Business Plan DossierAccompanying the Presentation of Tuesday 10th May 2005

Guoxian Cai ▪ Alexia Dogani ▪ George Georgiou ▪ Francis Ntongo Ekani ▪Mladen Grabovac ▪ Jesper Laursen ▪ James Lawford ▪ Antonio Panariello

Dariusz Sawicki ▪ Iouri Tchekanov ▪ Praveen Vetrivel

A Dossier Submitted in Partial Fulfilment of the Requirements for the Airline Case Study related to the Degree of Master of Science in Air Transport Management

Department of Air Transport ▪ School of Engineering

Cranfield University

May 2005

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Contents

Section Title Page

1.0 Executive Summary 31.1 Objectives 31.2 Mission Statement 31.3 Keys to Success 31.4 Corporate Goals 41.5 Target Market 41.6 Company Summary 4

2.0 Fleet Selection 52.1 The ATR42-500 82.2 Aircraft Leasing 82.3 Maintenance Policy 102.4 Flight Operations Monitoring 17

3.0 Market Analysis Summary 193.1 Competitor Analysis 22

4.0 Marketing Strategy 244.1 Brand Management and Logo 244.2 Positioning 244.3 Product Planning 254.4 Scheduling 254.5 Airport Processing 264.6 In-flight Service 264.7 Aircraft Configuration 264.8 Unique Selling Proposition 264.9 Ground Handling 27

5.0 Pricing Strategy 285.1 Revenue Management 285.2 Ancillary Revenues 29

6.0 Promotion Strategy 306.1 Advertising Mix 306.2 Outdoor and Poster Advertising 306.3 Press Advertising 326.4 Interactive Online Banners 336.5 Postcards 336.6 Advertising Costs 346.7 Public Relations 346.8 Competitive Marketing Activities 35

7.0 Distribution Strategy 367.1 On the Internet 367.2 On the Phone 377.3 Reservation System 37

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8.0 Management Summary 388.1 Corporate Culture 388.2 Organisational Structure 388.3 Management Team 39

9.0 Financial Plan 419.1 Important Assumptions 419.2 Budget 419.3 Basic Statistics 429.4 Profit and Loss 429.5 Business Plan 43

10.0 Future Prospects 44

Appendix 1 Summer 2006 Aircraft Schedule 45

Appendix 2 Winter 2006 Aircraft Schedule 46

Appendix 3 Summer 2006 Timetable 47

Appendix 4 Winter 2006 Timetable 48

Appendix 5 Aeronautical Charges 49

Appendix 6 Flight Cancellation and Long Delays 51

Appendix 7 Initial Aircraft Selection Analysis 53

Appendix 8 Direct Operating Costs Per Route 54

Appendix 9 First Year Average Cost Analysis 55

Appendix 10 Revenue Management KRK-GDN 58

Appendix 11 Revenue Management KRK-POZ 59

Appendix 12 Revenue Management GDN-WRO 60

Appendix 13 Revenue Management GDN-POZ 61

Appendix 14 Corporate Salary Structure 62

Appendix 15 Business Plan 63-70

Appendix 16 Profit and Loss Account 71-74

Appendix 17 CEO/CFO/CCO/COO Budgets 75-86

Appendix 18 Profit and Loss Annula Report 87-89

Appendix 19 Profit and Loss Route Information 90-105

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1.0 Executive Summary

Sense is a new airline in its initial development. It is being formed to enter a specific niche: the Polish short-haul domestic travel market. Since the accession of Poland to the European Union in May 2004 an opportunity exists for such an airline based at Krakow. There is a lack of services to and from Balice Airport in Krakow. With much demand for air travel on selected domestic routes suggests that a start-up airline could capture a significant proportion of multi-modal travel in both the business and leisure sector.

The management team plans to provide a low-cost air service to selected Polish destinations from Krakow. The service approach will emphasise a safe, punctual and courteous approach to passengers.

All customer surveys indicate a preference for low-fares without safety on punctuality being compromised. As such our customers will receive an adjusted level of in-flight service to justify the reduced cost of providing that service. Such in-flight service will meet the demands of our potential customers in such an operating environment.

1.1 Objectives

The Company has set the following objectives:

To obtain the required JAA and Polish certifications before commencing services To commence revenue services on or before the start of the summer season 2006 To raise sufficient capital to financially permit such services To start operations with two Aerospatiale ATR-42 aircraft in year one and three

in year two and three.

1.2 Mission Statement

We aim to provide safe, point-to-point travel within the Polish market. Market a consistent and reliable product and introduce fares appealing to leisure and business passengers. To achieve our goals we will continually develop our people and establish strong relationships with our suppliers and primarily our customers.

1.3 Keys to Success

Our keys to success are:

Obtaining the necessary governmental approvals Securing sufficient financing Experienced management Marketing, advertising and promotion Product quality with an emphasis on safety Timely, cost effective and managed delivery of services

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1.4 Corporate Goals

Sense Airways aims to become the leading regional carrier in the Polish domestic market. Its corporate goals consist of becoming the carrier with the most extensive route network inside Poland, to develop domestic routes which will connect the major cities, and enable growth and infrastructure development for the country’s regions. The possibility of becoming the traffic feeder for a major Central European low-cost carrier may be examined in the future. Such an opportunity will create strategic linkages to strengthen Sense’s market position as a regional carrier in Poland, and even expand in the domestic markets of its neighbouring countries. A drive for profit will be one of Sense’s management main goals, however with a strong focus in investing for the long-term profitability and success of the carrier.

1.5 Target Market

Sense Airways is a niche domestic carrier in the Polish market aiming to attract business and leisure passengers travelling between the major cities of Poland, without having to connect at Warsaw. The target public is young, 18 to 45 year’s old individuals, who travel either on leisure or business. They are well educated and above-average income earners. Internet has become an important element in their everyday transactions and they show a forward looking attitude in new technology. The target market will use Sense for fast reliable business trips during the week, and enjoy short-breaks away at the weekends with their families.

1.6 Company Summary

Sense is being formed in 2006 as a Polish Limited Company. Its head office will be in Krakow, Poland. The founder of has extensive experience in the Polish aviation industry. The backgrounds of all the members of the management team are enclosed in this document.

In the second year of operations the management team will expand its revenue by adding aircraft and extra flights to the most demanded and popular routes in current operation. This will make the schedule more convenient to these destinations and improve our competitive advantage. There will be additional flights to new destinations outside the Polish domestic route where potential is deemed to exist.

The management team plans to lease a small office in Krakow when the necessary funding is secured.

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2.0 Fleet Selection

As it has been presented earlier, Sense will be a regional company operating short haul routes. Average sector for the selected routes will be 260 nautical miles. Therefore, when selecting an aircraft for the future operations, the company’s management paid particular attention to the following:

Capacity between 50 and 70 seats; Compatibility of the potential aircraft with the selected routes and with

destination airports Best fuel efficiency on the selected routes; Facility to subcontract the entire maintenance with minimum costs; Lowest Operating Leasing rates and flexibility of leasing conditions.

The last point was very important for the company. In fact, the airline is considering developing its routes progressively by using aircraft with higher capacity. Therefore it would like to begin its operations with 50-seats aircraft and to have an option to switch to 70-seaters one after 2 years of operation if the conditions are favourable for this.

The company did not intend to choose a new aircraft which would be much more expensive and not available from the leasing companies to a start-up like Sense. Therefore, the company targeted a potential aircraft between 5 and 10 years old from different manufactures.

The company selected a short list of potential aircraft in order to analyse their performance and to make its final choice of one aircraft type. This list is presented on the table in Annex 1 attached. As we see on the table the minimum distance on which those aircraft can transport maximum payload is 825 nautical miles (1528 kilometres). Since our maximum sector distance will be 376 nm (for at least two years) and maximum diversion distance will not exceed 150 nautical miles, there is no need to make “payload-range” comparison. All aircraft are suitable for this kind of operation and capable of transporting maximum payload on this distance.

As shown in Annex 1, maximum take-off distance of 2061 meters with MTOW (ISA +20°C on Sea Level)1 will be necessary for CRJ-200. Since all the runways lengths on the selected destinations are over 2000 meters, all aircraft could operate in these runways.

As mentioned above, fuel efficiency of the candidate aircraft on our routes (260 nautical miles on average) was one of the first priorities. To evaluate this efficiency for the pre-selected aircraft on an equal basis, we compared required block fuel per distance per seat. This analysis is presented on the graph 1 overleaf. As wee se, there is a substantial block fuel consumption difference between jet aircraft and turbo prop for the average sector of 260 nautical miles (nm). According to the graph, to fly one passenger on a distance of 260 nm with a jet aircraft we would need around 60% more fuel the with turbo-prop aircraft. Therefore, from this point of view, there is no economical reason to choose jet aircraft for the routes that the airline decided to operate.

1 MTOW – Maximum Take-Off Weight; ISA – International Standard Atmosphere.

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Graph 1: Block Fuel Consumption per Distance per Seat (kg)

ATR72-500; 12 kg

SAAB-2000; 15 kg Q-300;Q400 &

ATR-42; 14kg

CRJ-200 & ERJ-145; 22 kg

5,0

10,0

15,0

20,0

25,0

30,0

35,0

40,0

200 250 300 350 400 450 500Distance (nm)

Blo

ck f

uel

(kg

)

Source: Based on Aircraft Economics data (provided by Mr. Geoff Hearn

If we compare the pre-selected turbo-prop aircraft fuel consumption, ATR72-500 appears to be the most fuel efficient. It is followed by ATR42-500, Dash 8 Q-300; 400 and SAAB2000 respectively. We should also underline that from the two turboprop 70-seaters, ATR-72 seems to be more fuel efficient than Q-400 on the selected routes. We can conclude that from the fuel consumption point of view on average sector of 260 nm ATR-500 family is more suitable aircraft for the company’s future operations. Moreover, the company sees its operations in prospective and would like to start operations with a 50-seate aircraft and progressively increase capacity and switch to 70 seat aircraft. ATR-500 family seems to be the only economical option that could offer this possibility. In fact, this family offers high degree of commonality between ATR42-500 and ATR72-500 models. The commonality results in a single type rating for this aircraft which will allow the company to switch from one model to another (or operate mixed fleet) without additional costs. Based on the above the company’s management felt that the best choice for the airline operation would be to use ATR 42-500 and later to use ATR42 and 72.

We can argue however that the turbo-prop aircraft are slower which could increase travel time and influence transport choice of the potential customers. The travel time of a turboprop on the average sector was therefore analysed in comparison with a regional jet. Three aircraft’s block time travel per distance2 was compared on the graph 2 overleaf. As we see on the graph, ERJ-145 needs 57 minutes block travel time on the average sector of 260 nautical miles, compared to 70 minutes for ATR42-500 and 77 minutes for ATR72-500. On maximum sector ERJ-145 would need only 20 minutes less time then ATR42. This gap could not make too much difference for the company’s potential customers. The only difference for a potential customer could be psychological (wrong impression that it is a slow and old aircraft), but the company’s Marketing department will promote this kind of aircraft during their advertisement campaigns. Obviously this gap increases if the company chose to fly longer sectors and a jet aircraft becomes more reasonable solution. However, for our company with an average sector of 260 nautical miles turbo-prop aircraft seems to be more economical solution, especially during high fuel costs times.

