Montenegro Airlines Finance Case Study

Background –

In late December 2020, the national airline of The Republic of Montenegro (a small Balkan country  bordering Croatia on the Adriatic coast) – Montenegro Airlines – ceased flying due to a combination  of events. Covid-19 has ravaged many airlines over the past 12 months, but the problems that this  airline had, preceded the additional challenges that the onset of the pandemic brought.

Montenegro Airlines had a small fleet of 4 aircraft (3 Embraer’s and 1 Fokker) and primarily served  to connect the country with its single biggest market of nearby Serbia, in addition to key hubs across  Europe. The country heavily relies on tourism (almost 25% of its GDP is connected to tourism) and  the road and transport infrastructure to/from Montenegro, is very poor. Flights by other carriers to  Montenegro are extremely seasonal, hence the importance of the need to maintain air connectivity  to the country. The previous airline suffered from a lack of scale, which resulted in a very poor and  inefficient cost structure. Its network and schedule were limited, coupled with poor aircraft  utilisation. It was also poorly managed, which taken together, resulted in the airline having an  accumulated debt of over EUR100M. So by the time that the full effects of covid-19 were felt across  the entire aviation industry, this proved to be the final terminal blow to Montenegro Airlines,  causing it to cease operations.

Task –

Understanding the importance of having a national airline, the Government of Montenegro has  called for proposals from interested parties, to submit plans on the launch of a new airline, to be based in the capital, Podgorica.

They have set the following criteria for the proposed plan to include:

– Aircraft type: A320CEO with 180 seats

– Frequencies and city pairs:

o TGD-BEG 3x daily

(av fare $70 one way)

o TGD-IST 2x daily

(av fare $90 one way)

o TGD-LHR 1x daily

(av fare $140 one way)

o TGD-SVO 2x daily

(av fare $160 one way)

TGD-VIE 2x daily

(av fare $80 one way)

o TGD-CDG 1x daily

(av fare $130 one way)

o TGD-FCO 1x daily

(av fare $80 one way)

o TGD-FRA 2x daily

(av fare $90 one way)

o TGD-ZRH 1x daily

(av fare $85 one way)

o TGD-AMS 1x daily

(av fare $80 one way)

Assessable components –

1.

Draw up a spreadsheet showing a possible 1 week pattern for the A320 fleet. You must

comply with any curfews.

2.

Calculate the utilisation (hours/day) for the A320 fleet – you need to determine how many

aircraft are needed and provide justification/rationale for your decision.

3.

Calculate the WEEKLY RPKs, ASKs, Revenue, and R/ASK if the forecast network seat factor is

80%.

4.

Using the following block hour costs, what routes are profitable / loss making ? What is the

break-even LF% for each route ?

A320 (based on typical industry block hour values)

Crew

$428

Fuel

$2,378

Aircraft

$530 (lease or ownership cost)

Distribution

$433 (sales/marketing/commissions etc)

Insurance

$33

Other

$45

TOTAL/HR

$3,847

The Report must be done individually and requires:

• the preparation of an excel spreadsheet showing the proposed 1 week flying pattern, and

• a brief analytical report of 500 words to support the remainder of the assessment requirements (+/- 10%).

The report must be DEVELOPED FROM YOUR OWN ANALYSIS. Evidence of critical thinking and  analysis is the key driver of good marks for this assignment.

A generic paper on airline schedule planning will NOT be adequate. You must apply your knowledge to the specific schedule question. Papers that do not integrate theory and analysis will score poor marks.In order to complete this assignment.

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