions outside Bulgaria
being outsourced.
The recruitment process will be implemented by the CHRO, who will occupy the HR department
with 2 employees – who will then be in charge of recruiting highly skilled and motivated personnel.
An important aspect is to keep the total amount of employees as low as reasonably possible, but to
provide each employee with an adequate remuneration for the job performed. Staff for the first
year will be hired in October 2012, to keep pre-operations costs as low as possible. The
administrative staff will already have relevant experience, and will be further trained on the job.

Business Plan
2012 – 2017
SofiAir will hire EU nationals who are proficient in the Bulgarian language, as well as a second
language; preferably English. Besides that, each position will have additional different
requirements, as appropriate. SofiAir will not hire non-EU citizens, as this proves costly in terms of
time and money, and because it should be possible to find the appropriate amount of skilled
employees, holding EU citizenship, in Bulgaria. This will also help to make use of Bulgaria’s
comparably low average wage levels.
The termination of work contracts, if necessary, will be according to the Bulgarian Labour Code.
7.2.2 EMPLOYEE BENEFITS
None of SofiAir’s employees will be paid the regulatory minimum wage; instead, all administrative
staff will receive the Bulgarian average wage for Sofia, as reported by the Bulgarian National
Statistical Institute. Furthermore, wages will increase each year, to keep the real income of staff in
line with inflation.
To keep SofiAir’s employees happy, at a reasonable cost, staff will be permitted to make use of one
free stand-by flight per year, on SofiAir aircraft, for the employee and a companion. Further staff
ticket allowances with other airlines will not be concluded, to keep costs to a minimum.
Furthermore, staff will be offered an unlimited number of reduced-cost stand-by tickets – and this
will keep employees motivated, with the travelling proving educational, and also benefitting the
company. It is also expected to keep employee turnover to a minimum.
7.2.3 PROMOTION
After SofiAir’s initial set-up phase, employees will be able to start the process of being promoted to
the next level. As this is not possible in the first years of operations, the company will select an
employee of the year (applicable only to non-Officers), and offer a special one-time monetary
reward – and a second free ticket for a SofiAir flight – for the selected employee. This will motivate
employees to work harder, to become the best, and will be the company’s affordable substitute for
a promotion.
7.2.4 OUTSOURCING
As SofiAir remains a start-up carrier, outsourcing proves the cost efficient solution. Thus, only the
management and administration-related knowledge based in Sofia will be developed, which is a
feasible solution for a new airline such as SofiAir.
IT, Marketing, and parts of the Operations/Maintenance departments will be outsourced, using
Service Level Agreements (SLAs) with appropriate providers. These SLAs will provide the required
workforce and equipment needed to carry out the running of the company, with the cost of these
being carried by the relevant department.

Business Plan
2012 – 2017
8 ENVIRONMENTAL POLICIES
SofiAir is committed to minimising the impact of its activities on the environment. Being part of the
European Union (EU), we will be directly affected by the EU Emissions Trading Scheme (ETS). So,
we will adopt a number of operational measures that will help to reduce carbon use.
8.1 EU ETS
The ETS is a policy that started in 2005, whereby companies have to pay for their carbon emissions
as an incentive to control the release of carbon dioxide (CO2) into the atmosphere. As of 2010,
airline emissions started to be monitored as part of ETS, and trading will commence in 2012. For a
full timeline, see Appendix 6.
All airlines are freely allocated a number of allowances, based on their tonne-kilometre data
recorded in 2010. Since we aim to start operating in January 2013, we will enter the ETS during its
third phase (2013 – 2020). For this period, the number of allowances granted will be 95% of the
baseline emissions45 - estimated at a figure of 219,476,343 tonnes of CO246.
SofiAir shall be eligible to apply for free emission allowances under the EU’s 3% reserve 47 for new
entrants. Our immediate tasks, in order to gain the necessary allowances, are as follows:
- Submit a monitoring plan (MP) for approval to the administering member state (so,
Bulgaria) as soon as possible.
- Record tonne-kilometre data according to the methods set out in the approved MP, and
relevant aspects of the Bulgarian Civil Aviation Administration’s (CAA) rules and
procedures.
- Draft an emissions report for 2013, and have it verified by an independent verifier at the
beginning of 2014.
- Submit the verified emissions report to the Bulgarian CAA by 31 March 2014.
The emissions report should claim free allowances to cover all the emissions in 2013. The
application under the new entrant reserve should be supported by verified tonne-kilometre activity
data, and documentary proof of the start of operations. It is to be made clear which passenger
weights have been used; whether actual weights from operational mass and balance sheets, or the
standard 100 kg. The deadline for submitting such an application is 30 June 2015 and, subsequently,
we will have to monitor emissions every year according to Table 8.1:
45
Average emission levels in 2004, 2005 and 2006
46
European Commission - http://ec.europa.eu/clima/faq/transport/aviation/operators_en.htm
47
European Commission Directive 2008/101/EC

Business Plan
2012 – 2017
CURRENT MONITOR TRADE for Remarks

Year for Year Year
2013 2013 - “Initial” monitoring year
2014 2016 - Submit application for 2013
2015 2017 2013 Free allowances obtained for 2013 activities
under 3% new entrant reserve
2016 2018 2014 Allowances obtained for 2014 activities. May
require purchasing additional allowances or
selling of extra credits.
2017 2019 2015 Trading based on 2015 activities
TABLE 8.1: EMISSION MONITORING AND TRADING ACTIVITIES
Figure 8.1 shows SofiAir’s estimated fuel burn and CO2 emissions, for the 5 year period considered
(2013-2017). Emissions have been estimated by factoring the fuel consumption by 3.15:
Fuel CO2 Emissions

70,000
60,000
50,000
40,000
Tonnes
30,000
20,000
10,000
0
2013 2014 2015 2016 2017
FIGURE 8.1: FUEL BURN AND EMISSIONS
Table 8.2 gives the estimations for costs incurred through carbon emissions trading, based on the
following assumptions:
- 90% of 2013 emissions are allocated for free, for all five years
- Carbon price is assumed as € 17 per tonne for all years thereafter48
Year 2013 2014 2015 2016 2017

Estimated Carbon Cost (€) 52,517 54,093 503,229 518,326 603,011
TABLE 8.2: ESTIMATED CARBON PURCHASE COSTS (INFLATION ADJUSTED)
Theoretically, SofiAir should obtain 100% of the 2013 emission allowances for free. As a safety
margin for our accounts, however, it is assumed that only 90% of these are given out freely.
48
Point Carbon (2011)

Business Plan
2012 – 2017
8.2 NOISE
A key nuisance around airports is noise, and regulation of this phenomenon has tended to become
stricter, in order to minimise disturbance to the local community. By choosing new technology
aircraft, SofiAir hopes to keep its noise footprint as low as possible, in order to avoid community
complaints (Figure 8.2), which would prove detrimental for the airline’s image.
FIGURE 8.2: EFFECTS OF AIRCRAFT NOISE 49
SofiAir’s fleet features aircraft that meet both current and future environmental challenges. The
ATR42-500 comes from a family of turboprops that boasts proven fuel efficiency (emitting around
20% less CO2 per passenger-kilometre than new jets50), in the regional market. The Embraer 170 jet
belongs to the E-jet series, designed to deliver maximum efficiency by being lighter.
Both aircraft types already comply with the stringent ICAO Chapter 451 noise standards (see Table
8.3). Limits are set in effective perceived noise level (EPNL) at various measurement points:
EPNL Lateral Flyover Approach

Chapter 4 Limits 94 89 98
Typical ATR42 86 78.9 97
Typical EMB170 93.4 84.4 95
52
TABLE 8.3: NOISE CRITERIA
Some airports in the SofiAir network levy noise surcharges, in addition to the landing charge. These
are Berlin (BER), Schiphol (AMS), and Geneva (GVA) airports53. The latter also has an emissions
charge.
8.3 OPERATIONAL MEASURES

Fuel prices are relatively high, and fears that these will remain so are well founded. Moreover, the
ETS will represent an added cost for airline operations in terms of carbon emissions trading. So,
49
UK CAA (2011), Airport Environmental Planning Short Course at Cranfield University (Darren Rhodes)
50
ATR website
51
ICAO Annex 16 Chapter IV is a new noise standard which is 10 decibels lower, on a cumulative basis, than
Chapter III in for new aircraft design, effective since 1st January 2006
52
EASA figures - http://www.easa.europa.eu/certification/type-certificates/noise.php
53
Boeing (2011) - http://www.boeing.com/commercial/noise

Business Plan
2012 – 2017
SofiAir shall be implementing various measures that will both save on fuel, and also minimise our
impact on the environment.
8.3.1 FLYING AT THE MOST FUEL EFFICIENT SPEED
Flights will be carried out in the most fuel-efficient way. We shall strive to use as low a cost index
(CI) as possible in our Embraer jets; and this implies flying at the Long Range Cruise (LRC) speed, or
very near to it, at all times. We aim for around CI-20, to beat the Bulgarian charter Air Via, which
uses CI-25. At such speeds, the aircraft flies slightly slower than its maximum speed, but in so doing
reduces fuel consumption to a significant extent.
8.3.2 CLEAN AIRFRAME AND ENGINES REGULARLY
Dirt on the airframe increases drag, which leads to higher fuel consumption. By keeping our
equipment clean, we aim to save on our fuel use.
8.3.3 SINGLE-ENGINE TAXI
A significant amount of emissions are released during the taxi phase. It has been shown that taxiing
with two jet engines consumes 56% more fuel per minute54 than with a single engine. SofiAir’s
Embraer crew will be trained to adopt single-engine taxi procedures. However, single-engine taxi it
is not recommended for the ATR aircraft55.
8.3.4 CONTINUOUS DESCENT APPROACH
We shall try to establish continuous descent approach (CDA) procedures as far as possible, subject
to air traffic control approval. CDA essentially allows the aircraft to descend with the engines set to
idle56. Such a procedure saves on fuel, and creates a smaller noise footprint around an airport.
Amsterdam, Geneva, Bucharest, and Bologna airports all currently have CDA procedures in place57.
8.3.5 MAXIMUM USE OF GROUND FACILITIES
SofiAir will enter into agreements at airports to which it operates, in order to make the maximum
use of available ground facilities. By avoiding the use of the auxiliary power unit (or the propeller
brake) for air conditioning and engine-starting purposes, emissions will be reduced.
8.3.6 REDUCED DRAG PRACTICES
Flaps are intended to allow the aircraft to fly at lower speeds, during the stages of flight prior to
landing. However, they also create a large amount of drag, which means the engine has to be run at
higher throttle in order to maintain a particular speed. Our crew will be trained to approach airports
with delayed gear and flap extension, while remaining consistent with safe operating procedures.
Landings shall also be made at less than full flap settings, where possible. By reducing drag, this will
also reduce fuel consumption.
54
Enviro.aero – Spanair and single-engine taxi
55
ATR website
56
Enviro.aero - Air New Zealand, Qantas, Airways New Zealand and optimum arrivals
57
Boeing (2011) - http://www.boeing.com/commercial/noise

