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HANSUNG AIRLINES - OVERVIEW

Strictly Private & Confidential. HANSUNG AIRLINES - OVERVIEW. CONTENTS. Summary The Core of Turnaround Highest Performance Attractiveness of Korean LCC Business Plan Appendix. Summary ▶ Brief History ▶ Players in Korean Airline Industry ▶ Hansung’s Opportunities

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HANSUNG AIRLINES - OVERVIEW

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  1. Strictly Private & Confidential HANSUNG AIRLINES - OVERVIEW

  2. CONTENTS • Summary • The Core of Turnaround • Highest Performance • Attractiveness of Korean LCC • Business Plan • Appendix

  3. Summary ▶ Brief History ▶ Players in Korean Airline Industry ▶ Hansung’s Opportunities ▶ Business Plan ▶ Schedule

  4. Brief History • May 2003 Corporation Established as 1st LCC in Korea • Mar. 2005 Acquisition of Non-scheduled Airlines Business License • Aug. 2005 Acquisition of Air Operator Certificate(A.O.C) • Introduction of 1st aircraft • Sep. 2006 CB investment worth U$ 1.5Million from Iwasaki Group, Japan • Oct. 2006 Introduction of 2nd aircraft • Nov. 2006 Employee Stock Ownership Policy Association Organized • July 2007 Introduction of 3rd & 4th aircraft • July 2008 Qualified for International Flight License • Oct 2008 Suspension of operation for the air route Currently, Hansung has 1) International Flight License 2) 3 ATR 72s(Operating Lease) 3) Experienced staff in Operating, Maintenance, Flight Control & Marketing 4) Good management competent in LCC marketing strategy 5) Excellent position to enjoy “Open Skies”

  5. Players in Korean Airline Industry FSC International LCC International Incheon TigerAirways Fleet Of LCCs B737-800 B737-500 Q400 B737-800 ATR72 A320 in Plan Fokker 100 B737-600 Fokker 100 * FSC: Full Service Carrier LCC: Low Cost Carrier

  6. Hansung’s Opportunities International Flight License • Hansung has already met MLTM’s guideline for international flight(2008.7.11). • International route is good chance to escape money-losing domestic flight. • - Japan will be the first international route: Osaka, Tokyo. Highest Performance • Competitive edge in cost, marketing strategy and safety over Korean players • - Experienced manpower in operation & maintenance • High Qualityof Service • Hansung is well positioned to enjoy Open Skies in North-East Asia • Korea is a big market for international flight. • LCC growth potential is also true in Korea. Attractiveness of Korean LCC

  7. Business Plan Short-Term Start of ICN-OSAKA route from August 2009 - 2 round flights/day Expansion to TOKYO on September 2009 (2 round flights/day) Expansion to OSAKA on November 2009 (4 round flights/day) Fleet Plan - Introduction A320(Planning 3 aircraft in 2009, 5 aircraft in 2010) - End of the year 2010: Expect tosecure 8 Aircraft of A320 International routes from 2009 will secure big profit to Hansung. Long-Term the best LCC in North-East Asia region

  8. Schedule 18 Oct. 2008 Stopped Operating 18 Dec. 2008 Suspension 9 Apr. 2009 Report to MLTM Re-operation 16 Jun. 2009 Re-operation Re-Operation Stopped Operating 6 months Suspension of Operation Fund in U$25million 8

  9. The Core ofTurnaround ▶ Qualification of International Operation Standards ▶ Growth and Profitability of International Routes Operation

  10. Qualification of International Operation Standards □ On July 11, 2008, Ministry of Land, Transport and Maritime affairs(MLTM) announced the standards for International operation of a new carrier. - More than 1 year, 10 thousand times of domestic flights without an accident The official notice from MLTM reads “ The current condition of Hansung Airlines has satisfied MLTM’s standards, and it is allowed to operate International flight” □ Any newly established carrier has to operate at least 1.5 years to meet above Standards. - To achieve 10 thousand times of flight, it must operate 4 aircrafts for 1 year continuity. →4 Aircraft x 8 Times/a day x 28days/Month x12month= 10,752 flights - When observe the CJU route, it’s not possible to get adequate operating frequency due to limitation of slot at Jeju Airport (Refer to APPENDIX 2) → It took at lest 1.5 ~2 years to satisfy the condition.

  11. Growth and Profitability of International Routes Operation □ Yield of international routes is much higher than those of domestic routes. [Airfare of Domestic vs. International Routes] ※ Airfare of Korean air [Compare with Domestic vs. International Routes] ※ [Sale per Seat] : For GMP-CJU, total sales of last 6 months were divided by total seats supplied. For ICN-Osaka, airfare 219,840 Korean Won and average load factor 72% is considered. ※ [Cost per Seat] : Total costs were divided by total seats supplied. □ By operating international routes, high profitability and growth are expected.