2 The calculation includes 10 minutes taxi time.

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Graph 2: Block Time per Distance (Minutes)

ATR72; 77min

20

40

60

80

100

120

140

160

100 150 200 250 300 350 400 450 500 550 600

Distance (nm)

Blo

ck t

ime

(min

)

ATR42-500

ATR72-500

ERJ-145ATR-42; 70min

ERJ-145; 57min

Source: Based on Aircraft Economics data (provided by Mr. Geoff Hearn)

Based on the best leasing and maintenance costs rates, for which the company was quoted from different suppliers (more on this later) and based on the aircraft performance we estimated Direct Operating Costs (DOC) for the average sector. Thedetails of this calculation are presented in the Annex 2 attached3. DOC per route per year of operation (for 3 years) is calculated in a similar way and the results are presented in the Annex 3 attached. As we see on the Graph 3 overleaf, the DOC per 260 nm sector per seat for ATR42 and 72 differs significantly from ERJ-145. A simulation of fuel price increase has been done and revealed that with a 25% fuel price increase (from 1.2 to 1.5 USD/US Gallon), DOC per 260 nm sector for the ATR operation would increase by 1 USD per seat. This increase would be 2 USD per seat per sector if we operated ERJ-145 on these routes. This is another argument in favour of turbo props on short haul routes.

Graph3: Direct Operating Costs (DOC) per Seat per 260 nm Sector (Passenger and Ground Handling Charges are excluded).

35

2326

37

2427

05

101520

2530

3540

ATR42-500 ATR72-500 ERJ-145

US

D

Fuel cost = $1,2/USGallon

Fuel cost = $1,5/USGallon

Source: Calculation based on Aircraft Economics data (provided by Mr. Geoff Hearn)

3 DOCs per route per month and per year were calculated in a similar way and the results of these costs are presented in the company’s Profit and Lost accounts.

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Based on the above arguments the company’s management have selected ATR-500 family for its operations. According to the above table ATR72 provides slightly lower per seat costs thanks to higher capacity. However, taking into account that the airline is opening new routes, the company’s management have decided to increase capacity on the routes progressively and prefer to start activities with ATR42-500 and from the 3rd

year of operation to use both ATR42 and ATR72.

2.1 The ATR42-500

The aircraft is equipped with two Pratt and Whitney Canada PW127E engines4 which offer the ATR42-5005 a cruise speed of about 300 knots and fast climb from 1,500 ft to 17,000 ft in less then 10 min. The advanced, six blades propeller provides low outside noise levels. It largely complies with ICAO Annex 16 Chapter III noise levels requirements. Low fuel burn and gaseous emissions make this aircraft environmentally friendly, which means that all noise and pollution related taxes can be avoided.

This new generation of ATR offers additional comfort to the passengers. Interior design was reworked and extensively soundproofed passenger cabin. The new-look interior offers more volume in the overhead storage bins, with each bin unit sized at 2 meters long for outsized carry-on baggage. It also gives the passenger cabin an impression of volume.

2.2 Aircraft Leasing

When choosing the conditions to operate the selected aircraft type, the management took their decision having in mind two main conditions:

Flexibility in terms of aircraft operation which offers a possibility to switch from one aircraft type to another with minimum operations disruption

Minimum amount of investment

Taking into account the above conditions, Operational Leasing seemed to be more appropriate for the company’s needs. In fact, buying a new or second hand aircraft would require substantial amount of money which implies contracting debt or increasing capital by finding more investors. This option could be considered in future when airline will be known on the market and will make sufficient amount of cash-flow from operations. Financial Leasing wouldn’t provide as much flexibility to the airline as it needs. With Operational Leasing, the company will keep the substantial capital value of aircraft off-balance sheet and therefore improves its financial ratios and credit capacity.

4 ATR72-500 is equipped with two PW127 engines which give the aircraft similar advantages, though slightly slower speed.5 Source : ATR aircraft WEB site.

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Having made a decision to make an Operational Leasing, the company contacted several operating lessors and got a very attractive offer from Air Lease Company6 which operates under EASA regulation. Moreover the terms and conditions of the leasing agreement concluded between the companies offered Sense the requested flexibility. Some major points of the agreement are presented below:

On the 20th of March 2006 the company will receive two 7 years old ATR42-500 in fully operational condition, after a C-check and updated to the last EASA requirements7. On the 28th of February 2007, Air Lease Company will deliver the 3rd ATR42-500

Since Sense forecasted introducing 70-seater ATR72-500 on the third year of operation, Air Lease Company offered this possibility. Therefore, one ATR72-500 will be delivered to the airline on the 25th of March 2008 whereas one ATR42-500 will be returned to the lessor on the 1st of April 2008 after a C-check (with all the mandatory and Airworthiness Directives modifications completed) in the same condition that it was received

Maintenance of the aircraft will be under Sense’s responsibility and will be conducted under the conditions specified by the lessor (maintenance provision is presented later in this business plan)

Leasing fees shall be paid on monthly basis in advance; insurance shell be paid on annual basis in advance to the lessor. Leasing fees amount is 50,000 USD for an ATR 42-500 and 75,000 USD for an ATR72-500. The leasing fees include the provision for D checks8. Insurance fees correspond to 1.2% of the aircraft cost and equal to 60,000 USD per year for ATR42-500 and to 90,000 USD per year for ATR72-500

A deposit will have to be paid prior to reception of the aircraft. It corresponds to three months lease payment for each aircraft. It will be refunded upon the termination of the contract

The agreement could be signed for 5 year term and renewed under tacit agreement

These conditions best suited the company’s needs and have been accepted after some negotiation over the lease fees rates and the delivery terms.

6 The name of the company is invented. Reference lease values were based on Air Finance Journal data (provided by Mr. Geoff Hearn). 7 Adjusting the aircraft configuration to the company’s needs (repainting, revamping, interior modification etc) is under the airline’s responsibility and will cost 100,000 USD per aircraft. 8 ATR42 and 72 D checks are conducted in 6 years intervals

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2.3 Maintenance Policy

1) Commitment to Safety and Quality Maintenance

Sense’s commitment to safety will be a primary priority of the Company and its management. This commitment begins with the hiring and training of Sense’s pilots, cabin crews and maintenance personnel and includes a policy of maintaining its aircraft in accordance with the highest European airline industry standards. Although SENSE will seek to maintain its fleet in a cost-effective manner, management will not seek to extend Sense’s low cost operating strategy to the areas of safety, maintenance, training or quality assurance. Routine aircraft maintenance and repair services will be performed at Krakow, Gdansk, Wroclaw, Poznan by LOT which is a maintenance contractor approved under the terms of Part 145/JAR 145, the European airline industry standard for maintenance. Sense will contract heavy airframe maintenance, engine overhaul services and rotable repairs to LOT. Sense will assign a Part 145/JAR 145 certified mechanic team to oversee heavy maintenance and authorize engine overhauls performed by third parties.

2) Leasing Contract: Maintenance arrangements and regulatory issues

All Sense’s aircraft will be operated on an operating lease base

The conditions which must form part of the dry lease agreement before these can be accepted by the Authorities are as follows:

The aircraft to be leased is, by registration, subject to existing AOC requirements of the lessor. This is regulated by JAR-OPS 1/3.

The existing maintenance support arrangements for the leased aircraft remain valid for the duration of the period of lease. These include the following:

o Base and Line maintenance support locations (as appropriate)o Technical Log procedureso Maintenance agreement/contract with JAR 145 maintenance organisationo Approved Maintenance Schedule and associated Engineeringo Maintenance Management Exposition procedures (as appropriate)

A side letter/addendum to the existing maintenance agreement/contract between the lessor and the JAR 145 maintenance organisation should be raised identifying the leasing agreement. Any changes to the existing maintenance arrangements must also be identified in the side letter and agreed to by the lessor, lessee (and the JAR 145 maintenance organisation where this is a separate organisation from the lessor). The side letter/addendum should be signed by all parties involved.

Any expenses associated with placing the Aircraft under our maintenance program is Sense’s responsibility. Sense, at its sole expense, will maintain the Aircraft in accordance with all requirements of the following:

Maintenance and safety programs budget: $2,800,000 per year

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The Polish civil aviation authorities (“CAA”), including airworthiness directives and modifications required for commercial passenger operations.

The airframe and the engine manufacturer’s maintenance specifications and service bulletins, including ageing aircraft and corrosion control programs;

The Sense’s CAA-approved maintenance program. Any extension of service intervals in Sense’s maintenance program shall be subject to lessor’s prior written approval. Lessee shall maintain, in the English language, all aircraft documents and maintenance records required by the CAA in accordance with manufacturer specifications. During the Lease term, Lessor may inspect the Aircraft and its records and observe Sense’s maintenance procedures.

3) Maintenance Company: LOT Maintenance Services

Our selection and decision criteria:

Capital Investment

Reducing aircraft maintenance costs is very important for SENSE to increase its profits.

Maintenance is traditionally one of the biggest barriers to entry for any new carrier such as our company.

Setting up an in-house maintenance department requires a high level of capital investment in facilities and components that a low cost new carrier that we are simply can’t afford if it is to be competitive

As a start-ups and low-cost carriers pursuing a high-growth strategy, we will typically be short on capital and driven by variable costs.

Therefore, our only alternative is to outsource as much of the maintenance function as practical.

Outsourcing to an organization with the expertise of LOT, minimizes our need for capital investment and allows us to benefit from economies of scale realized by a large, high-volume MRO service provider.

Full service package and pricing

If maintenance isn’t outsourced on a full service basis the financial advantage may not be maximized because then the carrier also needs to establish some level of in-house maintenance capability.

Maintenance expenses are unique items in DOC, which are able to be controlled by us. If the MRO provider prices its services per man-hour as is traditional maintenance costs may be more difficult to predict. There may be less incentive on the part of the MRO provider to return an airplane into service as quickly as the airline, particularly a small one with limited backup resources, requires. Other issues include competing for attention with other clients of an MRO provider, and having to accommodate to the MRO’s infrastructure.

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Fully outsourcing maintenance frees up our management to concentrate exclusively on earning revenue

LOT is the most cost effective maintenance option, especially for carriers driven by variable costs, and it assumes total operational responsibility for maintenance as well as the business risk that comes with it. LOT also has a great level of expertise as it already operates and maintains its own ATR fleet.

Risk Sharing

LOT eliminates most concerns about cost fluctuations and timely service with one key feature. It is priced at a fixed rate per flying hour. This makes the variable cost totally predictable

It gives us the incentive to keep the airplanes flying. The more time we spend in the air instead of in the maintenance hangar, the more money we make.

The Safety Factor

For our company, with little in-house maintenance experience, LOT will carry a high level of safety comfort provided that certain responsibilities of our airline are clearly met. The experience level, maintenance standards, regulatory approvals, and communication channels to the maintenance oversight airworthiness authorities.

Paradoxically, the higher the level of maintenance that is outsourced our airline, the greater the interest of the regulators. Full service contracts are particularly vulnerable to scrutiny because such a level of outsourcing could make it difficult for us to meet our legal responsibility for safety, which may not be outsourced. The regulators need to be satisfied that mechanisms are in place for us to retain and exercise full control over quality assurance. This, however, will be easily accomplished by a small, highly experienced maintenance audit staff, as our provider they oversee has a good track record.

LOT maintenance company has been approved by our lessor.

4) Aircraft maintenance services and facilities

LOT is authorised centre for ATR maintenance services for:

Comprehensive Maintenance & Overhaul Interior Refurbishments Airframes Power plants Avionics Landing Gear Overhaul X-Ray and other NDT Mandatory Periodic Inspections

Aircraft maintenance services, including transit checks, pre-departure checks, and heavy-duty maintenance will performed by several Polish entities owned by Polish Airports State Enterprise, LOT, and individual airports:

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Five Major Stations, Warsaw, Krakow, Wroclaw, Poznan, Gdansk are equipped to carry out lay-over inspections or Daily Inspection during night stop for all ATRs types of propeller aircraft.