Business Plan
2012 – 2017
8.3.7 LED CABIN LIGHTING
We shall use light emitting diode (LED) fixtures, instead of conventional halogen bulbs, for cabin
lighting. The main advantages of LEDs are higher energy efficiency (50% or greater), and a
dramatically longer operating life. Such characteristics will reduce onboard power requirements,
and also replacement costs. Moreover, it is possible to create different mood lighting with LEDs,
which will enhance the consumer experience.
8.3.8 MAXIMISE LOAD FACTORS
The majority of our operations are short-sector flights. In terms of emissions on a per-distance
basis, these flights rank highest in terms of emissions. So, we shall strive to achieve and maintain
high load factors. Furthermore, a higher payload will help towards securing a larger number of free
carbon allowances through the ETS, hence reducing the amount needed to be purchased.
8.4 CORPORATE SOCIAL RESPONSIBILITY

Corporate Social Responsibility (CSR) is a company’s voluntary adoption of certain ethical practices
inducing it to accept responsibility for its actions. CSR is a concept that does not deviate from the
company’s corporate mission; rather it is an extension of it, as an obligation to consider the
interests of different stakeholders in a company’s operations. The stakeholders include customers,
employees, shareholders, the local community, and the environment as a whole58.
There are no certifiable standards that can be used to endorse a company’s CSR policy – however,
the ISO 26000 standard is an internationally accepted benchmark, without pre-requisites, that sets
out basic guidelines for an organisation to implement a CSR policy. This implies that any company
can adopt a CSR policy, under guidance from the ISO 26000 standard.
8.4.1 SOFIAIR’S POLICY
Sofia was ranked as the second least green city in a 2009 survey59 of 30 European cities. Among the
leading environmental initiatives was the replacement of ageing public buses, improving local air
quality, and heat/electricity production from biomass. The Bulgarian government’s Operational
Programme: Environment, funded by the EU, seeks primarily to encourage development in areas
such as wastewater treatment and biodiversity restoration.
Another survey60 showed that only 25% of companies in Bulgaria were engaging in CSR activities
related to the environment. However, SofiAir’s CSR guidelines shall be framed around a
sustainability concept, to contribute towards making Sofia a greener city.
58
European Commission, Wikipedia
59
Siemens European Green City Index survey (2009) -
http://www.siemens.com/press/pool/de/events/corporate/2009-12-Cop15/European_Green_City_Index.pdf
60
Alfa Research (2007) – http://www.eurofound.europa.eu/ewco/2010/07/BG1007021I.htm

Business Plan
2012 – 2017
SofiAir, in the long term, seeks to use its CSR policy as an additional source of value creation for
both its employees and Sofia residents. By upholding projects essential to the betterment of the
local community, SofiAir wishes to establish a relation of trust among its different stakeholders, to
encourage their repeated patronage – a move that will benefit the company (see Figure 8.3).
Proactive CSR
Initiatives
Improved Value Creation for

Profitability Stakeholders
Repeated Better Perceived

Patronage Service Quality
Better Customer
Satisfaction
FIGURE 8.3: SOFIAIR 'S CSR MODEL
8.4.2 GUIDELINES
8.4.2.1 ENCOURAGING THE USE OF PUBLIC TRANSPORT
We encourage our passengers to make use of public transport, to reduce those emissions
associated with travelling to and from the airport by private means. Developments are under way
to connect Sofia airport, in the near future, to the city’s subway system61. For the time being,
though, there is convenient public transport access to the airport by means of bus lines 62 - and the
SofiAir website will publish the timetables of these services, and offer the choice to integrate their
reservation seamlessly with flight bookings.
8.4.2.2 EFFICIENT PRACTICES
Our staff shall be sensitised about simple daily practices that can reduce our carbon footprint. We
shall work towards energy saving initiatives to make our headquarters as energy-efficient as
possible, by making maximum use of natural lighting and ventilation. Although there is currently no
certification requirement in Bulgaria, our target is to be as near as possible to the “A” Building
61
Therouteshop.com – Sofia Airport
62
Public bus line No. 84 connects Sofia Airport with the city centre.

Business Plan
2012 – 2017
Energy Rating63 currently in use in England and Ireland. We also urge our staff not to print
documents unless absolutely necessary; moving one step ahead in terms of paperless practices.
8.4.2.3 WASTE SORTING AND RECYCLING
We will favour, for SofiAir, those supplies that come with biodegradable packaging materials. We
also care about the way we dispose of waste; hence we shall endeavour to separate out waste, to
facilitate its distribution for recycling.
8.4.2.4 SUPPORTING THE BULGARIAN COMMUNITY
From the outset, our priority will be profit. However, after we achieve this target, we would
consider a partnership with Junior Achievement64 (JA) Bulgaria, to give out scholarships every year
for innovative entrepreneurial projects related to the environment.
8.4.2.5 CARING FOR OUR STAFF AND CUSTOMERS
We will encourage our staff to take active roles in making the workplace a fun environment, whilst
maintaining high standards that will continue to draw in customers. SofiAir believes in continuous
improvement; suggestions from staff and customers will always be welcome, and rewarded if we
decide to implement them.
63
The Energy Efficiency Rating ranges from a scale A to G, with A being most energy-efficient and G being the
least.
64
Junior Achievement is a fast-growing, non-profit and worldwide economic education organization. JA
Bulgaria is a member nation of Junior Achievement Worldwide’s regional entity Junior Achievement-Young
Enterprise Europe. It educates and inspires young Bulgarians to value free enterprise, business, and
economics to improve the quality of their lives, preparing them to succeed in a global economy.

Business Plan
2012 – 2017

Business Plan
2012 – 2017
9 FINANCE
The aim of the finance department is to ensure that SofiAir becomes efficient in both revenue and
cost terms, and so becomes a viable and profitable project in the medium to long-term. An
investment plan has been established, in order to achieve appropriate funding for the size of the
project.
9.1 BASIC ASSUMPTIONS

Since some financial data are continuously variable, some key assumptions have been used for the
following items, to make all financial data sound and consistent:
9.1.1 INFLATION DATA
Inflation has been used to adjust both the costs and revenues of the airline. The International
Monetary Fund (IMF) inflation forecast for Bulgaria has been used (see Table 9.1):
2013 2014 2015 2016 2017F

2.73% 3.00% 3.00% 3.00% 3.00%
TABLE 9.1: BULGARIAN INFLATION DATA, YOY (SOURCE : IMF, 11/05/2011)
Based on the table above, Bulgarian inflation for 2013 would be set at 2.73%, whereas inflation
would reach a 3% for 2014, 2015, 2016 and 2017. 2017 inflation data has been calculated by SofiAir’s
own forecast, since IMF forecasts only reach up to 2016.
9.1.2 CURRENCY EXCHANGE
Three currencies have been used in this report, which are the US Dollar, Euro, and Bulgarian Lev.
Since Bulgaria is expected to join the Eurozone in early 2013, all figures are expressed in Euros. All
those costs expressed in US Dollars and Bulgarian Lev have been converted to Euro, by the
following exchange rates:
1 BGN 1 EUR 1 US$

0.51082€ 1€ 0.69675€
TABLE 9.2: EXCHANGE RATES (SOURCE: OANDA , 11/05/2011)
9.1.3 CORPORATION TAX
Corporation tax is based on a company’s profit, and in Bulgaria it is currently set at 10% of net
earnings; which is extremely low when compared to other European countries. This enables SofiAir
to be more efficient in terms of profitability, and so produce more favourable returns on
investment.
9.1.4 INTEREST RATES
In order to establish both the cost of borrowing, and the interest accrued through saving money in
interest-bearing accounts, the interest rates shown in Table 9.3 (below) have been used:

Business Plan
2012 – 2017
Interest
Rate
Deposit interest rates 2.8 % yoy
Loans interest rates 7.5 % yoy
bp over loan rates 100 bp
TABLE 9.3: INTEREST RATES (SOURCE : ECB, BNB, 11/05/2011)
The table above states that for interest-bearing deposits, a 2.8% annual interest rate will be earned
from financial corporations. On the other hand, the loan will be paid back at the SOFIBOR interest
rate of 7.5% per year, plus 100 basis points (+1%).
9.1.5 TRADING PERIODS
Trading periods regard how many days payables will be held by the company, until being paid out
(essentially to our service providers), and how many days receivables will be held by debtors (mainly
credit card companies) until being paid to SofiAir. It is also stated which proportion accrued
liabilities accounts for; being those tickets that have been sold but not yet flown:
Period
Accrued liabilities 84 days
Trade receivables 30 days
Trade payables 30 days
TABLE 9.4: TRADING PERIODS USED (COMPILED BY THE AUTHOR)
Accrued liabilities will account for 84 days, which is 3 months’ revenues that the company is still
liable for, as they haven’t yet been flown.
Both trade receivables and payables are set to 30 days, predominantly because credit card
companies (receivables) pay at the end of the month (so, 30 days), and also because all our costs
and services (such as fuel and handling) are paid on a monthly basis (so, 30 days) as well.
9.1.6 FINANCIAL YEAR PERIOD
To time the financial statements, SofiAir’s financial year would start on January 1st, ending on the
following December 31st. This financial year layout has been to match up with the start of
operations, on 1st January 2013.
9.1.7 START-UP COSTS
All start-up costs are summed up in Table 9.5, below. They include all those expenses incurred
during the months before starting the actual aircraft operations (so, those incurred during 2012),
and they have not been amortised or depreciated:

Business Plan
2012 – 2017
COMPANY START-UP EXPENSES

Company incorporation 15,000
Office set up 10,000
Legal advisor 20,000
Training 100,000
Total set up costs 145,000
TABLE 9.5: START -UP COSTS (COMPILED BY THE AUTHOR)
9.2 FINANCIAL SOURCES

In order to achieve a viable, efficient, and profitable business, it proves necessary to obtain some
capital funding. In order to do that, the initial financial resources have been split into two different
sources:
- Paid-in capital as equity: To account for one third of the company’s total funding, following
the market trend. In order to meet EU financial requirements, meet our cash flow timings,
and be able to invest, the total amount to be raised as equity would be €3,500,000 - to be
disbursed at the beginning of the company start-up. Venture or private capital would be
the source.
- Long-term loan: A borrowing would be suitable to compensate the equity portion, and so
be able to have enough funds to start up SofiAir. The source of this loan would also be
venture or private capital (ideally coming from the same source as the equity). The total
amount of the loan would account for two thirds of the total funding, which means that it
should reach an amount of €7,000,000, to be disbursed at the beginning of operations; so in
January 2013.
So, the firm would profit from a long-term loan, which would have monthly earnings with its
interest (and so be a less risky investment), whereas the equity part would involve more risk but
would also bring much more benefits, as explained in this section. The whole funding pack would
be worth €10,500,000, which would represent the total funds needed to start up the SofiAir venture.
9.3 LEASES
In order to achieve the operation al requirements for our planned schedule, 5 dry-operating leases
will be contracted. Three of these leases (2 ATR42 and 1 EMB170) would be initiated on December
1st 2012, one month before the beginning of operations. At the end of year 2014, one of the ATR
leases would finish, and two new Embraer 170 would join SofiAir’s fleet.
These operating leases would bring some advantages to the airline, such as:
- Allowing us to rapidly respond to changes in demand
- Flexibility in terms of fleet planning, due to shorter leasing periods
- As leases, they do not impact on the company’s liability, and so greater financial
performance may be seen

Business Plan
2012 – 2017
All the leases have been set up for a lease term of 7 years (84 months), except for one ATR (reg. 005,
see table below), which would be leased for only 2 years. The residual value has been calculated by
taking into account an aircraft financial life of 12 years:
Date of End of Aircraft Residual Lease Lease

Reg.
Delivery lease Value value term rate
Embraer 170 001 01/12/2012 01/12/2019 18,115,500€ 7,548,125€ 84 months 12%
Embraer 170 002 01/12/2014 01/12/2021 18,115,500€ 7,548,125€ 84 months 12%
Embraer 170 003 01/12/2014 01/12/2021 18,115,500€ 7,548,125€ 84 months 12%
ATR 42 004 01/12/2012 01/12/2019 8,361,000€ 3,483,750€ 84 months 12%
ATR 42 005 01/12/2012 01/12/2014 6,270,750€ 4,637,742€ 24 months 13%
TABLE 9.6: FLEET LEASING CONDITIONS (COMPILED BY THE AUTHOR)
As per Table 9.6, above, our lease interest rates would be higher than finance leases, because the
lessor naturally takes advantage of the short-term basis of operating leases.
Table 9.7, below, shows the annual leasing payments, based on the periodic rental payments
formula always used in arrears payments:
Annual leasing
payments
2012 347,555 €
2013 4,170,665 €
2014 4,543,751 €
2015 7,748,711 €
2016 7,748,711 €
2017 7,748,711 €
TABLE 9.7: ANNUAL LEASING PAYMENTS (COMPILED BY THE AUTHOR)
9.4 DEPRECIATION
Depreciation has been applied to tangible IT assets (such as computers, laptops, and other office-
based IT material,) and also to intangible software assets. Both assets have been depreciated
linearly, along a period of 5 years.
When investment in IT has been invoiced, there is an outflow on the cash flow statement for the
whole value. On the other hand, the depreciation value for each year is reflected in the profit and
loss statement, as an expense.
In Table 9.8, below, each investment in IT can be seen in different “packs”, with their own cash flow,
annual depreciation, and account value. At the end of the table can be found the overall cash flows,
total depreciation and total account values:

Business Plan
2012 – 2017
2012 2013 2014 2015 2016 2017

IT Acquisitions Cashflow 50,000
01/09/2012 Depreciation - 10,000 10,000 10,000 10,000 10,000
Account Value 50,000 40,000 30,000 20,000 10,000 -

01/01/2014 Depreciation - - - 4,000 4,000 4,000
Account Value - - 20,000 16,000 12,000 8,000

01/01/2016 Depreciation - - - - 4,000
Account Value - - - - 20,000 16,000
Software Cashflow 100,000

01/09/2012 Depreciation 20,000 20,000 20,000 20,000 20,000
Account Value 100,000 80,000 60,000 40,000 20,000 -
Cash flows 150,000 - 20,000 - 20,000 -
Depreciation for P&L - 30,000 30,000 34,000 34,000 38,000
Account Value for Equipment 50,000 40,000 50,000 36,000 42,000 24,000
Account Value for Intangible Assets 100,000 80,000 60,000 40,000 20,000 -
TABLE 9.8: IT INVESTMENT AND DEPRECIATION (COMPILED BY THE AUTHOR)
9.5 PROFIT AND LOSS STATEMENT

The profit and loss statement (or income statement) informs as to whether the company is proving
profitable. Usually, all costs and revenues are broken down on this statement, so that it is easy to
identify large expenses, and so see where the company can focus its cost efficiency policies, so as to
increase profitability.
(Financial year starting January 1st)
Income Statement
€thousands Notes 2012 2013 2014 2015 2016 2017
Traffic revenue
Passenger 5.1 - 19,595 23,595 33,723 37,517 43,132
Other revenue 5.2 - 5,436 6,182 8,677 9,624 10,820
Total revenue - 25,031 29,777 42,400 47,141 53,952
Operating costs
Employee costs 5.3 40 1,540 1,585 1,964 2,022 2,160
Depreciation and amortisation 5.4 - 30 30 34 34 38
Aircraft operating lease costs 5.5 348 4,171 4,544 7,749 7,749 7,749
Insurance cost 5.6 - 1,017 1,017 1,254 1,254 1,254
Fuel and oil costs 5.7 - 7,544 7,999 14,997 15,586 17,104
Engineering and other aircraft costs 5.8 - 5,548 5,563 8,175 8,175 8,612
Landing fees and en-route charges 5.9 - 3,433 3,545 5,338 5,498 6,046
Handling charges, catering and other operating costs 5.10 - 1,782 2,058 2,742 3,014 3,375
Selling costs 5.11 401 1,236 1,225 1,345 1,523 1,757
Accommodation, ground equipment and IT costs 5.12 3 10 11 11 11 12
Other costs 5.13 145 51 51 462 462 522
Operating profit/(loss) (936) (1,331) 2,149 (1,670) 1,814 5,324
Non-operating costs
Finance costs 5.14 - 338 303 303 303 303
Finance income 5.15 (40) (136) (274) (336) (303) (333)
Total costs 896 26,564 27,658 44,037 45,328 48,597
Profit/(loss) before tax (896) (1,534) 2,120 (1,637) 1,813 5,354
Tax 5.16 - - 212 - 181 535
Profit/(loss) after tax (896) (1,534) 1,908 (1,637) 1,632 4,819
Earnings/(loss) per share (pence)
Basic -43.8 54.5 -46.8 46.6 137.7

Business Plan
2012 – 2017
The following points explain the numerous items contained in the profit and loss statement:
9.5.1 PASSENGER REVENUE
This item covers all the revenue earned or invoiced during that specific financial year, even for those
air tickets that have not yet been flown. This revenue only includes the revenue from the main fare,
and does not include any extra charges, fees, or surcharges. The revenue layout has been extracted
from the marketing section, based on SofiAir’s revenue management system, which determined an
average yield and total revenue per route, based on the demand and load factor forecast in the
market & forecast section. So, revenue growth is essentially based on demand growth, since yields
have not been modified throughout years. In addition, inflation has been applied to revenues, and
so revenue growth can also be explained by this.
9.5.2 OTHER REVENUE
This part gathers all the revenue earned or invoiced during that specific financial year, but only that
concerning fuel surcharges, extra fees, or ancillary revenue. This “other revenue” has been
extracted from the marketing section, which sets the fuel surcharges, ancillary revenue, and other
fees.
9.5.3 EMPLOYEE COSTS
This item covers all expenses regarding staff; not only employed in the headquarters in Sofia (both
own and outsourced employees), but also staff employed at Sofia Airport, and both cabin and flight
crew. In 2015, a sudden growth is expected in this cost, mainly due to the incorporation of an
additional aircraft. Throughout all years, costs associated with employment account for around 5-
6% of overall operating costs.
9.5.4 DEPRECIATION AND A MORTISATION
Costs incurred due to amortisation of assets are based on, and explained in, the previous section,
9.4: Amortisation and Depreciation.
9.5.5 AIRCRAFT OPERATING LEASE COSTS
This cost covers all the periodic rental payments regarding aircraft leasing, which includes the
principal payment plus lessor interest. Further information about this cost can be found in the
previous section, 9.3: Leases.
9.5.6 INSURANCE COSTS
The insurance cost concerns all those expenses relating to insure SofiAir’s fleet, including
passengers and cargo. These expenses have been set at 2% of the aircraft price per year – based on
current market data.
9.5.7 FUEL AND OIL COSTS
Fuel costs have been calculated by multiplying the block fuel needed on a yearly basis by the fuel
price. The first item has been extracted from the Fleet section, and the fuel price has been obtained

