NPV Calculations

Year 0 Year 1 Year 2

Ticket Sales 270,000,000.00 xxx

Cost of Operations: (xxx) (xxx)

Fuel Expenses xxxx xxx
Maintenance and Repairs xxxx xxx
Crew Training Costs xxxx xxx

Airpot fees (Assess for Sunk Costs - if

the we are already paying OR Tambo a
fee to operate there, this will be seen as
sunk costs) - Not relevant xxxx xxx
Ground handling fees (Assess for Sunk
Costs) xxxx xxx
Marketing and Promotion Costs xxxx xxx

Initial Costs
Technology System Costs (xxx)
Air Craft Acquisitions / Leasing (xxx)
Research Cosrs - Sunk Costs -
Equipment Costs - New Route (xxx)

Working Capital
Trade Creditors (Adjustment) xx xx
Inventory (Adjustment) xx xx
Trade Debtors (Adjustment) xx xx
Cash and Cash Equivalents xx xx

Terminal Value (Year 6) = Year 5/ (Wacc - g)

Taxation (Note 1) (xx) (xx)

Net Cash Flows xxx xxx

Compute NPV less MV of Debt Add MV Assets = Equity Value

TAXATION NOTE:
Net cash flows: xxx xx
Wear and Tear (xxx) (xxx)
Lease Rentals (xxx) (xxx)
Section 12 C (xxx) (xxx)
Recoupment - Section 8(4)(a) xxx xxx
Tax Rate @ 27%

WACC PRINCIPLES
Yes, it is possible to adjust the Weighted Average Cost of Capital (WACC) for inflation. WACC is the average rate of return a company is expe
assets.
 Year 3 Year 4 Year 5 Comments

Growth Rate - Avoid a very high growth

rate e.g. 11% - a higher growth rate
seems optimistic.
xx xxx xxx
The most recent estimates suggest that
demand for air transport will increase
by an average of 4.3% per annum over
the next 20 years. (ICAO Report)

(xxx) (xxx) (xxx)

xx xxx xxx
xx xxx xxx
xx xxx xxx

Current Inflation Rate 5.9%

xx xxx xxx

xx xxx xxx
xx xxx xxx

xx xx xx
xx xx xx
xx xx xx
xx xx xx

xxxx

(xx) (xx) (xx)

xxx xxx xxx

TAXATION NOTE:
xx xx xx
 (xxx) (xxx) (xxx) Section 11 (e ) - Cost or Value
(xxx) (xxx) (xxx) Section 11(a) ??? Document 6
(xxx) (xxx) (xxx)
xxx xxx xxx

WACC PRINCIPLES
the average rate of return a company is expected to pay to all its security holders (including debt and equity) to finance its
Examples - Continuation
Beta - WACC
General Consideration - Apply this to On-time Airline

Quantitative Factors

Market Size and Demand:

Market Analysis: Quantify the size of the potential market for the new route. Analyze historical data and projections to estimate
passenger demand.

Revenue Potential:
Ticket Pricing: Conduct a detailed pricing analysis to determine optimal ticket prices that balance competitiveness and profitability.
Revenue Projections: Estimate potential revenue streams from passenger ticket sales, ancillary services, and cargo.

Operational Costs:
Fuel Costs: Calculate fuel consumption and costs based on the aircraft type and distance of the new route.
Operating Expenses: Estimate ongoing operating expenses, including crew salaries, maintenance costs, and ground handling fees.

Aircraft Economics:
Aircraft Efficiency: Evaluate the fuel efficiency, range, and capacity of the selected aircraft for the new route.
Aircraft Acquisition or Leasing Costs: Quantify the upfront costs associated with acquiring or leasing the necessary aircraft.

Load Factor Projections:

Load Factor Analysis: Estimate the load factor (percentage of seats filled on each flight) based on market demand and competition.
Break-even Load Factor: Determine the load factor required to cover operating costs and achieve profitability.

Route Profitability Analysis:

Profit and Loss Projections: Develop profit and loss projections for the new route over a specified period, considering various
revenue and cost factors.
Return on Investment (ROI): Calculate the expected ROI for the new route by comparing projected profits to the initial investment.

Financial Metrics:
Net Present Value (NPV): Calculate the NPV of the project by discounting future cash flows to their present value. A positive NPV
indicates the potential profitability of the new route.
Internal Rate of Return (IRR): Determine the IRR to assess the project's rate of return compared to the cost of capital.

Break-even Analysis:
Break-even Point: Identify the number of flights or passengers required to cover both fixed and variable costs.
Time to Break-even: Estimate the time it will take for the new route to reach a break-even point.