Warsaw and Krakow has the full facilities to carry out ‘A', ‘B', and ‘C' Checks which come in the Major Maintenance category for ATR 42 and 72 aircraft.

The other airports have got full facilities to carry out ‘A' Check on ATRs aircraft

Component and Engines Overhaul and Facilities:

Engines

Central European Engine Services provides aircraft engine maintenance services. The company is owned in 51% by LOT and by General Electric Engine Services in 49%.

Spares

LOT has a good Spares organization, and components are easily and rapidly available in their facilities throughout the country.

Summary Table

City Company CompanyKrakow LOT Uslugi Lotniskowe Ltd airport ground service of aircraft, aircraft

and engine maintenance, and overhaul services

Gdansk LOT Uslugi Lotniskowe Ltd Poznan Poz-LOT Uslugi Lotniskowe Ltd.

Wroclaw LOT Uslugi Lotniskowe Warsaw Central European Engine Services Sp. maintenance and overhaul of civil aviation

aircraft engines, modules, components, as well as aircraft engine accessories

a) Maintenance Programme / JAR 145 Compliance

Sense’s aircraft maintenance programs will be made up of a mixture of preventive, on-condition, corrective and redesign activities:

Preventive activities will be conducted at prescribed intervals of calendar time, operating hours or some other usage parameter.

On-condition maintenance will be conducted based on the results of regularly scheduled inspections and tests.

Corrective activities will be conducted in response to in-service discrepancies.

Redesign activities take the form of engineering modifications that are meant to address unanticipated safety or reliability problems.

The most clearly predictable of these activities are the scheduled preventive maintenance and inspection tasks. The remaining activities are less predictable and will present a challenge to maintenance planning and scheduling processes for our company.

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b) Maintenance Scheduling:

Pre-Flight Checks are conducted before each flight

Each aircraft undergoes a Night-Stop Inspection from wingtip to tail by mechanics

A - Check every 300 flying hours / Will be progressively done overnights C - Check every 3,000-3500 flying hours / 2 weeks base maintenance D - Check every 6 calendar years ( MSG3 with no flight hours requirement)

C-check-Management

During the course of its operations Sense will have to perform a C-check on its planes. As the company only lease two aircraft, it will not be able to satisfy its flight schedule if it temporary looses one of its planes. To overcome that, the airline will process as follow:

As the company is planning to dry lease a third aircraft for the second year of operations, the new aircraft will enter the fleet one month at the beginning of the 11th month of operations. One of the two others aircraft will then sent to be C-checked during for two weeks. Then the aircraft will join back the fleet, and the second one will be C-checked at its turn for two weeks. At the beginning of the second year, Sense’s fleet will be composed of three planes.

A similar process will take place for the third year, when the airline will receive an ATR 72 and return one ATR 42 to the lessor.

5) Maintenance supervision

Sense will appoint two well trained and experienced JAR 66 / JAR-145 CAA approved maintenance and safety supervisors, to manage the airline maintenance programme, and to oversee LOT maintenance activities. Thanks to a dedicated Software solution, the supervisors will be able to follow, monitor and plan our company's short term (three to ten days) aircraft routing and maintenance scheduling.

6) Maintenance costs

Maintenance reserves

Sense will have to pay $360 per flight hours and for each ATR 42 aircraft and $390 for each ATR 72 aircraft operating e a c h month, to perform the all maintenance tasks.

To overcome any unscheduled overhaul and any repair or inspection costs arising as a result of an accident, foreign damage or operational mishandling, the company agreed with the maintenance company to incorporate the costs in the package.

Flight Hours Costs Monthly Costs Yearly CostsATR 42 $360 $96,000 $1,152,000 + 20 % (1)(2)ATR 72 $390 $104,000 $1,248,000 + 20 %

Spares costs: +10% of maintenance costsLine operations cost: +10% of maintenance costs

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7) Quality & Safety

As a new airline, sense will face a formidable challenge in beginning and sustaining operations, managing growth, and developing its maintenance strategy. It’s well known that new airlines experience a higher rate of safety related concerns and accidents than established carriers, particularly during their early years of operations. Hence, it’s important that Sense develops a safety management system not only to fully comply with the ad hoc regulatory requirements to perform to an approved standard, but to also ensure that every safety measure is taken to preserve the company’s operational integrity, viability and continuity. For these reasons, outlining the basic operational safety threats that sense may face in Ground, Maintenance and flight Operations will be of paramount importance. On the course of development, we will suggest an appropriate Safety Management Strategy to systematically identify and manage the potential risks and a set of specific solutions to minimize the threats base on the experience of existing airlines and the regulation guidelines.

ICAO Standard and Recommendation Practices (SARP’s, Annex 6 part 1).

The Joint Aviation Requirements (JAR): Operations: JAR-OPS 1 (1.035, 1.037)Maintenance: JAR 145Training: JAR-OPS / JAR FCL, JAR 147/66

The company will also seek to conform as fully as possible to the quality and safety standards of AQS 9000/121 (Aviation Quality Standard) and ISO 9002. This means:

Compliance to all applicable Air Transportation Office regulations. The implementation of accepted good industry standards and practices. The use of safety technologies and systems in the operations. The incorporation of the ISO 9002 Standard guidelines and elements.

a) Safety Committee

Safety oversight is fundamental to the safety management process. A principal tenet of safety management policies, principles and procedures will require our airline to critically review its operations, and to propose operational changes and additions or replacements, for our safety significance. This will be achieved through two principal means:

Reactive - Occurrence/hazard reporting Proactive - Safety assessments.

The company will have a safety committee composed of pilots and maintenance supervisors and operational personnel. The committee will periodically meet to review assess the company’s safety records.

b) Organizational Concerns

Sense will develop a safety culture in its organization, as it’s commonly viewed as an enduring characteristic that is reflected in its consistent way of dealing with critical safety issues. Sense will rely on five global components or indicators of safety culture.

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c) Organizational Commitment

Organizational Commitment to safety refers to the extent to which Sense upper-level management will identify safety as a core value or guiding principles of the organization. The company commitment to safety would therefore be reflected in the ability of its upper-level management to demonstrate an enduring, positive attitude toward safety, even in times of financial austerity, and to actively promote safety consistently across all levels within the organization.

d) Management Involvement

The company’s management Involvement will refer to the extent to which both upper and middle-level managers will get personally involved in critical safety activities within the organization. Management involvement in safety will be reflected by managers’ presence and contribution to safety seminars and training, their active oversight of safety critical operations, their ability to “stay in touch” with the risks involved in everyday operations and the extent of good communication about safety issues, both up and down the organizational hierarchy.

e) Employee Empowerment

Sense will empower its employees. That means they will have an individual’s perceptions or attitudes as a result of a delegation of authority or responsibility by upper level management. An empowered attitude will lead to increased motivation to make a difference, to go beyond the call of duty for organizational safety and take responsibility for ensuring safe operations. Within the context of safety culture, this means that employees will have a substantial voice in safety the company’s decisions, have the leverage to initiate and achieve safety improvements, hold themselves and others accountable for their actions, and take pride in the safety record of their organization.

f) Reporting Systems

An effective and systematic Reporting System will be the keystone to systematically identifying the weaknesses and vulnerabilities of safety management before an accident occurs. The willingness and ability of Sense to proactively learn and adapt its operations based on incidents and near misses before an accident occurs is critical to improving safety.

g) Non-Punitive Disciplinary Policies

The Company will strive to develop a non-punitive, disciplinary policy as part of its safety management system. Employees are more likely to report events and cooperate in an investigation when some level of immunity from disciplinary action is offered.

h) Training Policy

The company, maintenance personnel will also receive the finest in training, aided by the latest computer based training programs in conjunction with hands-on instruction provided by highly experienced aviation professionals and the manufacturer of the airframes (ATR Aerospatiale), turbine engines, and on board systems.

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2.4 Flight Operations Monitoring

A customized system for Operations Control (SOC) will enable Sense flight operation centre to operate competitive schedules that meet passenger demand while meeting dispatch requirements and overcoming disruptions to schedules. The Solution will offer three suites of integrated products to help address issues such as air traffic, weather, ground handling, passenger re-accommodation and government regulations.

Operations Monitoring and Scheduling

The solution will enable the airline to monitor and schedule daily maintenance and flight operations. It will use a Gantt chart to graphically show flight leg information from a central database. The airline will receive reliable, thorough information about current operations and maintenance events, which assists in evaluating problems and determining cost-effective solutions.

The Maintenance Routing module will use optimization techniques to determine feasible aircraft routings over a prescribed decision horizon.

The real-time slot request and management module will oversee slot requests for Poland via the Central Flow Management Unit (CFMU). The module will manage CFMU-assigned slots by productively processing slot requests. This module will be not intensively used as the polish airports we are going to serve are not congested, and there no slot constrains. But, on occasions, an airport’s movements capacity may be reduced to well below it’s normal operating capacity, for example by fog or by an incident on a runway or taxiway. In order to prevent a large build-up of arriving traffic waiting to land, CFMU will create a regulation, assigning slots to all flights planning to land at the airport.

However, it could be useful as we will be operating at the busy Austrian Innsbruck airport.

The browser-based Flight Information Display System will provide real-time updates of the latest flight departure and arrival information in a continuous text display. This system will be similar to a Flight Information Display system at an airport, yet will run on a PC.

Operations Control and Flight Following

The system will help to control and follow the flights. It will be tailored an airline with a smaller fleet, needing simpler solutions. It will enable our SOC personnel to readily monitor the status of the airline’s flights. By interfacing with the airline’s CRS, the system will display real-time flight information in a Gantt chart format with user-defined colours indicating flight status. The system will interfaces with the airline’s CRS to process flight movement messages, gathering data such as flight number and date, origin and destination, departure time, assigned aircraft, fuel data, passenger list (both planned and actual) and the original, revised, estimated and actual arrival time.

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Maintenance Control

A maintenance scheduling module will be incorporated in the system. It will allow the airline to monitor its planned short-term (three to ten days) aircraft routing and maintenance scheduling. The system will monitor planned aircraft maintenance activities and communicates that information to an airline’s SOC department via messages and graphical screen displays. The system will use colour coding to designate deferred items and inspections that are close to expiring for servicing.

Air-to-Ground Messaging

An ACARS (Aircraft Communications Addressing and Reporting System) module will be included. It will process air-to-ground messaging between our ACARS-equipped aircraft and designated positions within the sense airway’s SOC. The system’s administrative functions will enable flexible decoding, reformatting and distribution of a variety of operational data, reducing the clerical effort to process ACARS-generated messages, facilitating automatic proliferation of accurate data and minimizing redundant data entry.

Sense’s Aeronautical Communication Partner: SITA

Sense will sign a contract with SITA to provide it with seamless and secured flow of messages. The secure, reliable, cost-effective exchange of messages will be key to ensuring that the airlines flight operations and aircraft maintenance run efficiently and effectively.

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3.0 Market Analysis Summary

Propensity to Fly Chart

GDP/Capita (in $) Population Size sq miAdjusted

Domestic TrafficPoland 4,890 38,626,349 120,728 1,739,967Greece 12,490 10,647,529 50,949 1,320,508Spain 15,960 40,280,780 195,364 57,008,991Italy 20,530 58,057,477 116,341 67,016,865UK 26,440 49,561,800 88,785 48,000,000

The Polish Market is underserved by over 800,000 passengers a year. All other markets domestic traffic close to projected figure.