Business Plan
2012 – 2017
from the forecast conducted by the U.S. Energy Information Administration. This forecast has
three different cases; low, reference, and high fuel price. The reference case has been used for our
best case scenario, which follows the following pattern:
2013 2014 2015 2016 2017

$3.52 $3.73 $3.88 $4.03 $4.16
TABLE 9.9 FORECAST FUEL PRICES (SOURCE: U.S. EIA)
9.5.8 ENGINEERING AND OTHER AIRCRAFT COSTS
A year basis maintenance cost has been calculated. Costs related to aircraft maintenance can be
found in the Engineering and Maintenance section of this document.
9.5.9 LANDING FEES AND EN-ROUTE CHARGES
Landing fees and en-route charges have been derived from each airport’s charging scheme,
whereas en-route charges are derived from Eurocontrol. Both expenses are found in the Fleet
section of this document.
9.5.10 HANDLING CHARGES
Handling charges are those related to the ground handling service provided by each ground
handling provider. A single turnaround handling charge has been attributed to each of our aircraft,
with the ATR 42 having an approximate turnaround handling cost of €322, whereas the Embraer 170
has a rough handling cost of €490.
9.5.11 SELLING COSTS
Selling expenses are those related to the process of selling tickets, which includes travel agencies
and GDS, but also advertising and promotion, and other marketing-related expenses. They can be
found in the Marketing section of this document.
9.5.12 ACCOMMODATION, GROUND EQUIPMENT, AND IT COSTS
This cost is incurred though office rental in Sofia, office material, and other items necessary for the
proper functioning of the SofiAir office.
9.5.13 OTHER COSTS
On the profit and loss statement, “other costs” concerns start-up costs faced by SofiAir, and also
other costs such as environmental costs – mainly focused on the EU ETS scheme, that will be
implemented shortly. These can be found in the Environment section of this document.
9.5.14 FINANCE COSTS
This cost is derived from the loan interest that the company will be charged. Apart from the
interest, there is also a commitment fee at the commencement of the loan repayment period;
detailed on the previous section, 9.2: Financial Sources.

Business Plan
2012 – 2017
9.5.15 FINANCIAL INCOMES
This income is that expected from the interest rate over the cash deposited at the bank with any
fixed-term liability. It takes an average of the amount of cash held in a financial year to determine
the average cash available at the bank, in order to take a percentage as financial earnings.
9.5.16 TAX
This tax refers to the corporation tax that incurs due to the net earnings of the company, and is set
at 10% in Bulgaria, as explained above in 9.1: Basic Assumptions. If no profit was earned in a certain
financial year, then no tax is derived for that year.
9.6 BALANCE SHEET

The balance sheet allows shows the financial situation of the company at a certain point. In SofiAir’s
case, the balance sheet is updated every December 31st, matching with the end of the financial year.
The balance sheet details the debt levels of the company, as well as SofiAir’s value in terms of
capital, assets, and equity.
(Balance status on the December 31st of each year)

Balance Sheet
€thousands Notes 2012 2013 2014 2015 2016 2017
Non-current assets
Property, plant and equipment: 6.1
Fleet 0 0 0 0 0 0
Property 0 0 0 0 0 0
Equipment 50 40 50 36 42 24
Intangibles 6.2 100 80 60 40 20 0
Total non-current assets 150 120 110 76 62 24
Current assets and receivables
Inventories 6.3 132 132 144 199 211 231
Trade receivables 6.4 2,057 2,057 2,447 3,485 3,875 4,434
Cash and cash equivalents 6.5 6,793 13,681 16,805 15,152 16,667 18,945
Total current assets and receivables 8,982 15,870 19,397 18,836 20,753 23,610
Total assets 9,132 15,990 19,507 18,912 20,815 23,634
Shareholders' equity
Issued share capital 6.6 3,500 3,500 3,500 3,500 3,500 3,500
Other reserves 6.7 (896) (2,430) (522) (2,159) (527) 4,292
Total equity 2,604 1,070 2,978 1,341 2,973 7,792
Non-current liabilities
Interest-bearing long-term borrowings 6.8 0 4,200 2,800 1,400 0 0
Total non-current liabilities 0 4,200 2,800 1,400 0 0
Current liabilities
Current portion of long-term borrowings 6.9 0 1,400 1,400 1,400 1,400 0
Account payables 6.10 468 2,167 2,271 3,622 3,726 3,997
Accrued liabilities 6.11 5,761 6,853 9,758 10,849 12,416 11,545
Short-term provisions 6.12 300 300 300 300 300 300
Total current liabilities 6,529 10,720 13,729 16,171 17,842 15,842
Total equity and liabilities 9,132 15,990 19,507 18,912 20,815 23,634

Business Plan
2012 – 2017
The following items are detailed on the balance sheet:
9.6.1 PROPERTY, PLANT, AND EQUIPMENT
This item includes the previously amortised value of assets regarding property, owned fleet, and
equipment. Since SofiAir does not own any aircraft, nor have any finance leases, then fleet value is
nil. Only some equipment for the company office has been taken into account, and this has been
amortised linearly throughout the 5 financial years.
9.6.2 INTANGIBLE ASSETS
These include all the software and other licences that the airline owns, which are also linearly
amortised along the 5 financial years, according to current accounting regulation.
9.6.3 INVENTORIES
Inventories regards all stored material from the company that has not been used or sold, such as
aircraft spare parts, or catering. It has been assumed that inventories accounts for 5% of the
ancillary revenue plus 1% of the maintenance costs as spare parts.
9.6.4 TRADE RECEIVABLES
This receivables or debtors item covers the amount of revenue that is held by other companies,
such as credit card companies. It has been assumed (as per section 9.1.5: Trading Periods) that
credit card companies hold 1 month of revenue (30 days), and it is also assumed that 100% of sales
are paid for through credit card.
9.6.5 CASH AND CASH EQUIVALENTS
This balance sheet item accounts for all cash owned at that time, which is derived from the cash
flow statement (explained in detail in the next section).
9.6.6 ISSUED SHARE CAPITAL
This capital provides a record of the initial shareholder’s equity, which was issued as paid-in capital.
It stays at €3,500,000, as per the initial equity fundraising.
9.6.7 OTHER RESERVES
That is the accumulated profit or loss, after taxes, year on year – derived from the profit and loss
statement. As financial years go by, these reserves accumulate, and in case of profitability, the
whole level of shareholder’s equity is raised – which proves attractive from the investor’s point of
view.
9.6.8 INTEREST- BEARING L ONG-TERM B ORROWINGS
This item on the balance sheet accounts for the outstanding portion of those loans that SofiAir has
yet to pay back. The only loan that SofiAir will receive would be the initial investors’ loan, that will
be due in 7 years, as per section 9.2: Financial Sources.

Business Plan
2012 – 2017
9.6.9 CURRENT PORTION OF LONG-TERM BORROWINGS
This item takes the short-term part of the previous long-term borrowing, which is the portion due in
less than 1 year. Since the term loan is to be repaid within 7 years, the current portion of this loan
would be one seventh of the total outstanding amount.
9.6.10 ACCOUNT P AYABLES
Payables accounts for that invoiced amount of money owed to other parties (such as fuel providers,
handling agents, and so on), but the outflow has not yet happened, and so it still represents a
liability for SofiAir. As set out at the beginning of this section, it is assumed that after 30 days (1
month), payables become cash outflows.
9.6.11 ACCRUED L IABILITIES
This item refers to all that revenue from air tickets that the company has sold and earned, but
where the flight has not yet occurred. This is based on the accrual concept, whereby all the
earnings in advance of the actual service are not counted as invoiced revenue, until it has been
flown. As per the financial assumptions at the beginning of this section, these accrued liabilities
account for 87 days of the total year’s revenue; which is 3 months.
9.6.12 SHORT-TERM PROVISIONS
Short-term provisions regard the part treated as reserve and as a liability, which can be used for
unexpected events such as accidents, or legal compensation for any lawsuit that may occur.
9.7 CASH FLOW

The cash flow statement explains all the cash inflows and outflows of the company, within a specific
period of time – in SofiAir’s case, using the financial years as timeframe. At the end of the cash flow
statement, the cash balance can be found; and this described the cash status at the end of the
period. In case of negative cash status, more finance funding should sought, in order to be able to
meet all the company’s obligations.

Business Plan
2012 – 2017

Cash Flow Statement
€thousands Notes 2012 2013 2014 2015 2016 2017
Cash flow from operating activities
Operating profit/(loss) 7.1 (936) (1,331) 2,149 (1,670) 1,814 5,324
Operating cash flow before working capital changes (936) (1,331) 2,149 (1,670) 1,814 5,324
Decrease (increase) in trade receivables or inventories 7.2 (2,189) - (402) (1,093) (401) (580)
Increase (decrease) in trade payables and provisions 7.2 6,529 2,791 3,009 2,442 1,671 (600)
Cash generated from operations 3,403 1,460 4,756 (320) 3,083 4,145
Interest paid 7.3 - (338) (303) (303) (303) (303)
Taxation 7.4 - - (212) - (181) (535)
Net cash generated from operating activities 3,403 1,122 4,241 (624) 2,599 3,306
Cash flow from investing activities
Purchase of property, plant and equipment (50) - (20) - (20) -
Purchase of intangible assets (100) - - - - -
Interest received 40 136 274 336 303 333
Net change in other non-current assets - 30 30 34 34 38
Net cash used in investing activities 7.5 (110) 166 284 370 317 371
Cash flow from financing activities
Repayments of borrowings 7.6 - (1,400) (1,400) (1,400) (1,400) (1,400)
Proceeds from long-term borrowings 7.7 - 7,000 - - - -
Net cash flow from financing activities - 5,600 (1,400) (1,400) (1,400) (1,400)
Net (decrease)/increase in cash and cash equivalents 3,293 6,887 3,125 (1,653) 1,516 2,278
Cash and cash equivalents at 1st jan 3,500 6,793 13,681 16,805 15,152 16,667
Cash and cash equivalents at the period end 6,793 13,681 16,805 15,152 16,667 18,945
The following items are detailed on the cash flow statement:
9.7.1 OPERATING PROFIT/LOSS
This figure comes straight from the operating results of the profit and loss statement, although
includes neither financial costs, incomes, nor taxes.
9.7.2 CHANGES ON WORKING CAPITAL
Here, all changes in the working capital must be accounted for. This means that if any figure in
current assets (such as receivables or inventories), or current liabilities (such as payables or
provisions) suffers any change between different financial years, it must be reflected in this cash
flow item – as not all invoiced earnings and invoiced costs from the operating profit or loss have an
actual cash inflow or outflow movement.
9.7.3 INTEREST PAID
This accounts for all the financial costs paid to financial institutions. In our particular case, these
costs are paid to the investors, due SofiAir’s financing arrangement.
9.7.4 TAXATION
In this item, corporate taxation would be reflected as an outflow.
9.7.5 CASH USED IN OTHER INVESTING ACTIVITIES
Within these items, all the cash flows used for investing activities must be taken into account. It
includes the purchase of assets such as office and IT-related material, but also the interest received
from bank deposits.