Route Performance Metrics:

Revenue Passenger Kilometers (RPK): Measure the total revenue generated per kilometer flown.
Cost per Available Seat Kilometer (CASK): Evaluate the cost efficiency by calculating the cost per available seat kilometer.

Seasonal Variations:
Seasonal Demand: Analyze historical data and trends to understand seasonal variations in demand. Adjust schedules and marketing
strategies accordingly.

Risk Assessment:
Sensitivity Analysis: Conduct sensitivity analyses to assess the impact of variations in key variables (fuel prices, ticket prices, etc.) on
financial outcomes.
Risk Mitigation Strategies: Develop strategies to mitigate potential risks, such as economic downturns or unexpected events affecting
operations.

Government Incentives:
Incentive Programs: Explore any government incentives or subsidies available for airlines introducing new routes to promote regional
development and tourism.
financial outcomes.
Risk Mitigation Strategies: Develop strategies to mitigate potential risks, such as economic downturns or unexpected events affecting
operations.

Government Incentives:
Incentive Programs: Explore any government incentives or subsidies available for airlines introducing new routes to promote regional
development and tourism.
Qualitative Factors

Tourism and Local Attractions:

Tourist Appeal: Assess the appeal of the destination for tourists. Consider the proximity of popular tourist attractions, natural
landmarks, and recreational activities.
Local Culture: Understand the local culture and heritage to tailor services and marketing strategies accordingly.

Community Engagement:
Community Support: Engage with the local community and stakeholders to gain support for the new route. Consider the potential
economic and social impact on the region.
Community Events: Be aware of local events and festivals that may attract visitors and influence travel patterns.

Airport Facilities and Capacity:

Infrastructure Quality: Evaluate the quality and capacity of George Airport's facilities, including the terminal, runways, and passenger
amenities.
Operational Efficiency: Consider the efficiency of airport operations, including customs and immigration processes.

Competition and Positioning:

Competitive Analysis: Understand the competitive landscape at George Airport. Identify existing airlines, routes, and their market
share.
Route Positioning: Define the unique selling points of the new route and how it differentiates from existing options.

Local Business and Economic Climate:

Business Opportunities: Explore potential business opportunities in the local market. Consider the demand for business travel and
corporate partnerships.
Economic Trends: Assess the economic stability and trends in the region to anticipate passenger demand.

Environmental Considerations:
Environmental Sensitivity: Given George's location in the Garden Route, consider environmental conservation efforts. Emphasize
sustainable practices and align with the region's commitment to eco-tourism.
Natural Beauty: Leverage the natural beauty of the region as a selling point for the destination.

Customer Demographics and Preferences:

Target Customer Profile: Define the target customer demographics for the new route. Consider the preferences and needs of
potential passengers.
Customer Feedback: Gather insights from potential customers through surveys or market research to understand expectations.

Government and Regulatory Relations:

Regulatory Compliance: Ensure compliance with South African aviation regulations and any specific requirements for George
Airport.
Government Support: Explore any government incentives or support for initiatives that contribute to regional development and
tourism.

Weather and Seasonal Considerations:

Weather Patterns: Consider the weather patterns in the region and how they may impact flight operations, especially during certain
seasons.
Seasonal Trends: Understand seasonal variations in travel demand and adjust schedules or marketing strategies accordingly.
(SACAA - article, not allowing the aircrafts to land

Brand Image and Reputation:

Brand Perception: Assess the existing brand image of the airline and how it aligns with the expectations and perceptions of potential
passengers.
Public Relations: Consider public relations efforts to build a positive image within the local community and among potential travelers.
(I came across an aricle on the website, where the passenger was complaining about George Airport and it service, the passenger
spoke about the long que and how he/she almost missed the flight becuase of the long que. The passenger also mentioned that
there are a lot of flights landing/departins and seems like the airport cannot handle the pressure - perhaps we should also look into
Seasonal Trends: Understand seasonal variations in travel demand and adjust schedules or marketing strategies accordingly.
(SACAA - article, not allowing the aircrafts to land

Brand Image and Reputation:

Brand Perception: Assess the existing brand image of the airline and how it aligns with the expectations and perceptions of potential
passengers.
Public Relations: Consider public relations efforts to build a positive image within the local community and among potential travelers.
(I came across an aricle on the website, where the passenger was complaining about George Airport and it service, the passenger
spoke about the long que and how he/she almost missed the flight becuase of the long que. The passenger also mentioned that
there are a lot of flights landing/departins and seems like the airport cannot handle the pressure - perhaps we should also look into
this, is this still the case or the airport has adapted?)