Adjusted Domestic Traffic

Actual Domestic Traffic

% of market currently served

Poland 1,739,967 830,000 47.70%Greece 1,320,508 1,100,000 83.30%Spain 57,008,991 56,000,000 98.23%Italy 67,016,865 66,320,000 98.96%UK 48,000,000

These calculations based on UK domestic traffic

Poland’s GDP GrowthYear GDP Growth1995 7.00%1996 6.00%1997 6.80%1998 6.80%1999 4.80%2000 4.10%2001 4.00%2002 1.00%2003 3.70%2004 5.30%

Average 4.95%

Domestic Air Pax to KrakowDomestic PAX 182,512 20.83%

International PAX 693,803Total PAX 876,315

International Destinations 22Domestic Destination 1

All domestic traffic carried by LOT and EuroLOTIn 2002 % arriving by air

Foreign tourist 1,000,000 69.38%17.53%Domestic Tourist 5,000,000

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Projected Growth: Krakow AirportPax arriving from different airports Pax departing to different airports

DomesticInternational

DomesticInternational

Scheduled Charter Scheduled Charter90,439 92,822 155,271 92,073 191,141 154,569

City PopulationsWarsaw, Poland: Population, total: 1,618,468Gdansk, Poland: Population, total: 458,988Krakow, Poland: Population, total: 740,666Wroclaw, Poland: Population, total: 637,877Poznan, Poland: Population, total: 578,235

Katowice, Poland: Population, total: 345,934Szczecin, Poland: Population, total: 416,988Rzeszow, Poland: Population, total: 162,049

Lodz, Poland: Population, total: 806,728Bydgoszcz, Poland: Population, total: 386,855

Szczytno, Poland: Population, total: 36,462Zielona Góra, Poland: Population, total: 118,182

Traffic By rail Carrier In 000’sPKP Regional Services Ltd 233 272

PKP Intercity Ltd 8 500PKP SKM Ltd 35 408PKP WKD Ltd 6 085

Time 1st class 2nd classGDN KRK 7 hrs 133.5 95POZ KRK 6 hrs 25 min 72.2 48.13WRO GDN 6 hrs 25 min 74.7 49.8WRO KRK 4 hrs 10 min 61.86 46.24

Regional Services carries over 233 million passengers a year. The rail network charges lower fares than Intercity and cover all destinations in Poland. A typical one way fare from Warsaw to Krakow costs $ 40. The population of the 4 major cities Krakow, Poznan, Gdansk and Wroclaw is over 6% of the total population. We can safely assume that these cities have rail passengers is around 14 million. However not all this traffic flows between these cities.

Assuming that majority traffic is to Warsaw, the remaining traffic a lot of it is to Krakow for winters and Gdansk for summer. The business traffic is to Poznan. If only 20% of the traffic out of these cities was between them. We have 2.8 million passengers travelling by train between these cities. Intercity on the other hand is the premium rail network which covers only the big cities. Warsaw, Krakow, Gdansk, Poznan, Wroclaw. They also connect these cities to Germany. 60% of their services are domestic. This gives us over 5 million passengers domestically. Again majority of this traffic will be expected to flow through Warsaw. Even if 50% of the domestic traffic on Intercity is to Warsaw, we get over 2.5 million passengers travelling domestically between KRK, GDN, WRO, POZ. Most fares on Intercity are premium fares.

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The domestic rail traffic between these cities combined with the long train journey, and the people travelling by roads. We get a target market well over 5 million passengers. Even if we can capture 10% of this market, we can carry over 500,000 passengers a year.

Route Structure

We start operations from the big cities outside of Warsaw. Using a forecast method based on the current traffic flows and populations of cities. A traffic forecast is produced between the big cities.

Forecast Weekly Pax Forecast Daily Pax ForecastKRK-GDN 1,381 197KRK-WRO 770 110KRK-POZ 929 133

WRO-GDN 1,184 169POZ-GDN 770 110

Although Poznan Gdansk are very close, Poznan is the business capital of Poland , which generates a lot of business travel, passengers who will be more willing to travel by air and will be higher yield.

KRK-GDN will be our main route due to its distance; also Krakow is the cultural capital of Poland generating a lot of tourist traffic from within Poland. Gdansk being on the northern coast is a summer destination in Poland.

During the first 3 years of operation we plan to start flying to the main business and tourist destinations in Poland and increase frequency and capacity in a phased manner. Also during the ski season we do charter flights to Innsbruck in Austria.

The charter flights will be pre sold through travel agents and tour operators. The first year of operation we fly connect the two big routes, KRK-GDN and WRO-GDN, the factors that are considered here are the distances between the cities, long train times, Krakow and Wroclaw tourist destinations in winter, Also Gdansk developing as a major tourist destination for summers. This combined with high amount of business traffic between the big cities.

Krakow-Poznan will also be operated the first year. The route will be mainly business traffic. During the winter the charter flights will be from KRK-INN and POZ-INN.

The second year we start flights from POZ-GDN. And introduce winter flights from WRO-INN.

In the third year of operation we will increase capacity on our main KRK-GDN routes.

Summer 2006 MAR-OCTRoute Flights/Week Route Flights/Week

KRK- GDN 25 GDN-WRO 18GDN-KRK 25 KRK-POZ 18WRO-GDN 18 POZ-KRK 18

Winter 2006/2007 NOV-MAR

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Route Flights/Week Route Flights/WeekKRK- GDN 23 POZ-KRK 19GDN-KRK 23 POZ-INN 1WRO-GDN 17 INN-POZ 1GDN-WRO 17 KRK-INN 1KRK-POZ 19 INN-KRK 1

Summer 2007 APR-OCTRoute Flights/Week Route Flights/Week

KRK- GDN 30 KRK-POZ 27GDN-KRK 30 POZ-KRK 27WRO-GDN 27 POZ-GDN 10GDN-WRO 27 GDN-POZ 10

Winter 2007/2008 NOV-MARRoute Flights/Week Route Flights/Week

KRK- GDN 29 GDN-POZ 10GDN-KRK 29 POZ-INN 1WRO-GDN 28 INN-POZ 1GDN-WRO 28 KRK-INN 1KRK-POZ 22 INN-KRK 1POZ-KRK 22 WRO-INN 1POZ-GDN 10 INN-WRO 1

3.1 Competitor Analysis

The primary competition in the Krakow market is LOT Polish Airlines. LOT accounts for 100% of air travel in this market. The secondary competition in the Krakow market is by road and rail. The significant journey times of these modes and our competitive pricing strategy will attract a significant amount of patronage to our air services.

The operation of a single aircraft type will reduce our costs and allow high utilisation based on a single hub. An over-competitive advantage exists as aircraft and operations will not be present outside our limited focus. This will act as a barrier to entry from other competitors once our brand is established. We will operate profitably within our niche market without the constraints of a network carrier approach. All aircraft will be configured with a single economy seating capacity of fifty seats. This will maximise revenue on short-haul domestic flights. The ATR-42 will be the only aircraft operated by the company.

In the Polish domestic air travel market, the existing carriers are LOT Polish airlines, its low-cost subsidiary EuroLot and Air Polonia. As the market is deregulated, potential new entrants could be one or more of the Central European emerging low-cost carriers such as SkyEurope, Wizz Air or even some of the traditional network carriers (Malev or CSA). LOT’s strategy has been based upon a hub and spoke network, fed by regional traffic in Warsaw, to focus upon its strong position in the east - west traffic hub. Star alliance plays an important part in this European connectivity strategy, and LOT has build a very strong brand in the region. On the other hand, the introduction of EuroLot as LOT’s low-cost subsidiary has assisted LOT in reducing significantly its operating costs and gain 99% of domestic market share.

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Low cost carriers’ emergence in the Polish domestic market is still limited as they are mainly focusing on intra-European traffic. They tend to operate from major airports on very dense routes. In the short-term they will focus on building the low-cost market in the Central European region, and they might not necessarily get involved with regional traffic. However, an opportunity for Sense in the future would be to become their feeder for intra-European travel from major airports in Poland.

Finally, the rail and bus companies present in Poland and making efforts to restructure their network and become more profitable and competitive. However, unless serious infrastructure developments are made no serious competition can be considered from these modes of transport, as travel time is significantly higher and the level of convenience and service is much lower.

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sen e sRegional Air Carrier

fly

4.0 Marketing Strategy

Our marketing presence will be achieved by implementing a strategy that focuses on serving the niche Polish domestic market. Our strategy includes:

Using local media which is targeted in a cost effecting way Operating air services from a central location in a cost effective way Operating a reservations system from a central location in a cost effective way Marketing will be media generated to both the leisure and business market

4.1 Brand Management and Logo

Sense as a brand name will assist the company in conveying its corporate image as a reliable, safe and easy travelling proposition coupled with punctuality and efficiency as the most sensible choice of domestic travel for the business and leisure market. It will promote relaxed, punctual and hassle-free flying and will significantly emphasize upon images of a fresh, forward looking and value for money travel proposition. It can only make sense…

Sense has decided on a fully branded product/service differentiation strategy from the very beginning. Sense is going to differentiate it self as company which has a sense for its passengers. Sense is a regional airline and Sense’s brand is regional connectivity, connecting people, places and happenings, always creating new opportunities.

“The Smiglo” (Polish: propeller) is to indicates company’s technical essentiality of the turbo prop operations. The Smiglo is in light sensitive sky blue colour, in its shape almost like a propelling flower. Smiglo indicates sensitivity which the airline tends to promote by its name and brand. With sensitivity and high technology Smiglogo is going to bravely confront previous passenger perception about the turbo prop orientation and encourage people to enjoy reliable and safe air travel.

4.2 Positioning

Sense Airways will become the sensible choice for domestic air travel in Poland, through its unique service offerings of high frequencies, fast processing procedures at check-in and convenient scheduling of services to meet passenger’s needs and serve point-to-point short-haul domestic destinations.

Our brand positioning statements include:

Fly Sense and enjoy the experience Fly Sense and arrive less tense With Sense you can have a taste of Krakow With Sense you can see more of Gdansk Sense Krakow, Gdansk, Poznan, Wroclaw

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4.3 Product Planning

Sense Airways will be based upon a low-cost type structure and emphasize the elements of simplicity of air travel and ease of commuting. The main product features of the niche domestic carrier will be high daily frequencies meeting the needs of business passengers during the week and accommodating the leisure travel patterns during the weekends. The convenient schedule of service will reflect passenger needs and the route network will be efficiently served to ensure flexibility and convenience of travelling between the destinations cities in Poland.

4.4 Scheduling

The target market in all routes we operate for the first 3 years will be over 45% business travellers. To serve the target group we offer high frequency during the weekdays. For the VFR and tourist traffic we offer Friday night Saturday and day returns on Sunday. The main route in our network connects KRK (Krakow) and GDN (Gdansk) and we offer morning flights in both directions. During the first year of operation we will operate on 3 routes KRK-GDN, KRK-POZ and WRO-GDN.

We will operate 2 ATR-42’s and in order to maximise utilization and provide early morning flights for business travellers we will base one aircraft in GDN and another in KRK. There will be 4 daily return flights between KRK-GDN and 3 each between KRK-POZ and WRO-GDN. Also on Fridays we offer a late service from KRK-GDN for the leisure travellers who go for a city break. To keep the block hours within operational limitations we operate 5 return flights at the weekend between KRK-GDN.

In the winter the weekend traffic is from GDN to KRK. We reduce the flights between KRK-GDN and to maintain the high utilization we offer a Saturday charter flight to Innsbruck in Austria which is a major ski resort for the Polish travellers. This will be during the months of Jan Feb and Mar.

During the second year of operation we will introduce a new route between POZ-GDN and increase the frequency on the existing routes. To do this we obtain a 3rd ATR-42 which will begin operation in April 2007. The frequency will be increased to 30 flights a week between KRK-GDN. Also on the POZ-GDN route due to its short distance we will only be able to attract the high end of the market. This will mean return flights on a daily basis. However the weekend flights on this route will not be offered.