Business Plan
2012 – 2017
9.7.6 REPAYMENT OF BORROWINGS
All the cash outflows that have been used to pay back loans must be recorded in this item in the
cash flow balance.
9.7.7 PROCEEDS FROM LONG-TERM BORROWINGS
This item accounts for the loan disbursement at the beginning of 2013.
9.8 EU START-UP REQUIREMENTS

The European Commission, as stated in the Regulation section of this report, has established a
number of mandatory procedures for start-up airlines, especially on the financial side.
It has been demonstrated, though, that SofiAir would definitively meet the minimum requirements
laid out by the EU, with these summed up in Table 9.10, below:
Requirement Minimum SofiAir

Balance Sheet 3 years 5 years
Profit and Loss Statement 3 years 5 years
Documents
Cash flow 3 years 5 yeras

Cost structure 3 years 5 years
Revenue structure and sources 3 years 5 years
Expected funding sources - Done
Start-Up cost structure - Done
Shareholders' detailed list - To be determined
Meeting any obligations 24 months At least 5 years

Req.
Costs able to meet, without any income 3 months 5 months

TABLE 9.10: EU START-UP REQUIREMENTS ( OMPILED BY THE AUTHOR)
The only document that could not currently be provided is the detailed shareholder’s list, which
would include the name of the shareholder, their nationality, and percentage of the equity held – in
order to meet at least the minimum nationality requirements set by the EU.
9.9 SENSITIVITY ANALYSIS AND RISK ASSESSMENT

9.9.1 WORST CASE SCENARIO
Since there are a number of variables that we, as SofiAir, are unable to control, and which could
dramatically impact profitability, a worst case scenario has been set up.
There are 3 main variables that have been modified from the original, or best case scenario:
- Increase in fuel price: Even though the estimate for fuel price was accurate, and alreadt on
the pessimistic side, a 1% increase year on year has been applied for each financial year.

Business Plan
2012 – 2017
- Dollar strengthens: Since the currency market is highly volatile and peak-based, a 1%
increase on the USD/EUR exchange has been applied to all our dollar-based costs, which
include fuel and aircraft lease.
- Downturn in revenue: Although a highly accurate market analysis and forecast has been
undertaken, a decline in demand may still occur. Therefore, a 4% decrease for each year
has been applied to all traffic revenue.
Using these previous 3 assumptions that define the worst case scenario, it was calculated that the
airline would still be profitable in 2014 and 2017, with very low losses in 2016; and so our operations
would be severely affected, but remain profitable in some years (see Appendix 7 for the balance
sheet, profit and loss account, and cash flow statement for the worst case scenario). In terms of
cash flow, liquidity would remain at proper levels, since good funding would be achieved at start-up.
Nevertheless, the total equity would turn negative from year 2015 on, which leads to two solutions:
- Changing the company’s strategy: Since there is a substantial change in 2015, in terms of
fleet, the leasing of new aircraft could be postponed, until future prosperity. Another
strategic solution could be acquiring a different aircraft type, which would suit both the
costs of that time, and our network development strategy.
- Recapitalising the company: Given that total equity would go negative, SofiAir should be
recapitalised, in order to obtain new capital, and so resume normal operations.
9.9.2 CURRENCY EXPOSURE
SofiAir is increasingly exposed to currency fluctuations, in common with other businesses

throughout the air transport industry. Our dollar-based costs may rise to form up to 50% of our
total cost structure, which means that a swift strengthening of the dollar would lead to a sudden
increase in our expenses. As per Figure 9.1, below, it is quite clear that the USD/EUR exchange rate
has recently been flattening to stable levels. Nevertheless, specific peaks in this currency may
eventually occur, and SofiAir must ensure that any change can be predicted, and taken into
consideration, for financial analysis.

Business Plan
2012 – 2017
1.6
1.4
y = -0.134ln(x) + 1.3336
R² = 0.8435
1.2
0.8
0.6
0.4
0.2
USD/EUR
0
2005…
2005…
2005…
2007…
2007…
2002…
2002…
2004…
2008…
2004…
2008…
2008…
2001…
2001…
2010…
2010…
2010…
2003…
2003…
2003…
2006…
2006…
2009…
2009…
FIGURE 9.1: USD/EUR EXCHANGE RATES, HISTORICAL DATA (SOURCE : OANDA)
One of the possible solutions to the risks of currency fluctuations could be the use of foreign
exchange hedging; so buying foreign exchange (in our case, US dollars) in order to keep the
exchange rate flat for a certain period of time. This would avoid unexpected rises in our US dollar
operating costs.
9.9.3 FUEL PRICE FLUCTUATION
Calculating a fuel price forecast can is a difficult and unpredictable job. As fuel accounts for more
than 30% of SofiAir’s total costs, an accurate forecast is an imperative. The US Energy Information
Administration65 provides us with a fuel forecast for the next 25 years, based on historical data, and
setting 3 different scenarios (see Figure 9.2).
The graph shows that, as a reference, the fuel price will keep growing. So, the reference line has
been used for our best case scenario (rated to the 2011 US dollar).
In order to be able to withstand possible unexpected rises in fuel prices, fuel hedging should be used
– being a feasible option to maintain steady fuel prices for a period of time, and therefore avoid
large additional expenses regarding fuel costs. Nevertheless, fuel hedging has not been taken into
account for this report.
65
www.eia.doe.gov

Business Plan
2012 – 2017
2007 dollars per barrel World oil prices in three Oil Price cases, 1990-2035
250
High Oil Price $210

200
150
Reference
100 $133
50
Low Oil Price $51
0
1990 2000 2010 2025 2035
FIGURE 9.2: FUEL FORECAST WITH DIFFERENT SCENARIOS (SOURCE: EIA )
9.9.4 SENSITIVITY ANALYSIS
A sensitivity analysis must be carried out in order to see the impact, on SofiAir’s profitability, of
changes in four key factors. Table 9.11, below, shows how downturns in different items (such as
fuel price and currency exchange) would affect our overall profitability, year on year:
€thousands 2013 2014 2015 2016 2017
Net Results - 1,495 1,924 - 1,615 1,656 4,847
1% variation in fuel price

Net Results -5% 4% -9% 10% 3%
1% variation in USD/EUR exchange

Net Results -10% 9% -16% 20% 7%
1% variation in lease rates

Net Results -3% 2% -5% 5% 2%
1% variation in revenue
Net Results -12% 13% -18% 27% 9%
TABLE 9.11: SENSITIVITY BREAKDOWN (COMPILED BY THE AUTHOR)
As per the table above, it is visible that a downturn in our revenue would be the case whereby
profitability would be most affected. Of second highest importance is currency exchange, where a
variation of only 1%, in the Dollar against the Euro, could involve a 21% decrease in our profits for
2016. This is mainly because all of the company’s greatest costs (so, fuel and leases) are set in US
dollars, and just a small variation could have large consequences. The positive side is that a fuel
surcharge could cope with the eventual fuel price growth, and so the effect of this would be more
limited on the SofiAir accounts.

Business Plan
2012 – 2017
9.10 FINANCIAL PERFORMANCE AND INVESTORS’ INFORMATION

The financial performance of the company proves quite strong during the first 5 years of operation.
SofiAir would, not only, show good financial conditions, but also a good day-to-day performance,
which would make the airline financially successful.
9.10.1 FINANCIAL PERFORMANCE
In Table 9.12, below, some of the most important financial ratios have been derived, from the 3
main financial statements shown before:
2013 2014 2015 2016 2017

Performance Ratios
Operating ratio 95% 108% 96% 104% 111%
Operating margin -5% 7% -4% 4% 10%
Net profit margin -6% 6% -4% 3% 9%
Return On Invested Capital (ROIC) -29% 37% -60% 61% 69%

Return On Equity (RoE) -143% 64% -122% 55% 62%
Asset turnover 157% 153% 224% 226% 228%
Risk or Solvency Ratios
Interest cover -4 7 -6 6 18
Debt/Equity ratio 3.9 0.9 1.0 0.0 0.0
Liquidity Ratios
Current ratio 1.48 1.41 1.16 1.16 1.49
Quick ratio 1.28 1.22 0.94 0.93 1.20
TABLE 9.12: SOFIA IR’S FINANCIAL PERFORMANCE (COMPILED BY THE AUTHOR)
From the ratios above, some conclusions can be drawn:
- SofiAir only operates on losses in 2013 and 2015, but in the other years it keeps a good
operating margin.
- The airline has a good ability in terms of returning value to investors, or to equity, at quite
high levels; except for those years with losses when there is no return at all.
- The airline has a very good capability to make the assets work and generate money, since
asset turnover is always greater than 100%.
- As far as debt concerns, SofiAir keeps a reasonable debt/equity ratio when the long-term
loan is still being repaid. In the year2016, this loan only has a residual value on the short-
term borrowings, and so from then on SofiAir sees no long-term debts.
- The current and quick ratios show that the airline preserves very high liquidity levels, which
is always a positive sign in terms of being able to meet any forthcoming obligations.