  12. Highest Performance ▶ Highest Performance among the Airlines in Korea ▶ Excellent Operation & Maintenance manpower ▶ 1st place in in-flight service satisfaction

  13. HighestPerformance among the Airlines in Korea □Hansung’s Competitive edge in cost, marketing strategy and safety over Korean players * Load Factor: GMP-CJU, Average of Jan~Sep year 2008 (Source: MLTM, KAC) ** Period: Year 2005~Year2007 □ Load Factor(Route ‘GMP-CJU’) “1st place in Load Factor” → HASNUNG AIRLINES →ASIANA →KOREAN AIR →JEJU AIR →YOUNG-NAM →JINAIR (SOURCE:KAC) JAN FEB MAR APR MAY JUNE JULY AUG SEP

  14. Excellent Operation(Crews) Manpower □Hansung has enough operation staff to operate 2 more jet aircraft ie. A320. Captain (20) Flight hour: More than10,000 hour • Every Captain has experience of • Jet Operation. • It requires 4sets per aircraft (Pilot: 4 + Co-pilot: 4) Co-pilot (22) Flight Hour: 0~3,000 Hour □ Distribution of operating hour (CO-PILOT) More than 2,000~3,000 4 people 6 people 1,000~2,000 12 people 0 ~1,000 ※ 3,000 Hours are required to be a captain.

  15. 0 5 10 15 20 25 30 Excellent Maintenance Manpower □ Hansung has experienced mechanics enough to operate 2 more jet aircraft. • About 48% of maintenance people has experience from KAL/OZ • Most of them has jet maintenance experience/qualification • 45 mechanic required for 4 ATR72 More than20 years Senior (24 people) Less than 20years Junior (26 people) □ATR-72 Rating □Senior Mechanics’ maintenance qualification Specialists (3) Senior 13people(55%) Junior 9people(35%) B747/DC10/A300 etc Qualified for Jet Aircraft 26 people(90%)

  16. 1st Place in In-Flight Service Satisfaction (Mae-il Economics) August 10, 2008, 18:15 PM “ Hansung airlines : 1st place in in-flight service satisfaction” ◆Mae-Kyung Research (C-NEWS) Market Report◆ C-NEWS and MBRAIN’s recent research on air transportation consumers who have used airlines within a year shows the following result: Hansung airlines has the highest record on in-flight service (3.93) and crew kindness(4.10) respectively.

  17. Attractiveness of Korean LCC ▶ Opportunities of “Open-Skies” ▶ Korea, big market for International flight ▶ Aviation Business Structure Change with LCC ▶ The High Growth Capability of KoreanLCC

  18. Opportunity of Open-Skies □ Hansung is well positioned to enjoy Open Skies in North-East Asia. - Hansung can start International Flight right now. - Korea can be hub in North-East Asia region. □ Korea has already signed the open skies agreement with USA, Japan and China. - Taiwan, Chile, Peru, Thailand, Vietnam, Malaysia, Myanmar, Cambodia, Philippines, Maldives, Ukraine, Azerbaijan, Kenya is already the counterpart of Korean Open Skies.

  19. Korea, big market for International flight □ Korea has 9th biggest international flight market in the world. (ICAO Annual Report 2007) • □ International Passenger market size is U$12.5 billion. • - KAL U$5.2bill, AAR U$2.1bill, Others U$5.2bil as of 2007

  20. Aviation Business Structure Change with LCC □ Due to the paradigm change of aviation market, LCC introduced to replace FSC. □ Hansung has exactly right business model regarding current change. PRESENT PAST Hansung? □ To maintain low cost strategy with high quality of service. (1st Place in satisfaction in-flight service) □ Direct Sale ◦ Internet Sales: More than 73% □ Minimize the manpower per Aircraft (60 person per Aircraft) □ Power of Lobby ◦ Secure the high-profit routes is most important □ Push Marketing ◦ Sales model: Indirect sale ◦ Target: Travel Agency □ Needs big sales team □ Price(Emphasis on BPR) & high quality of service ◦ Minimize costs ◦ Provide high quality of service □ Pull Marketing ◦ Sales model: Direct Sale ◦ Target: Passenger □ It possible to operate with small number of people 20

  21. High Growth Capability of Korean LCC □ In Korea, FSC market will be substituted by LCC as it was in U.S.A and Europe.. □ Because Asia region is early stage for LCC, we can expect high growth. 3% 5% 7% 20% 32% U.S.A EUROPE ASIA OCEANIA KOREA (Forecasting refers to Airbus source material) (Airbus, 2005) 21

  22. Business Plan ▶ Detailed Business Plan ▶ Why are we targeting Japan? ▶ Load factor for Japan route? 22

  23. Detailed Business Plan □ Domestic route will be re-operated as existing ATR-72 → From 2010 these will be switched by A320 □Introduce two A320 within the year 2009 - August 2009 : Operate in Japan (Osaka) - September 2009 : Operate in Japan (Tokyo) □ Future Operation plan 23

  24. Why are we targeting JAPAN? □ Key criteria to select International route → “Japan” is the first target for Hansung’s international flight. 24

  25. Load factor for Japan route □ Hansung will promote Low Airfare Strategy as LCC. □ Load factor for ICN/OSAKA will be approximately 85.1%. - Hansung’s low cost will acquire some market share of competitors and increase the demand itself for international flight.

  26. Appendix 1. Brief Company Profile ▶ Distribution of Shareholders ▶ Organization 26

  27. Distribution of shareholders 27

  28. Organization PRESIDENT Safety & Security VICE PRESIDENT Op.Dept Op.Control Maintenance Customer SVC Unit Business Management 28

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