Winter of the second year the routes will again be reduced during the weekends and a third charter flight between WRO-INN will be added. For the third year of operation we change one of the ATR 42’s to an ATR 72 to increase capacity on the dense KRK-GDN route. We will operate 5 daily return flights using the ATR 72. The aircraft plots and schedules for the first year of operations are shown in the appendices.

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4.5 Airport Processing

A great importance will be placed upon the development of fast processing procedures at check-in to ensure fast and hassle-free boarding occurs at all airports. Development and investment in new infrastructure to establish efficient channels of passenger processing will be considered to achieve low processing times at the airport. Traditional check-in facilities will be used, however the whole procedure will be simplified and no seat allocation will be offered. In the future, moveable check-in desks with scanning facilities will be employed to achieve technology innovation and deliver upon the proposition of faster airport processing activities.

The travel patterns evident in the domestic Polish market show that passengers travelling on business carry hand luggage only and the majority of leisure passengers travelling for short breaks stay for a maximum duration of 5 days. Thus, upon these two assumptions a conclusion has been made that no centralised baggage processing system is needed to check-in and transfer the baggage on to the aircraft, as the targeted passengers’ travel characteristics do not suggest that much luggage is transported on short breaks. An assumption is being made that 80% of passengers travel with hand luggage. All luggage will be carried by the passengers to the aircraft side. Luggage not possible to accommodate in overhead storage, will be placed on the cart situated by the boarding steps and loaded directly into the baggage holds by the handling agent. Passengers will be able to collect their luggage upon arrival from the cart next to the aircraft. An extensive use of outsourcing will be employed, from ground handling to accounting and human resources.

4.6 In-flight Service

Considering the service offerings on board the aircraft, Sense Airways will not provide seat allocation or any kind of in-flight services. The prospect of operating a catering kiosk on board the aircraft will not be developed in the beginning of operations, however after a few months of operations and if the market demands it an investment evaluation will be considered and examined. However, because the longest flight is 90 minutes, it is not justified to have in-flight service.

4.7 Aircraft Configuration

The aircraft which will serve Sense Airway’s domestic network will be the ATR 42-500 turboprop and will be configured with 50 seats at 30” pitch. In the third year, the ATR 72 will be introduced with 68 seats at 30” pitch.

4.8 Unique Selling Proposition

The unique selling proposition for Sense Airways therefore will be the ease of travelling by offering high daily frequencies to business and leisure destinations, at a convenient schedule with fast and easy check-in processing at origin and destination airports.

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4.9 Ground Handling

The airports Sense Airways will be operating from have passenger throughput of less than 1 million, and the ground handling market has not been fully liberalised. Therefore, Sense Airways have to outsource their ground handling to the current handling company operating at the selected airports. The only ground handling company is LOT Handling and they charge $200 per turnaround for an ATR 42.

The price includes 1 check-in desk with 1 member of staff, and 2 ramp staff, toilet service and potable water at each turnaround. Light cleaning will be conducted by the cabin crew member on duty and standard cleaning will be carried out at the end of each day by the handling company.

De-icing is not included in the handling charge. Provisions for de-icing have been made in the budget.

Once the passengers have checked-in, they will proceed with their baggage through security. Sense Airways will not use the airport’s baggage system as the passengers will drop off any baggage too big or too heavy to be stored in the overhead lockers, by the aircraft side. The passengers will collect their baggage during disembarkation from the aircraft side.

Sense Airways will employ two Station Managers, one to look after operations at KRK and WRO and the other at GDN and POZ.Turnaround time is 20 minutes.

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5.0 Pricing Strategy

Due to its low cost operating structure SENSE will be able to offer service at less than 50% of the competitive rail fares to our selected destinations. Projected fares are as follows:

Route Lowest Fare Average Fare Rail FaresKRK-GDN $12.00 $50.00 $45.00KRK-POZ $10.00 $40.00 $35.00

GDN-WRO $10.00 $40.00 $35.00GDN-POZ $8.00 $30.00 $25.00

The fare structure of the airline will be based on both the date of booking and number of seats already booked for the flight. For the first month of operations the price for the tickets on these routes will not exceed the corresponding rail fares.

LOT follows a pricing structure which depends completely on the date of booking. A typical LOT fare will follow the trend shown in the table below

From To Net Fare TaxValue in

Polish Zlotych640 84.11

WAW SZZ 420 68.71 4 days before travel(Centrum) 280 58.91 8 days before travel

115 47.36 15 days before travel

Our pricing strategy will allow us to offer more seats at a lower fare. After the first month of operation our pricing strategy will be to maintain our fares at a much lower level than LOT. Our fares will not be higher than the average fare of LOT.

For the winter charter flights operated to the ski resorts in Austria, the average fare will be $100 or 300 PLN. As the seats will be sold to tour operators the revenue management methods used for the scheduled flights will not be applied for these routes.

5.1 Revenue Management

The target market in all routes we operate for the first 3 years will be over 45% business travellers. To serve the target group we offer high frequency during the weekdays. For the VFR and tourist traffic we offer Friday night Saturday and day returns on Sunday. The main route in our network connects KRK (Krakow) and GDN (Gdansk) and we offer morning flights in both directions. During the first year of operation we will operate on 3 routes KRK-GDN, KRK-POZ and WRO-GDN.

We will operate 2 ATR-42’s and in order to maximise utilization and provide early morning flights for business travellers we will base one aircraft in GDN and another in KRK. There will be 4 daily return flights between KRK-GDN and 3 each between KRK-POZ and WRO-GDN. Also on Fridays we offer a late service from KRK-GDN for the leisure travellers who go for a city break. To keep the block hours within operational limitations we operate 5 return flights at the weekend between KRK-GDN.

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In the winter the weekend traffic is from GDN to KRK. We reduce the flights between KRK-GDN and to maintain the high utilization we offer a Saturday charter flight to Innsbruck in Austria which is a major ski resort for the Polish travellers. This will be during the months of Jan Feb and Mar.

During the second year of operation we will introduce a new route between POZ-GDN and increase the frequency on the existing routes. To do this we obtain a 3rd ATR-42 which will begin operation in April 2007. The frequency will be increased to 30 flights a week between KRK-GDN. Also on the POZ-GDN route due to its short distance we will only be able to attract the high end of the market. This will mean return flights on a daily basis. However the weekend flights on this route will not be offered.

Winter of the second year the routes will again be reduced during the weekends and a 3rd

charter flight between WRO-INN will be added.

For the 3rd year of operation we change one of the ATR 42’s to an ATR 72 to increase capacity on the dense KRK-GDN route. We will operate five daily return flights using the ATR 72.

5.2 Ancillary Revenues

Sense Airways through its website will aim at creating profitable internet links and advertise complement services, such car rental facilities, hotel reservations, booking sports facilities and tourist attraction events. The development of a successful and user friendly internet website will assist the smooth operation of Sense Airway’s ticketing facilities, in addition to promote advertising space and click through activity to travel package services.

As Sense is not planning to offer in-flight catering facilities, a revenue generating opportunity can be found in outsourcing the catering facilities to an external company, which would pay a percentage of its sales to the airline, and thus bear the whole operational risk of catering and stocking.

In addition, advertising space on board the aircraft could be leased to media companies. Such as on overheard lockers or on the seat service trays. These opportunities will be carefully assessed after a time period of smooth operations to carefully assess the revenue returns and the project’s feasibility. However, a carefully choice of advertising goods should be ensured on board the aircraft to ensure compatibility with Sense’s image and corporate culture in order not to alienate its own customer base.

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6.0 Promotion Strategy

Create an advertising campaign to build brand awareness and promote purchase facilitation to differentiate the service from competitors. Strategic advertising links will be developed to promote the brand and create noise around its service proposition. An emphasis will be placed upon online advertising through online banners at major Polish websites to promote click through activity and support internet based distribution strategy. Finally develop a high-profile service-launch strategy to generate publicity and extensive media coverage. The ATR 42 turboprop aircraft will be in addition emphasized as a reliable, safe, fast and new mode of transport for the Polish market. All the marketing activities will be produced in-house to give a greater control over communication issues, however for creative executions an external advertising agency will be employed on a project basis only.

6.1 Advertising Mix

Sense Airways’ advertising campaign will mainly evolve around outdoor billboard adsand press advertising mainly in popular Polish magazines. Media executions will use local media which provide the benefit of being highly targeted and cost effective on a cost-per-impression basis. A separation of advertising efforts between leisure and business traffic will be pursued in order to ensure a more efficient use of the advertising budget and focus upon the different market segments accordingly.

6.2 Outdoor and Poster Advertising

Sense Airways will pursue a high-involvement advertising campaign which will require a strong but relatively short message, thus outdoor advertising becomes a very effective advertising medium as stationary outdoor vehicles such as train posters allow substantial processing time and ensure significant exposure to the target public. Billboard advertisements will be placed on strategic locations near the highway exits of the major cities served and emphasized mainly in the Krakow and Gdansk region. These mobile outdoor ads will have to be attention grabbing and easily processed by the target audience.

However, stationary outdoor ads at train and bus stations will be used to attract passengers from the competing transportation means. A long exposure time is possible;therefore, the advertising message can be elaborate and precise. By successfully positioning the carrier as an alternative commuting method many business and leisure travellers will switch to air travel to enjoy the benefits of safe, fast and easy travel. Outdoor advertisements will aim at attracting existing users of alternative modes of travel.

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What would you prefer? Be stuck in traffic or enjoying fast reliable air travel?

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A similar type of billboard displays could be positioned at the exit of the main motorway in Krakow, Gdansk, Poznan and Wroclaw. This ad style would address mainly the business passengers, commuting between the major cities and create brand awareness to alter the travel patterns of business commuters.

Similarly positioned in train stations, an alternative billboard ad could be displayed to show passengers the alternative modes of transport available in their region, and the convenience of travelling by air rather than rail.

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for a LOT less…..

6.3 Press Advertising

Press ads will be employed at a selection of media vehicles, mainly popular Polish magazines of business and travelling material to create increased brand exposure and brand awareness. At all times, the airline’s website will be promoted to drive traffic into its portal, and increase purchase facilitation amongst its target public. Press ads will circulate at frequent intervals to ensure a high exposure of a specific target audience, through the careful selection of the media vehicles in the Polish press. Magazine ads in business journals and life-style magazines will be accordingly positioned, as to attract the different market segments in question. For leisure passengers, an effort will be made to promote short breaks.

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The best positioning for these advertisements would be in the top right hand side of the second quarter of the magazine, as it is researched that these placements have the highest response rate measurements.

6.4 Interactive Online Banners

Finally, online advertising efforts will play an important role to driving traffic on to Sense Airways’ website. Online click-through banners will be placed on popular and credible Polish internet portals, and create synergistic marketing associations and ensure effective and reliable traffic is achieved to www.flysense.com.

6.5 Postcards

Finally, some corporate postcards could be produced and handed out on board the aircraft to our passengers. The postcards with our logo and destination photo could be thus sent by our customers and increase significantly our brand awareness through a different kind of word-of-mouth. Similarly, postcards could be distributed during PR events. Financial support for this method of advertising could be sought from the cities local funds, as the destinations would be equally advertised and promoted.

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6.6 Advertising Costs

The airline management decided to advertise through billboards, magazines and the internet, together with some PR activities. It is very difficult to give a quotation for both billboard and press adverts. A billboard in Warsaw costs approximately 3000 PLN per month. In this case we would place the billboards in strategic points where potential customers could be interested. We would place the billboards on highway exits, train stations, coach stations of all the four cities to which we are flying to; Krakow, Poznan, Wroclaw and Gdansk. The cost for this kind of operation would be roughly less than the price you would pay in Warsaw. The overall monthly cost we would pay for billboards would be around 12.000 PLN. Moreover, some small adverts will also be placed in the various airports where the airline operates from. As previously mentioned we would also advertise in magazines. Our aim will be to advertise in magazines such as the Polityka (which is the most read in the country) or Newsweek Polka. Such an operation would cost roughly between 6000 and 7000 PLN for half a page per issue.