Business Plan
2012 – 2017
9.10.2 ROUTE EFFICIENCY
To see where profits or losses are made, an individual route profitability analysis has been
undertaken. With these data, it is easy to identify which routes contribute in the greatest way to
the company’s profits or losses, and so decisions can be taken with much more precision.
On the following two tables (Tables 9.13 and 9.14), the individual revenues and costs for each route
have been derived from the total figures for 2013 and 2017. Additionally, total yearly ASK’s have
been calculated for each route, so revenue per ASK (RASK) and cost per ASK (CASK) can be derived
as well. Finally, a profitability index has been created, which indicates how many Euros the airline
earns, for each euro it spends on that route. Therefore, for those routes with a profitability index
lower than 1, that route is loss-making. On the other hand, those routes with a profitability index
greater than 1 are profitable.
2013 SO F -A M S SO F -G V A SO F -BER SO F -BLQ SO F -A TH SO F -O TP SO F -BEG SO F -TIA SO F -BO J SO F -IST
Re ve n u e - 4,250,439 2,479,829 3,380,507 3,685,305 3,311,747 1,070,490 1,067,850 1,297,674 4,486,976

DO C - 2,214,850 2,076,332 1,735,363 1,243,356 966,190 292,253 217,611 1,043,955 1,187,524
IO C - 1,970,789 1,349,141 1,975,202 2,845,533 1,697,382 733,658 635,612 1,324,780 2,852,545
P ro fit - 64,800 - 945,643 - 330,057 - 403,584 648,175 44,579 214,627 - 1,071,061 446,907
A SK - 72,970,800 66,736,600 50,997,800 35,594,800 20,215,160 6,581,680 4,849,911 22,632,920 32,774,080
RA SK - 0.058 0.037 0.066 0.104 0.164 0.163 0.220 0.057 0.137
C A SK - 0.057 0.051 0.073 0.115 0.132 0.156 0.176 0.105 0.123
P ro fitab ility - 1.02 0.72 0.91 0.90 1.24 1.04 1.25 0.55 1.11
TABLE 9.13: ROUTE PROFITABILITY FOR 2013 NETWORK (COMPILED BY THE AUTHOR)
2017 SOF-AMS SOF-GVA SOF-BER SOF-BLQ SOF-ATH SOF-OTP SOF-BEG SOF-TIA SOF-BOJ SOF-IST
Revenue 10,069,146 5,224,579 5,041,268 4,196,314 8,174,694 6,970,409 1,496,214 1,295,644 3,018,182 8,465,403
DOC 5,510,687 2,781,051 2,617,508 2,214,939 4,133,163 1,472,865 439,944 328,094 1,564,680 2,950,435
IOC 3,430,636 1,915,162 2,160,132 1,955,532 5,021,514 2,839,031 811,159 608,356 2,443,464 4,292,893
Profit 1,127,822 528,366 263,629 25,843 - 979,983 2,658,513 245,111 359,193 - 989,963 1,222,075
ASK 153,826,600 72,970,800 66,736,600 50,997,800 81,249,000 20,215,160 6,581,680 4,849,911 22,632,920 52,367,280
RASK 0.065 0.072 0.076 0.082 0.101 0.345 0.227 0.267 0.133 0.162
CASK 0.058 0.064 0.072 0.082 0.113 0.213 0.190 0.193 0.177 0.138
Profitability 1.13 1.11 1.06 1.01 0.89 1.62 1.20 1.38 0.75 1.17
TABLE 9.14: ROUTE PROFITABILITY FOR 2017 NETWORK (COMPILED BY THE AUTHOR)
The following graph, Figure 9.3, shows how SofiAir has been able to transform routes, to bring
higher profitability. It is evident that in 2017 there are more routes showing an index of greater than
1 than in 2013, which means that efficiency improves as time passes.

Business Plan
2012 – 2017
1.70
2013 Route Profitability
1.50
2017 Route Profitability
1.30
1.10
0.90
0.70
0.50
0.30
FIGURE 9.3: ROUTE PROFITABILITY EVOLUTION (COMPILED BY THE AUTHOR )
9.10.3 INVESTORS’ INFORMATION
As seen throughout this section, SofiAir would prove a very good option to invest in. Not only is the
company able to maintain financial fitness throughout all financial years, but also shows the ability
to make normal profits in a very competitive and cost-intensive market.
80%
60%
40%
20%
0%
-20% 2013 2014 2015 2016 2017
-40%
-60%
-80%
FIGURE 9.4: RETURN ON INVESTED CAPITAL (ROIC) (COMPILED BY THE AUTHOR )
Except for the first and third years of operation, SofiAir is capable of maintaining a relatively high
level of return on investment. Apart from this return on investment through equity, it must be
added that the profits that the company offering the loan would receive through periodic payments
would include interest, as explained before. Furthermore, this long-term loan would be due after 5
years, which means that on year five it would have been completely repaid, and a good
accumulated return on invested capital would have been achieved.

Business Plan
2012 – 2017
Therefore, year five could prove to be the best year, in terms of presenting an exit point for SofiAir’s
initial investors; transferring its part of the equity (100%) to a third party. Another exit point could
be at the end of 2014, the year the company produces its first profit, and just prior to the expansion
of the airline, which might be seen by some as a risk.
In terms of searching for a subsequent investor, there would be 3 different ways to find a new
investor, in order to acquire 100% of the equity:
- IPO: An Initial Public Offering could be set up, to find new shareholders for 100% of the
equity. These shares would be put in the public market, and the price should be such that
all the shares will be sold. Then, an estimate could be provided to the previous investors, to
confirm the actual profitability of the whole venture.
- Private investment: A private investor could come forward, and be able to acquire 100% of
the equity. Private investors could include another venture capital firm, a private
investment company, or indeed any interested company.
- Merger & acquisition: Since the airline would have a profitable operation, with a solid
network and most probably a strong customer demand, it is likely to prove highly attractive
to other airlines, who could be interested in acquiring or merging SofiAir with their own
operations. That would allow the other airline to remove a competitor, and also to increase
both its fleet and company size.
9.11 MILESTONES
Financial Maintenance
Regulatory Asset HR
Requirements Contracts
Approval Acquisition Requirements
Reached Signed
•Air Operators •Regiser A/C •Recruitment

Certificate •Airworthiness •Training
•Airport Slots Certificate
Launch of Break-even
Expand Fleet Profitability
Operation Point
•January 2013

Business Plan
2012 – 2017

Business Plan
2012 – 2017
APPENDIX 1: MARKETS AND FORECAST

SOF-TIA
Model Summary
Std. Error of the

Model R R Square Adjusted R Square Estimate
a
1 .966 .934 .924 378.475
a. Predictors: (Constant), log_gdp_bul
b
ANOVA
Model Sum of Squares df Mean Square F Sig.

a
1 Regression 1.410E7 1 1.410E7 98.465 .000
Residual 1002705.051 7 143243.579
Total 1.511E7 8
b. Dependent Variable: pax

a
Coefficients
Standardized
Unstandardized Coefficients Coefficients
Model B Std. Error Beta t Sig.
1 (Constant) -45923.373 4919.189 -9.336 .000
log_gdp_bul 10370.068 1045.057 .966 9.923 .000
a. Dependent Variable: pax
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Actual Fits

Business Plan
2012 – 2017
SOF-AMS
Model Summary
Adjusted R Std. Error of the

Model R R Square Square Estimate
a
1 .956 .914 .903 .02570
b
ANOVA

a
1 Regression .056 1 .056 85.101 .000
Residual .005 8 .001
Total .061 9
b. Dependent Variable: log_pax
a
Coefficients
Standardized
1 (Constant) 1.616 .305 5.295 .001
log_gdp_bul .596 .065 .956 9.225 .000
a. Dependent Variable: log_pax
60,000
50,000
40,000
30,000
20,000
10,000
0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Actual Fits

Business Plan
2012 – 2017
SOF-BER
Model Summary

a
1 .937 .877 .842 2608.920
a. Predictors: (Constant), log_gdp_bul, crisis
b
ANOVA

a
1 Regression 3.408E8 2 1.704E8 25.032 .001
Residual 4.765E7 7 6806462.464
Total 3.884E8 9
a
Coefficients
Standardized
1 (Constant) -271001.578 41837.069 -6.478 .000
crisis -8921.671 2460.716 -.656 -3.626 .008
log_gdp_bul 61993.496 8962.397 1.252 6.917 .000
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Actual Fits

Business Plan
2012 – 2017
SOF-GVA
Model Summary

a
1 .946 .896 .883 1765.970
b
ANOVA

a
1 Regression 2.142E8 1 2.142E8 68.683 .000
Residual 2.495E7 8 3118649.690
Total 2.391E8 9
a
Coefficients
Standardized
1 (Constant) -146412.734 20970.128 -6.982 .000
log_gdp_bul 36784.088 4438.501 .946 8.288 .000
20,000
18,000
16,000
14,000
12,000
10,000
8,000
6,000
4,000
2,000
0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Actual Fits

Business Plan
2012 – 2017
SOF-BLQ
Model Summary

a
1 .888 .789 .763 1439.882
b
ANOVA

a
1 Regression 6.205E7 1 6.205E7 29.929 .001
Residual 1.659E7 8 2073261.022
Total 7.864E7 9
a
Coefficients
Standardized
1 (Constant) -81374.502 17097.979 -4.759 .001
log_gdp_bul 19798.128 3618.929 .888 5.471 .001
20,000
18,000
16,000
14,000
12,000
10,000
8,000
6,000
4,000
2,000
0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Actual Fits

Business Plan
2012 – 2017
SOF-ATH
Model Summary

a
1 .945 .894 .863 7107.587
a. Predictors: (Constant), gdp_gre, crisis
b
ANOVA

a
1 Regression 2.971E9 2 1.486E9 29.406 .000
Residual 3.536E8 7 5.052E7
Total 3.325E9 9
a. Predictors: (Constant), gdp_gre, crisis
a
Coefficients
Standardized
1 (Constant) -119605.834 23658.083 -5.056 .001
crisis -22402.028 6807.105 -.602 -3.291 .013
gdp_gre .872 .123 1.298 7.100 .000
120,000
100,000
80,000
60,000
40,000
20,000
0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Actual Fits