The airline will also advertise through the internet. Advertising costs vary depending on the website and the kind of contract you have with the website owner. With Google for example there are various advertising possibilities. One of Google’s most attractive offers is the cost-per-1000-impressions (CPM). Pricing is based on number of impressions served over a period of time. A £50 CPM means you pay £50 for every 1,000 times your ad appears. ("M" is the Roman numeral for 1,000.) Another chance is the cost-per-click (CPC). In this case pricing is based on the number of clicks your ad receives. A typical range is £0.05 to £0.75 pence per click. This is also known as pay-per-click. CPC may also refer to cost-per-customer.

6.7 Public Relations

Public Relations will mainly be based upon the PR events organised at the launch of operations, in order to create brand awareness and extensive media coverage in local press and broadcasting media. The management team of Sense Airways will take part in these events and ensure the success of this high-end trendy launch.

Brand ambassadors will not be used as the cost of celebrity endorsements are quite high. However, from the offset of the venture, the CEO of the company will act as a brand representative and will become known and familiar to the public, to ensure associations and identification with the company’s goals and aims.

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A partnership with a major clothing or brewery company could help expose the brand more effectively and at a large target audience. A combined effort with fashion events or beer tasting activities could assist Sense in penetrating the market more aggressively. Linkage opportunities will be evaluated with hotel companies and tourist attractions to promote the brand and Sense Airways’ services.

Public Relations will be established with major companies in the business centres of the major cities to create a good relationship and increase awareness of the new carrier service business travel needs. In addition, links will be created with the airports we serve to ensure reliable service and support is achieved from their behalf.

During some of the launch events some free flights could be given out after a draw to all the customers who during these events subscribe to the ‘flysense’ newsletter. Through weekly or monthly newsletters the airline will manage to keep its current and potential customers informed throughout the year about all the flights, services and news. This canbe seen as a very useful way of advertising as the airline will have to incur in almost no cost as it will already have an initial database of current and potential customers.

6.8 Competitive Marketing Activities

LOT Polish airlines are not a direct competitor in our operations from Krakow, as they fly to destinations with a connection at Warsaw. However, being the only other domestic carrier in Poland an investigation of their advertising efforts will be assessed.

LOT Polish airlines are focusing their advertising efforts in press and outdoor advertisements as they believe that TV and Radio advertising do not create extra added value to customer retention and they are considerably expensive for their purposes. Their creative campaign is focused upon the element of humour, with the use of animated cartoon figures which promote good service, good prices and business class facilities.

PKP Intercity Rail Company has started recently advertising in internet websites and billboard stands. On the other hand, none of the bus companies advertise at the moment which will significantly boost Sense Airways’ advertising campaign and create even more brand awareness as no significant competitors’ advertising activity is found within the major Polish cities.

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7.0 Distribution Strategy

10 years ago airline tickets were mainly sold via travel agents using GDS’ and directly by the airline. The appearance of the Internet changed this distribution pattern to the point where full service airlines today sell up to 35 % of their tickets online and low cost carriers up to 95 %.

Statistics have shown that Internet usage follows a more or less predictable pattern. As a particular country acquires the telecommunications infrastructure that facilitates Internet access one can observe that the first users are typically businesses, that there are more males than females using online, and that the majority of users are in the age bracket 15-45. With respect to Internet usage Poland is following this historical trend: Current studies suggest that 20-30 % of the population is online, in contrast to companies where the number is 80 %. Furthermore, 92 % of Polish Internet users are between 15 and 40 years old.

It follows from this that there is a solid potential for using the Internet as a distribution platform. In order to keep down distribution costs and ensure a regular cash flow Sense will only use the Internet as well as a call centre to sell tickets.

7.1 On the Internet

Through a dedicated website customers will be able to plan and buy their journeys 24/7. The interface will be simple and effective, designed to maximise booking efficiency. It will offer the following functionality:

The ability to plan and book a journey The ability to register one’s email address and a password, the entry of which will

enable the customer to view future bookings and make changes. These will only be possible to make by payment of a fee, ensuring additional revenue.

The Sense website will be marketed via the Internet through the following channels:

The use of banners is the most traditional form of Internet advertising. These are used to either direct traffic to the advertiser’s website or for purposes of branding. As Sense will operate with a limited marketing budget it is essential that any Internet advertising effort is directed towards achieving a sale. When using banner ads the priority should be on Rich Media banners, for example using Java, Macromedia Flash etc. which are designed in such a way as to generate clicks rather than branding. This can be done by using interactive technology to promote specific fare campaigns and offers and make sure that the ad incorporates interactivity to the point where the user would be able to retrieve live information about fare and availability, thus enhancing their incentive to click and finish a booking transaction on the Sense website.

The main priority should be on distributing fares in such a way that the web user is guided towards an actual point of sale. Furthermore it should be ensured that the high cost of producing these banners is justified by ensuring that they are only present on sites where they are liable to have an effect. This would typically be travel-related parts of major destination site, sites exclusively dedicated to travel content, as well as relevant lifestyle sites.

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The use of text-based and real-time, client-controlled advertising on popular destination sites, be it portals, search engines or travel/lifestyle websites. An example of this is Google Ad Words, a system in which the advertiser has full, practically real-time control of her message and where this is only presented to the Google user if she has demonstrated through her search patterns that she is actively looking for related information. Sense will use this feature to offer relevant fare information and ensure that a click on the text-based ad would lead the Internet user directly to the relevant part of the booking engine rather than simply to the front page of the Sense site.

The use of permission based email marketing, i.e. emails containing fare offers and promotions, sent to Sense customers and registered website users.

The price of developing the Sense website including the cost of integrating it with the company’s back end reservation and inventory management system will be $ 2,000.00. The yearly operational cost will be $ 2,500.00.

7.2 On the Phone

Customers will be able to buy tickets via the Sense call centre 7 days a week from 8 am to 8 pm. There will be a surcharge for doing this on top of the fares that are available online. The call centre services will be provided by a local third party company i.e. outsourced.

The monthly cost of operating the call centre will be $ 4,000.00 per month. This includes all initial and subsequent cost of training call centre staff.

7.3 Reservation System

At the backbone of Sense’ distribution effort is an integrated passenger processing system including inventory, fares, ticketless operations and credit card transactions. It will also contain modules which will facilitate a wide set of financial and operational reporting tools as well as revenue and yield management. The system will also offer facilities for monitoring the flight operations and the ability to extract information about them.

The Sense reservation system features an interface which communicates with the Sense web server as well as the call centre workstations, using TCP/IP over a secure VPN (Virtual Private Network).

The above system will be hosted on a server located in the Sense headquarters and will be accessible from local workstations. It will run on FreeBSD UNIX and feature a MySQL database. The reservation system applications will be programmed by a dedicated team of 3 software engineers headed by a IT Manager. It estimated that this task will take 8 months.The initial cost of setting up the Sense reservation system is $ 50,000.00, including hardware, software and salaries for the 4 employees involved in the project. After the system is operable the company will require 2 software engineers to be employed as well as the IT Manager, representing a monthly expense of $ 4,500.00. Included in this cost is the expense of hiring part time students to man a company help desk.

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8.0 Management Summary

The management team are highly experienced. They are knowledgeable of all governmental approval procedures. The backgrounds of our key people are enclosed in this document and will enhance our ability to obtain the required approvals.

8.1 Corporate Culture

Investment in human resources will be very strong and the development of a strong corporate culture will be pursued. Sense Airways will aim at portraying an organisation with hands-on involvement and innovative thinking.

A relaxed and easy culture will be nourished in order for the employees to feel empowered and interested in the company’s development. Continuous training and investment in labour development will be a strong aspect in the long-term human resource strategy of the airline.

Sense Airways supports an informal company culture with a flat management structure, which optimizes information circulation within the airline and ensures responsibility sharing amongst management.

People in Sense Airways will ensure that the airline develops a strong competitive advantage from its competitors and promote a successful, strong corporate culture.

Sense’s culture will be associated with a simple, “no frills” service, being “up for it”, “passionate” and “fresh” becoming the sensible service choice for its customer base.

8.2 Organisational Structure

CEO and CFO (1)

Chief CommercialOfficer (1)

Chief OperatingOfficer (1)

Assistant (1) Quality / SafetyManager (1)

FinancialController (1)

Marketing (1) Sales (1)

Network / Product Development (1)

RevenueManagement (1)

IT (1)

Flight OperationsManager (1)

Ground OperationsManager (1)

Technical OperationsManager (1)

Roster andPlanning (1)

ChiefPilot (1)

Pilots (15)

Chief FlightAttendant (1)

CabinCrew (7)

StationManager (1)

MaintenanceEngineer (1)

Attorney (1)

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The company will be organised into five major operational areas:

Flight Operations Maintenance Financial Marketing Customer Service

8.3 Management Team

CEO/CFO (1) – full time; leasing negotiation, fuel budget, financial activity (bank loans, overdrafts), financial risk management, credit/debit card operators, company budget, represents company to the investors, responsible for legal issues

Assistant (1) – half time; for entire company, organise office work, stationery, office payments, and holidays for office workers, all leaves, company integration and culture, HR activity (together with outsourced company)

Financial/Business Controller (1) – full time; supervise budget, accounting and payroll (outsourced), prepares performance statements month by month, etc

Quality / Safety Manager (1) – full time

Attorney (1) – half time, responsible for all legal issues

Chief Commercial Officer (1) – full time; supervise all commercial activity including: marketing, product, revenue management, network development and planning, IT, budget for commercial activity, contact with airports, airport charges negotiation,

Marketing Manager (1) – full time; supervise all marketing activity: marketing campaigns, events, PR, brand management, on board advertisements, etc. Close cooperation with all media, marketing budget

Sales Manger (1) – full time; responsible for day-to-day sales b2b activity (company travel, charters); supervise call centre and internet sales, sales statistics, and cost of sales minimisation, responsible for sales budget

Revenue Manager (1) – full time; day-to-day revenue management, monitoring of competitors pricing, revenue max, monitoring all activates which can affect revenues

Network/Product Development Manager (1) – full time; future network development forecast and statistics, future schedule, a/c selection, present network performance, customer satisfaction surveys, in flight and airport products evaluation and development

IT Manager (1) – full time; (if IT is outsourced) supervise these companies/company, responsible for internet site, booking engine and all software, act as a point of contact for outsourced IT companies, responsible for all IT improvements, responsible for IT budget

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Chief Operating Officer (1) – full time; supervise all operational activity including: cockpit and cabin crew, ground handling, maintenance, documentation, budget for operating activity

Flight Operations Postholder (1) – full time; supervise all activity relating to flight crew, crew training, crew rooster, all necessary documentation responsible for crew budget

Roster and Planning Manager (1) – full time; crew planning and roster, holiday and all other leaves management, hotel, trip planning,

Chief Pilot (1) – quarter time; act as pilots’ manager, active pilot

Pilots (15) – full time;

Chief Flight Attendance (1) – quarter times; act as cabin crew manager, active flight attendance

Cabin crew (7) – full time;

Ground Operations Postholder (1) – full time; supervisee all ground handling activity, responsible for ground handling negotiation, responsible for ground handling budget

Station Manager 1 (1) – full time; supervise day-to-day handling activity at two locations (KRK, WRO)

Station Manager 2 (1) – full time; supervise day-to-day handling activity at two locations (GDN, POZ)

Technical Operation Postholder (1) – full time; supervise all maintenance and technical issues, responsible for maintenance contracting, maintenance documentation, maintenance budget

Maintenance Manager (1) full time; supervises day-to-day maintenance activity and maintenance companies at four locations.