Business Plan
2012 – 2017
SOF-OTP
Model Summary

a
1 .954 .909 .884 .04850
b
ANOVA

a
1 Regression .165 2 .083 35.137 .000
Residual .016 7 .002
Total .182 9
b. Dependent Variable: log_pax
a
Coefficients
Standardized
1 (Constant) -1.212 .689 -1.758 .122
crisis -.094 .046 -.279 -2.030 .082
log_gdp_bul 1.158 .147 1.081 7.878 .000
a. Dependent Variable: log_pax
50,000
45,000
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Actual Fits

Business Plan
2012 – 2017
SOF-IST
Model Summary

a
1 .943 .890 .876 2527.489
a. Predictors: (Constant), log_disp_bul
b
ANOVA

a
1 Regression 4.115E8 1 4.115E8 64.414 .000
Residual 5.111E7 8 6388199.813
Total 4.626E8 9
a. Predictors: (Constant), log_disp_bul
a
Coefficients
Standardized
1 (Constant) -245638.114 34024.909 -7.219 .000
log_disp_bul 61681.912 7685.449 .943 8.026 .000
80,000
70,000
60,000
50,000
40,000
30,000
20,000
10,000
0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Actual Fits

Business Plan
2012 – 2017
SOF-BOJ
Model Summary

a
1 .634 .401 .327 15534.344
a. Predictors: (Constant), gdp_bul
b
ANOVA

a
1 Regression 1.294E9 1 1.294E9 5.364 .049
Residual 1.931E9 8 2.413E8
Total 3.225E9 9
a. Predictors: (Constant), gdp_bul
a
Coefficients
Standardized
1 (Constant) -29878.522 18662.232 -1.601 .148
gdp_bul .758 .327 .634 2.316 .049
70,000
60,000
50,000
40,000
30,000
20,000
10,000
0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
-10,000
Actual Fits

Business Plan
2012 – 2017
SOF-BEG
Model Summary

a
1 .993 .986 .985 96.500
a. Predictors: (Constant), gdp_gre
b
ANOVA

a
1 Regression 5403486.312 1 5403486.312 580.258 .000
Residual 74497.688 8 9312.211
Total 5477984.000 9
a. Predictors: (Constant), gdp_gre
a
Coefficients
Standardized
1 (Constant) 1386.534 86.505 16.028 .000
gdp_gre .001 .000 .993 24.089 .000
9,000
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Actual Fits

Business Plan
2012 – 2017
APPENDIX 1.2: CONNECTING TRAFFIC DEMAND ANALYSIS, NORTH AMERICA
SOF-BOS: 4,912
SOF-AMS-BOS: 673 (14%)
SOF-LAX: 3,200
SOF-AMS-LAX: 142 (4%)
SOF-LAX: 3,200
SOF-AMS-LAX: 142 (4%)

Business Plan
2012 – 2017
APPENDIX 1.3: CONNECTING TRAFFIC DEMAND ANALYSIS, ASIA-PACIFIC
SOF-PVG: 7,319
SOF-IST-PVG: 216 (3%)
SOF-PEK: 6,864
SOF-IST-PEK: 203 (3%)
SOF-NRT: 4,286
SOF-IST-NRT: 16 (0%)
SOF-ICN: 2,042
SOF-IST-ICN: 21 (1%)

Business Plan
2012 – 2017
APPENDIX 2: FLEET SELECTION
Sofia (SOF) to: Distance (nm)
Berlin (BER) 729
Geneva (GVA) 794
Bologna (BLQ) 569
Amsterdam (AMS) 969
Burgas (BOJ) 203
Athens (ATH) 303
Istanbul (IST) 275
Belgrade (BEG) 193
Tirana (TIA) 188
Bucharest (OTP) 164

Business Plan
2012 – 2017

Business Plan
2012 – 2017

Business Plan
2012 – 2017

Business Plan
2012 – 2017
Airport Max ISA Runway WAT T/O TOFL WAT LDG LFL
Dev Length (m)
Sofia 16 3,600 MTOW MTOW MLW MLW
Burgas 15 3,200 MTOW MTOW MLW MLW
Athens 19 4,000 MTOW MTOW MLW MLW
Istanbul 14 3,000 MTOW MTOW MLW MLW
Bucharest 16 3,500 MTOW MTOW MLW MLW
Belgrade 14 3,400 MTOW MTOW MLW MLW
Tirana 14 2,750 MTOW MTOW MLW MLW
Berlin 8 3,000 MTOW MTOW MLW MLW
Geneva 13 3,900 MTOW MTOW MLW MLW
Bologna 15 2,803 MTOW MTOW MLW MLW
Amsterdam 7 3,500 MTOW MTOW MLW MLW
2013 2014 2015 2016 2017
Berlin EMB170 EMB170 EMB170 EMB170 EMB170
Geneva EMB170 EMB170 EMB170 EMB170 EMB170
Bologna EMB170 EMB170 EMB170 EMB170 EMB170
Amsterdam - - EMB170 EMB170 EMB170
Burgas ATR42 ATR42 ATR42 ATR42 ATR42
Athens ATR42 ATR42 EMB170 EMB170 EMB170
Istanbul ATR42 ATR42 EMB170 EMB170 EMB170
Bucharest ATR42 ATR42 ATR42 ATR42 ATR42
Belgrade ATR42 ATR42 ATR42 ATR42 ATR42
Tirana ATR42 ATR42 ATR42 ATR42 ATR42

Business Plan
2012 – 2017
APPENDIX 3: MARKETING
Sofiair on Facebook:
Marketing Costs:
2008 Fly Be BA EasyJet Bmi group Virgin Jet2
Atlantic
Sales 48,820,000 7,649,000 1,759,000 83,000
Reservation 4,201,000 19,878,000 32,726,000 2,579,000
Advert & 11,412,000 39,963,000 45,065,000 6,222,000
Promotion 189,964,000
Commission 7,945,000 255,818,000 34,270,000 49,697,000
TOTAL 23,558,000 494,602,000 46,471,000 101,760,000 129,247,000 8,884,000
Number of PAX 6,854,491 31,620,390 37,569,379 4,880,000 5,719,497 3,454,578
Cost/PAX GBP 3.44 15.64 1.24 20.85 22.60 2.57

Cost/PAX EUR 3.94 17.92 1.42 23.90 25.90 2.95

Business Plan
2012 – 2017
Big Mac Index USD

Hungary=Bulgaria 2.92
Euro Area 4.38
Ratio 1.50
3.94 EUR Equals 2.63
Bulgaria EUR
SOF- SOF- SOF- SOF- SOF- SOF- SOF- SOF- SOF- SOF-
AMS BER BLQ GVA ATH OTP BEG IST TIA BOJ
SofiPlus 1 350 300 200 350 250 250 250 220 250 200
2 220 250 150 220 160 155 160 170 170 135
3 180 190 135 175 145 145 120 140 130 100
SofiLight 1 150 159 119 149 119 119 119 109 129 95
2 139 129 109 139 89 109 109 99 109 79
3 119 99 89 119 69 99 89 79 89 59
4 99 79 69 99 49 89 69 69 79 39
5 89 69 59 89 39 79 49 59 69 29
6 79 59 49 69 29 69 39 39 59 19
7 59 49 39 59 16 49 29 19 49 9

Business Plan
2012 – 2017

Business Plan
2012 – 2017
APPENDIX 4: OPERATIONS
APPENDIX 4.1: R OTATION SCHEDULE (YEARS 1 & 2)

Business Plan
2012 – 2017
APPENDIX 4.2: ROTATION SCHEDULE (YEARS 3 & 4)

Business Plan
2012 – 2017
APPENDIX 4.3: R OTATION SCHEDULE (YEAR 5)

Business Plan
2012 – 2017
APPENDIX 4.4: CREW SCHEDULE

Business Plan
2012 – 2017
APPENDIX 4.5: L UFTHANSA TECHNIK SOFIA & BALKAN AVIATION GROUP

Business Plan
2012 – 2017
APPENDIX 4.6: MAINTENANCE S CHEDULE

Business Plan
2012 – 2017
APPENDIX 4.7: E MBRAER 170 & ATR 42-500 MAINTENANCE COST DETAILS
(Source: Aircraft Commerce, Issue No.64, June/July 2009)

Business Plan
2012 – 2017
APPENDIX 5: HUMAN R ESOURCES

Hired employees in SOF 2012 2013 2014 2015 2016 2017
CEO 1 1 1 1 1 1
CCO 1 1 1 1 1 1
Revenue Management 2 2 2 3 3 3
Customer Service / Sales / Call Centre 1 2 2 2 2 2
Marketing Officer 1 2 2 2 2 2
Sales Manager Bulgaria 1 1 1 1 1 1
Sales Manager Europe 1 1 1 1 1 1
COO 1 1 1 1 1 1
Chief Pilots x 2 2 2 2 2
Captains x 12 12 15 15 16
First Officers x 12 12 15 15 16
Cabin Crew x 17 17 28 28 29
Crew Rostering / Scheduling Officer 1 1 1 1 1 1
Operations Control Officer x 3 3 3 3 3
Engineers / Technical Administration x 1 1 1 1 1
CFO 1 1 1 1 1 1
Financial Accountant 1 1 1 1 1 1
CHRO 1 1 1 1 1 1
Administration / CSR / Welfare 1 1 1 1 1 1
Recruitment / Training / Payroll 1 1 1 1 1 1
SUM 15 64 64 82 82 85
Sum of those being flight/cabin crew 0 43 43 60 60 63

Sum of those being non-flight/cabin crew 15 21 21 22 22 22
Outsourced employees around the network 2012 2013 2014 2015 2016 2017
Amount of Ground Handling service providers
for ground and flight services (one at each 0 9 9 10 10 10
station)
Amount of Ground Handling employees needed

per Station 0 5 5 5 5 5
IT budgeted via Marketing department

Marketing budgeted via Marketing department

Business Plan
2012 – 2017
Gross Salary in €/month 2012 2013 2014 2015 2016 2017

3600 3,600 3,698 3,809 3,924 4,042 4,163
1500 1,500 1,541 1,587 1,635 1,684 1,735