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9.0 Financial Plan

Adequate financing is essential for a start-up airline. For us is even more essential, sine we do not have AOC and applying for that we need to meet all the requirements and conditions. Two parts of these requirements stand that airline should have sufficient financial sources to run for 24 months, and the second is to have liquidity, excluding the firs three month’s profits.

Our strategy is to find the investor or group of inventors and offer them the part of the company for cash injection. Simply it means that we want to finance the development of this company by shares offer to private investors. We decided to use this source as only source, because since we are the start-up company, this is only one feasible option. With no history and proper guarantees we are not able to have bank loan. On the other hand the way how we are going to finance our aircraft (operating lease) do not allow us to use this as guarantee of the loan.

9.1 Important Assumptions

The financial plan depends on important assumptions, most of which are shown in the following table. They key underlying assumptions are:

We assume a faster then predicted for EU25 economy growth, without major recession.

We assume of course that there are no unforeseen changes in technology to make products immediately obsolete.

We assume access to equity capital and financing sufficient to maintain our financial plan as shown in the table below

General Assumptions 2005 2006 2007 2008Current Interest Rate 0% 0% 0% 0%

Long term Interest Rates 0% 0% 0% 0%Tax Rate 35% 35% 35% 35%

According to Polish Accounting law we are able to amortize our assents (computer programs, hardware, crew training costs) for three year.

9.2 Budget

To be transparent and show our investors exact values of each cost the budget for the entire company has been prepared. The company was divided into three major parts (according to company structure): CEO/CFO, CCO, and COO. The two centers as CEO/CFO and COO acts as costs centers. The CCO has the revenue from ticket sales, charter, and other activities. Detail budget is attached as appendix.

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9.3 Basic statistics

Table below shows the basic statistics for the four year period. The operations start from March 2006, and 2006 show a huge loss. The small breakeven was achieved in 2007. In 2008 Sense will have profit of 2.6 million, with the revenue increases over 196% from the year 2006. The passenger numbers will increase significantly between 2006 and 2008 – from more than 117 000 to 333 000 (184% - over two years). At the same time the unit costs will decrease from, reducing Sense BELF from 84% in 2006 to 55% in 2008.

StatisticsUSD 2005 2006 2007 2008

Total Operating Revenue 0 5,277,965 15,458,485 20,923,290Total Operating Cost 258,260 8,977,999 15,394,278 18,285,455Operating profit/loss -258,260 -3,700,033 64,207 2,637,835Oparating margin -70% 0% 13%Revenue Passenger Kilometers 0 56,387,844 123,105,229 152,667,216Available Seat Kilometers 110,907 114,539,990 201,202,980 240,847,800Load factor 0% 49% 61% 63%Aircraft Km 0 2,290,800 4,024,060 4,340,390Aircraf Hours flown (per year) 0 5,429 9,625 10,749Number of sectors (trips) 0 4,785 8,864 9,651Revenue passengers carried 0 117,786 268,614 331,802Number of Pilots 0 16 22 25Size of fleet (yearend) 0 2 3 3Number of employees 18 45 54 66

Unit cost (per ASK'm in ¢) 0.00 7.84 7.65 7.59Yield (per RPK'm in ¢) 0.00 9.36 12.56 13.71Break even 0% 84% 61% 55%Operating profit per sector (USD) 0 -773 7 273Flight crew productivity (hours per year) 0 679 875 860average sector (km) 0 478,746 454,002 449,720average flight duration (hours) 0 1.13 1.09 1.11aircraft utilisation (flying hours per a/c per annum) 0 2,715 3,208 3,583Aircraft Utilization (hours per day) 0 7.46 8.81 9.84

Sense

9.4 Profit and Loss

Profit and loss account has been prepared separately for all months during the entire period. Below there is an aggregated figure for each year. Detailed, month by month split is attached as appendix.

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Profit & Loss Account TTL (05) TTL (06) TTL (07) TTL (08)REVENUES

Passengers Revenues 0 5,277,965 14,875,004 19,582,738Other 0 0 583,480 1,340,552

COST OF SALES 0 7,305,159 13,302,767 15,965,522GROSS PROFIT 0 -2,027,193 2,155,718 4,957,768OTHER OPERATING EXPENSES

Sales&Marketing 20,100 832,733 1,231,453 1,391,184Administration 238,160 840,107 860,058 928,750

OPERATING PROFITS -258,260 -3,700,033 64,207 2,637,835Exceptional items (net) 0 0 0 0

EBIT -258,260 -3,700,033 64,207 2,637,835Interested received 41,400 50,497 26,424 37,908

Interest paid 0 0 0 0PROFIT ON ORDINARY ACTIVITIES BEFORE TAX -216,860 -3,649,537 90,631 2,675,743

Tax 0 0 0 0NET INCOME -216,860 -3,649,537 90,631 2,675,743

9.5 Business Plan

Two versions of business plan are attached as an appendix. Version one the correct business plan, aggregated to yearly figures. The second version is with the assumption of no revenues for the first three months of operation. That first affects the operating results (decrease to closely – 5 million USD) and the cash reserves in 2007, which in March decrees to 202 000 USD (the lowest point). But still even without 3 month revenues from sales Sense is able to repay its liabilities.

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10.0 Future Prospects

Katowice, Poland: Population: 345,934Szczecin, Poland: Population: 416,988Rzeszow, Poland: Population: 162,049Lodz, Poland: Population: 806,728Bydgoszcz, Poland: Population: 386,855

The other big cities in Poland are currently connected only to Warsaw by Air. Katowice has a low cost carrier operating to Western Europe. IF we act as a feeder for international low cost operators connecting to Katowice will be a good option.

SZZ is big city north west of Poland and lies on the cost. There are a lot of people from the south going to Szczecin for summer breaks. Lodz is a city very close to Warsaw and is not connected very well by air. It could be an alternative destination to Warsaw, the catchments area will be small due to the Warsaw operations but to operate as a regional airline the market will be big enough. Bydgoszcz is a city south of Gdansk. It is anindustrial city and is far enough from GDN to operate directly to Bydgoszcz as the market grows.

Eurocity a subsidiary of Intercity carries over 3.5 million passengers a year from KRK, GDN, WRO, POZ, WAW to Berlin, Hamburg and Hanover. The train times are well over 10hrs, most of this traffic will be VFR, due to the large polish community in Germany. There is also strong Polish presence in Stockholm.

With more countries entering the EU and further development in Eastern Europe, there is a potential to replicate the model in neighbouring countries. Prague Bratislava and Budapest are already well connected by air to Western Europe but the connection between these countries is an option that can be explored.

Forecast for other Domestic routes in Poland.

Forecast Using Gravity ModelFrom Krakow Weekly Pax Forecast Daily Pax Forecast

Wroclaw 770 110Poznan 929 133

Katowice 186 27Szczecin 1,428 204Rzeszow 650 93Bygoszcz 904 129

From WroclawWroclaw 0 0Poznan 522 75

Katowice 409 58Szczecin 986 141Rzeszow 1,356 194Bygoszcz 672 96

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Appendix 1: Summer 2006 Aircraft Schedule

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Appendix 2: Winter 2006 Aircraft Schedule

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Appendix 3: Summer 2006 Timetable

S06: Summer 2006 Timetable (March 2006 - September 2006)

From To Season Start End Days Depart Arrive Flight Aircraft Stops Duration

Krakow Gdansk S06 Mar06 Sep06 12345 0600 0715 101 AT4 0 1:15S06 Mar06 Sep06 67 0840 0955 107 AT4 0 1:15

S06 Mar06 Sep06 12345 1015 1130 102 AT4 0 1:15

S06 Mar06 Sep06 6 1025 1140 108 AT4 0 1:15

S06 Mar06 Sep06 12345 1520 1635 103 AT4 0 1:15

S06 Mar06 Sep06 5 1935 2050 105 AT4 0 1:15S06 Mar06 Sep06 1234 2030 2145 104 AT4 0 1:15

S06 Mar06 Sep06 5 2120 2235 106 AT4 0 1:15

S06 Mar06 Sep06 67 2215 2330 109 AT4 0 1:15

Gdansk Krakow S06 Mar06 Sep06 12345 0600 0715 201 AT4 0 1:15

S06 Mar06 Sep06 67 0850 1005 207 AT4 0 1:15

S06 Mar06 Sep06 6 1015 1130 208 AT4 0 1:15

S06 Mar06 Sep06 12345 1025 1140 202 AT4 0 1:15S06 Mar06 Sep06 12345 1520 1635 203 AT4 0 1:15

S06 Mar06 Sep06 5 1945 2100 205 AT4 0 1:15

S06 Mar06 Sep06 1234 2030 2145 204 AT4 0 1:15S06 Mar06 Sep06 5 2110 2225 206 AT4 0 1:15

S06 Mar06 Sep06 67 2215 2330 209 AT4 0 1:15

Gdansk Wroclaw S06 Mar06 Sep06 67 0600 0705 304 AT4 0 1:05

S06 Mar06 Sep06 12345 0735 0840 301 AT4 0 1:05S06 Mar06 Sep06 12345 1230 1335 302 AT4 0 1:05

S06 Mar06 Sep06 12345 1655 1800 303 AT4 0 1:05

S06 Mar06 Sep06 7 1825 1930 305 AT4 0 1:05

Wroclaw Gdansk S06 Mar06 Sep06 67 0725 0830 404 AT4 0 1:05

S06 Mar06 Sep06 12345 0900 1005 401 AT4 0 1:05

S06 Mar06 Sep06 12345 1355 1500 402 AT4 0 1:05

S06 Mar06 Sep06 12345 1820 1925 403 AT4 0 1:05S06 Mar06 Sep06 7 1950 2055 405 AT4 0 1:05

Krakow Poznan S06 Mar06 Sep06 67 0600 0700 504 AT4 0 1:00S06 Mar06 Sep06 12345 0735 0835 501 AT4 0 1:00

S06 Mar06 Sep06 12345 1240 1340 502 AT4 0 1:00

S06 Mar06 Sep06 12345 1655 1755 503 AT4 0 1:00

Poznan Krakow S06 Mar06 Sep06 67 0720 0820 604 AT4 0 1:00S06 Mar06 Sep06 12345 0855 0955 601 AT4 0 1:00

S06 Mar06 Sep06 12345 1400 1500 602 AT4 0 1:00

S06 Mar06 Sep06 12345 1815 1915 603 AT4 0 1:00

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Appendix 4: Winter 2006 Timetable

W06: Winter 2006 Timetable (October 2006 - February 2007)

From To Season Start End Days Depart Arrive Flight Aircraft Stops Duration

Krakow Gdansk W06 Oct06 Feb07 12345 0600 0715 101 AT4 0 1:15W06 Oct06 Feb07 7 0840 0955 106 AT4 0 1:15

W06 Oct06 Feb07 12345 1015 1130 102 AT4 0 1:15

W06 Oct06 Feb07 12345 1520 1635 103 AT4 0 1:15

W06 Oct06 Feb07 5 1600 1715 105 AT4 0 1:15

W06 Oct06 Feb07 12345 2030 2145 104 AT4 0 1:15W06 Oct06 Feb07 7 2215 2330 107 AT4 0 1:15

Gdansk Krakow W06 Oct06 Feb07 12345 0600 0715 201 AT4 0 1:15W06 Oct06 Feb07 7 0850 1005 206 AT4 0 1:15

W06 Oct06 Feb07 6 0925 1040 205 AT4 0 1:15

W06 Oct06 Feb07 12345 1025 1140 202 AT4 0 1:15

W06 Oct06 Feb07 12345 1520 1635 203 AT4 0 1:15

W06 Oct06 Feb07 12345 2030 2145 204 AT4 0 1:15W06 Oct06 Feb07 7 2215 2330 207 AT4 0 1:15

Gdansk Wroclaw W06 Oct06 Feb07 67 0600 0705 304 AT4 0 1:05W06 Oct06 Feb07 12345 0735 0840 301 AT4 0 1:05

W06 Oct06 Feb07 12345 1230 1335 302 AT4 0 1:05

W06 Oct06 Feb07 12345 1655 1800 303 AT4 0 1:05

W06 Oct06 Feb07 7 1825 1930 305 AT4 0 1:05

Wroclaw Gdansk W06 Oct06 Feb07 67 0725 0830 404 AT4 0 1:05

W06 Oct06 Feb07 12345 0900 1005 401 AT4 0 1:05

W06 Oct06 Feb07 12345 1355 1500 402 AT4 0 1:05W06 Oct06 Feb07 12345 1820 1925 403 AT4 0 1:05

W06 Oct06 Feb07 7 1950 2055 405 AT4 0 1:05

Krakow Poznan W06 Oct06 Feb07 67 0600 0700 505 AT4 0 1:00

W06 Oct06 Feb07 12345 0735 0835 501 AT4 0 1:00W06 Oct06 Feb07 6 0940 1040 504 AT4 0 1:00

W06 Oct06 Feb07 12345 1240 1340 502 AT4 0 1:00

W06 Oct06 Feb07 12345 1655 1755 503 AT4 0 1:00W06 Oct06 Feb07 7 1835 1935 506 AT4 0 1:00

Poznan Krakow W06 Oct06 Feb07 7 0720 0820 606 AT4 0 1:00

W06 Oct06 Feb07 6 0730 0830 604 AT4 0 1:00

W06 Oct06 Feb07 12345 0855 0955 601 AT4 0 1:00W06 Oct06 Feb07 12345 1400 1500 602 AT4 0 1:00

W06 Oct06 Feb07 6 1600 1700 605 AT4 0 1:00

W06 Oct06 Feb07 12345 1815 1915 603 AT4 0 1:00W06 Oct06 Feb07 7 1955 2055 607 AT4 0 1:00

Poznan Innsbruck W06 Oct06 Feb07 6 1100 1300 701 AT4 0 2:00

Innsbruck Poznan W06 Oct06 Feb07 6 1340 1540 702 AT4 0 2:00

Krakow Innsbruck W06 Oct06 Feb07 6 1100 1300 801 AT4 0 2:00

Innsbruck Krakow W06 Oct06 Feb07 6 1340 1540 802 AT4 0 2:00

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Appendix 5: Aeronautical Charges

1) Air Navigation charges

Terminal Navigation Aid

Airports Charges (Unit Rate in US$)

Krakow 48Poznan 22Gdansk 48Wroclaw 22

Innsbruck (Austria) 302Warsaw 72

The terminal approach control charge of aircraft over 2 tonnes is calculated in accordance with the following formula:

T = J*M, where: T= Total approach control charge, J= unit rate, M= Weight coefficient equal to square root of product of division by 50 of aircraft MTOW (in tonnes)

En Route ChargesAirspace Charges (unit rate in $)

VFR IFRPoland 27 55Austria 40 77

The en-route charge for aircraft of MTOW exceeding 2 tonnes is calculated in accordance with the following formula

R = U*D*M, where: R= Total en-route charge, U= Unit rate, D= Orthodrome flight distance within the flight information region (FIR) expressed in km hundreds, less 20 kilometres for each take-off and landing operation, M= Weight coefficient equal to square root of product of division by 50 of aircraft MTOW (in tonnes)

2) Airport charges

Airport

Landing Charge (Unit Rate)

Departing PAX Charges

Noise Charge

Unit Rate per Tonne

Parking Charge per Tonne per 24 Hour

Infrastructure Charge

Security Charge per Departing

PAX

Krakow 8Regional Others

0 3 0 06 11.5

Poznan 8 4 0 2.5 0 0Gdansk 8 4 0 2 0 0Wroclaw 7 6 0 2 0 0

Innsbruck (Austria) 19

Regional Others0

10% of landing

charge per 24 hour

PAX RAMP6

12.5 14.5 2 70.85

Warsaw 11Regional Others

2 2 0 06 16

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Fee discount: Airport offer different rates of fee discount when a company opens new route, for a limited period of time. This could range from zero landing fees for the first 6 months to 60 per cent reduction for the three first years of operation.

Aeronautical charges

Definition of Aeronautical Charges

In the subsequent analysis the distinction between airport and government aeronauticalcharges will be applied.

Airport aeronautical charges can generally be divided into: landing and take-off charges passengers service charges parking charges for aircraft airport security charges airport noise charges

Government aeronautical charges can be divided into: noise charges security charges ATC-charges other government charges or taxes

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Appendix 6: Flight Cancellation and Long Delays

Notification of Rights under EC Regulation No 261/2004 (As Required by Article 14.2)

Sense Airways make every effort to operate to their published schedules. There are occasions however, where it is not possible to do so and a flight may be delayed or cancelled. This notification informs you of your rights under EC Regulation No 261/2004 should this happen; it does not give you any additional contractual rights. This law is applicable to all passengers departing from an airport within the EU and to all passengers travelling into an EU Member State on an EU carrier unless they have received assistance in the country of departure. It is the operating carrier’s responsibility to meet these requirements. This notification also explains how to claim compensation or a refund or reimbursement under this law in respect of a flight operated by Sense Airways. Right to re-routing or refund of part(s) of the journey not flown Passengers, whose flight is cancelled, shall have the choice of either:

a) Re-routing, under comparable transport conditions, to the final destination of the ticket presented at check-in at the earliest opportunity or at a later date at the passenger’s convenience, subject to availability; orb) A refund payable to the person who purchased the ticket. This applies to the part or parts of the journey not flown.

If your flight is delayed for five hours or more, the purchaser of your ticket is entitled to a refund for the part or parts of the journey not flown.

How to claim a refund/reimbursement

To apply for a refund of unused parts of your journey or reimbursement of the parts of the journey flown, please contact the office where your ticket was purchased. If you have booked by sense.com, check online for contact details. You will need to provide in writing your name and contact details, ticket number, booking reference, flight number, date and details of the claim you are making and supporting documents (e.g. unused ticket coupons).

Right to care

Where a flight has been cancelled, or is subject to a long delay, passengers are entitled to refreshments and meals in a reasonable relation to their waiting time as well as means of contacting two people outside the airport. These provisions apply according to the duration of the expected delay and the distance of the flight as follows:

Delay of two hours or more for flights of 1500 km or less Delay of three hours or more for all flights within the EU of more than 1500

km and all other flights between 1500km and 3500 km Delay of four hours or more for all other flights.

In addition, Sense Airways will provide hotel accommodation if necessary and provide transport between the airport and place of accommodation. Passengers will be advised of the arrangements for obtaining refreshments, transport and hotel accommodation, by the carrier.

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Right to Compensation for Cancelled Flights (Not Including Long Delays)

Where you are informed of a cancellation less than fourteen days before the planned departure date that arises from causes within the carrier’s control (rather than extraordinary circumstances which could not have been avoided by all reasonable measures) you may claim compensation unless you are offered a re-route which allows departure and arrival at your final destination within the following times:

1. If you are informed of the cancellation between thirteen and seven days before the scheduled time of departure and are offered re-routing, allowing you to depart no more than two hours before the scheduled time of departure and to reach your final destination less than four hours after the scheduled time of arrival; or2. If you are informed of the cancellation less than seven days before the scheduled time of departure and are offered re-routing, allowing you to depart no more than one hour before the scheduled time of departure and to reach your final destination less than two hours after the scheduled time of arrival.

The levels of compensation are specified as follows:

1. EUR 250 for flights of 1500 km or less2. EUR 400 for flights within the EU of more than 1500 km and for all other flights between 1500km and 3500 km3. EUR 600 for all other flights.

Compensation is reduced by 50% if any re-routing offered to your final destination results in a scheduled arrival time which does not exceed the scheduled arrival time of the original flight by:

1. Two hours for flights of 1500 km or less2. Three hours for all flights within the EU of more than 1500 km and for all other flights between 1500km and 3500 km3. Four hours for all other flights.

Please note that passengers are not entitled to compensation if they have been informed of a cancellation fourteen days or more before the planned departure date. Passengers will be informed of cancellations via the contact details given to the carrier with the booking by the passenger, the purchaser of the ticket.

How to claim compensation

To make a claim for please contact Sense Airways Customer Relations on-line at http://sense.com/euclaim. The person making the claim must be one of the passengers. Alternatively, claimants can write, to Sense Airways Customer Relations, EU Compensation Claims. Claimants must supply their name and contact details, the names of other passengers being claimed for and their contact details, booking reference and details of the cancelled flight. Claims can cover up to a total of six passengers provided that they have the same surname, are in the same booking and have travelled the same journey. Please note Sense Airways is unable to process your claim for compensation at the airport.

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Appendix 7: Initial Aircraft Selection Analysis

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Appendix 8: Direct Operating Costs Per Route Per Year

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Appendix 9: First Year Average Cost Analysis

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Appendix 10: Revenue Management KRK-GDN

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Appendix 11: Revenue Management KRK-POZ

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Appendix 12: Revenue Management GDN-WRO

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Appendix 13: Revenue Management GDN-POZ

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Appendix 14: Corporate Salary Structure

Salary (USD)/month

Cat Name Number of People

Time Full Time Net

Time Equiv Net

Time Equ Gross

Total Net TotalGross

Additional Benefits

a CEO/CFO 1 1 2200 2200 4400 2200 4400 company car

a Chief Commercial Officer 1 1 1900 1900 3800 1900 3800 company car

a Chief Operations Officer 1 1 1900 1900 3800 1900 3800 company car

a Assistant 1 0.5 450 225 450 225 450

a Financial/Business Controller 1 1 700 700 1400 700 1400

a Quality/Safety Manager 1 1 800 800 1600 800 1600

a Attorney 1 0.5 800 400 800 400 800

a Marketing Manager 1 1 800 800 1600 800 1600

a Sales Manager 1 1 800 800 1600 800 1600 company car

a Revenue Manager 1 1 700 700 1400 700 1400

a Network/Product Development Manager 1 1 700 700 1400 700 1400

a IT Manager 1 1 800 800 1600 800 1600

a Flight Operation Postholder 1 1 900 900 1800 900 1800

a Rooster and Planning Manager 1 1 700 700 1400 700 1400

a Chief Pilot 1 0.25 700 175 350 175 350

p Pilots (CAP) 8 1 1900 1900 3800 15200 30400

p Pilots (First) 8 1 1350 1350 2700 10800 21600

a Chief FA 1 0.25 700 175 350 175 350

p FA 8 1 700 700 1400 5600 11200

a Ground Operation Postholder 1 1 900 900 1800 900 1800

p Station Manager 2 1 700 700 1400 1400 2800 company car

a Technical Operation Postholder 1 1 900 900 1800 900 1800

p Maintenance Manager 1 1 700 700 1400 700 1400

TTL 49375 98750

Cat Data Total Share

Administration

Sum of TTL net 15675 32%

Sum of TTL gross 31350 32%

Production

Sum of TTL net 33700 68%

Sum of TTL gross

67400 68%

Total Sum of Total Net 49375

Total Sum of Total Gross 98750