342 684 703 724 1,118 1,152 1,186
342 342 703 724 746 768 791
342 342 703 724 746 768 791
500 500 514 529 545 561 578
500 500 514 529 545 561 578
1500 1,500 1,541 1,587 1,635 1,684 1,735

3500 7,191 7,407 7,630 7,859 8,095
3400 41,914 43,171 55,590 57,258 63,462
1580 19,478 20,062 25,833 26,608 29,233
600 10,478 10,793 18,312 18,861 20,121
342 342 351 362 373 384 395
342 1,054 1,086 1,118 1,152 1,186
342 351 362 373 384 395
1500 1,500 1,541 1,587 1,635 1,684 1,735

342 342 351 362 373 384 395
1500 1,500 1,541 1,587 1,635 1,684 1,735

342 342 351 362 373 384 395
342 342 351 362 373 384 395
342 € is the average gross wage in Bulgaria according to the Bulgarian National Statistical Institute)
Salaries per month

13,336 94,869 97,715 124,511 128,246 139,101
Salaries per year

40,008 1,138,429 1,172,582 1,494,128 1,538,952 1,669,206
(3 months only)
Gross Salary in €/month 2012 2013 2014 2015 2016 2017

0 45 45 50 50 50
680 0 31,455 32,400 37,050 38,150 39,300
(680 € / month assumed average per employee over the network)
Cost per month

0 31,455 32,400 37,050 38,150 39,300
Cost per year

0 377,460 388,800 444,600 457,800 471,600

2012 – 2017
Business Plan
Timelines for EU ETS
Regulator European Commission to Regulator

Planned start of approves calculate new benchmark publishes final
operations Monitoring & used to allocate allocations to
Reporting Plans allowances and number each operator
of allowances to be
A fresher way to fly the Balkans

allocated free of charge
First Monitoring year

APPENDIX 6: ENVIRONMENT
– Airline monitors RTKs First Reporting year
2012 2013 2014 2015 2016
1st ASAP 31st 30th 30th 31st 28th 31st 31st 31st
Jan March June Sep Dec Feb March Dec March
Initial Monitoring & Airline to submit verified Regulator submits Regulator Airline to file
Reporting Plans RTK data to Regulator to applications to issues free report of
submitted to Regulator apply for free allowances Commission to allowances emissions to
for approval calculate benchmark Regulator
Airline to submit 2011 Airline to complete emissions

verified emissions data report, verified by external verifier
138
Business Plan
2012 – 2017
APPENDIX 7: FINANCE
(Balance status on the December 31st of each year)

Balance Sheet
€thousands 2012 2013 2014 2015 2016 2017
Non-current assets
Property, plant and equipment:
Fleet 0 0 0 0 0 0
Property 0 0 0 0 0 0
Equipment 50 40 50 36 42 24
Intangibles 100 80 60 40 20 0
Total non-current assets 150 120 110 76 62 24
Current assets and receivables
Inventories 132 132 144 199 211 231
Trade receivables 1,993 1,993 2,370 3,374 3,751 4,293
Cash and cash equivalents 6,676 12,520 14,469 10,989 10,605 11,195
Total current assets and receivables 8,800 14,645 16,982 14,562 14,568 15,718
Total assets 8,950 14,765 17,092 14,638 14,630 15,742
Shareholders' equity
Issued share capital 3,500 3,500 3,500 3,500 3,500 3,500
Other reserves (900) (3,457) (2,647) (6,124) (6,353) (3,641)
Total equity 2,600 43 853 (2,624) (2,853) (141)
Non-current liabilities
Interest-bearing long-term borrowings 0 4,200 2,800 1,400 0 0
Total non-current liabilities 0 4,200 2,800 1,400 0 0
Current liabilities
Current portion of long-term borrowings 0 1,400 1,400 1,400 1,400 0
Account payables 470 2,186 2,292 3,659 3,763 4,037
Accrued liabilities 5,580 6,636 9,447 10,504 12,019 11,545
Short-term provisions 300 300 300 300 300 300
Total current liabilities 6,350 10,522 13,439 15,862 17,482 15,883
Total equity and liabilities 8,950 14,765 17,092 14,638 14,630 15,742

Cash Flow Statement
€thousands 2012 2013 2014 2015 2016 2017
Cash flow from operating activities
Operating profit/(loss) (940) (2,353) 953 (3,464) (145) 3,105
Operating cash flow before working capital changes (940) (2,353) 953 (3,464) (145) 3,105
Decrease (increase) in trade receivables or inventories (2,125) - (389) (1,060) (389) (561)
Increase (decrease) in trade payables and provisions 6,350 2,772 2,917 2,423 1,620 (200)
Cash generated from operations 3,286 419 3,481 (2,100) 1,086 2,344
Interest paid - (338) (303) (303) (303) (303)
Taxation - - (90) - - (301)
Net cash generated from operating activities 3,286 81 3,088 (2,403) 783 1,739
Cash flow from investing activities
Purchase of property, plant and equipment (50) - (20) - (20) -
Purchase of intangible assets (100) - - - - -
Interest received 40 134 250 289 220 212
Net change in other non-current assets - 30 30 34 34 38
Net cash used in investing activities (110) 164 260 323 234 250
Cash flow from financing activities
Repayments of borrowings - (1,400) (1,400) (1,400) (1,400) (1,400)
Net change in equity - 7,000 - - - -
Net cash flow from financing activities - 5,600 (1,400) (1,400) (1,400) (1,400)
Net (decrease)/increase in cash and cash equivalents 3,176 5,844 1,949 (3,480) (383) 589
Cash and cash equivalents at 1st jan 3,500 6,676 12,520 14,469 10,989 10,605
Cash and cash equivalents at the period end 6,676 12,520 14,469 10,989 10,605 11,195

Business Plan
2012 – 2017

Income Statement
€thousands Notes 2012 2013 2014 2015 2016 2017
Traffic revenue
Passenger - 18,811 22,652 32,374 36,017 41,407
Other revenue - 5,436 6,182 8,677 9,624 10,820
Total revenue - 24,247 28,833 41,051 45,640 52,227
Operating costs
Employee costs 40 1,540 1,585 1,964 2,022 2,160
Depreciation and amortisation - 30 30 34 34 38
Aircraft operating lease costs 351 4,212 4,589 7,826 7,826 7,826
Insurance cost - 1,027 1,027 1,267 1,267 1,267
Fuel and oil costs - 7,696 8,160 15,299 15,899 17,447
Engineering and other aircraft costs - 5,548 5,563 8,175 8,175 8,612
Landing fees and en-route charges - 3,467 3,581 5,391 5,553 6,107
Handling charges, catering and other operating costs - 1,782 2,058 2,742 3,014 3,375
Selling costs 401 1,236 1,225 1,345 1,523 1,757
Accommodation, ground equipment and IT costs 3 10 11 11 11 12
Other costs 145 51 51 462 462 522
Operating profit/(loss) (940) (2,353) 953 (3,464) (145) 3,105
Non-operating costs
Finance costs - 338 303 303 303 303
Finance income (40) (134) (250) (289) (220) (212)
Total costs 900 26,805 27,933 44,529 45,869 49,213
Profit/(loss) before tax (900) (2,558) 901 (3,478) (229) 3,014
Tax - - 90 - - 301
Profit/(loss) after tax (900) (2,558) 811 (3,478) (229) 2,712
Earnings/(loss) per share (pence)
Basic -73.1 23.2 -99.4 -6.5 77.5
Diluted -73.1 23.2 -99.4 -6.5 77.5

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A fresher way to fly the Balkans

Project Manager: Jelte Ronner

SofiAir, a fresher way to fly the Balkans

1 A fresher way to fly the Balkans

A fresher way to fly the Balkans 2

6.3 Safety Management ........................................................................................................ 76

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Table 9.2: Exchange rates (Source: oanda, 11/05/2011)................................................................... 89

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LIST OF AIRPORT CODES

- ATH : Athens, Greece

- BEG : Belgrade, Serbia

- BER : Berlin, Germany

- BLQ : Bologna, Italy

- BOJ : Bourgas, Bulgaria

- GVA : Geneva, Switzerland

- IST: Istanbul, Turkey

- OTP : Bucharest, Romania

- SOF : Sofia, Bulgaria

- TIA : Tirana, Albania

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1.1 THE ENVIRONMENT

FIGURE 1.1: THE LAYERS OF SOFIA IR’S BUSINESS ENVIRONMENT

1.1.1 THE MACRO-ENVIRONMENT

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1.1.2 THE AIRLINE INDUSTRY – FIVE FORCES ANALYSIS

1.1.2.1 POTENTIAL ENTRANTS

FIGURE 1.3: PORTER’S F IVE FORCES MODEL

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1.1.2.5 COMPETITIVE RIVALRY

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1.1.3 COMPETITOR ANALYSIS

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FIGURE 1.6: POSITIONING OF COMPETITORS, BASED ON STRATEGY

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1.2 STRATEGIC CAPABILITIES

Freedom to select optimal fleet New entrant, no brand value

Slim organisational structure Lack of choice of MRO supplier

No legacy costs (i.e. pension schemes, debt) No pre-existing rights to slots

As EU carrier, free to operate within ECAA

Relatively low labour costs

No current alternative to the train on regional routes Increasing fuel prices

TABLE 1.1: SWOT ANALYSIS

1.3 STRATEGIC PURPOSE

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1.3.3 CORE VALUES

In our operations safety is the number one priority; we accept no compromises.

1.3.3.2 OUR PEOPLE

1.3.3.3 FREEDOM OF CHOICE

SofiAir Core Values

FIGURE 1.7: SOFIAIR’S CORE VALUES

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- To fully comply with all relevant EU financial fitness regulations

- To be profitable over the full five year period

- To increase passenger numbers year-on-year