Florida Air Case Study

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Florida Air Case Study

By: Vincent

Bivona

Qualitative Analysis

Customer Value Proposition:

Utilizing 19-passenger plane, initiate service from W. Palm Beach to

Orlando,

Lakeland, & Tallahassee by the end of 1994 including point-to-point service and

flights coordinated with major jet airline connections.

Targeted customer segment: business travelers, pleasure travelers, & travel trade between these underserved Florida areas seeking convenient, affordable point-to-point service between West Palm Beach and these communities or connecting flights.

MVP at launch: 4 planes to complete two city-pair segments from West Palm Beach to Orlando and Lakeland (6 round trips/day btw. WPB & Orlando and 5 round trips/day btw. WPB & Lakeland)

Technology & Operations Management:

Gaining necessary capital from investors investing money into the company

Gaining airport accommodations and relationships with commercial airlines

Sorting out internal issues to form an effective management and operating system

Gaining liquidity for stockholders within the first 5 years of operation

Go-to-Market Plan:

Provide best transportation value to target customer segment through ads, radio, contests, promotions, Co-ops, 800 number, direct sales, discounts, frequent flyer programs, etc.

Offer free flights for all investors & family

Profit Formula:

The contribution margin (price of product – variable cost) will likely fluctuate with changes due to maintenance of outlying markets, load factor, gas prices, and unplanned malfunctions

Quantitative Analysis

Florida Air has secured a commitment from Fairchild

Acceptance Corporation, Inc. for approx. $10,680,000

in

financing for the 4 aircrafts.

Florida Air is raising $1,500,000 in operating capital to achieve its growth targets based on forecasted earnings and expenses.

Proposes raising entire capital requirements through sale of preferred stock in 30 units of $50,000 each.

Florida Air hopes to gain liquidity for stockholders within the first 5 years of operation through:

1. a merger/buyout 2. an initial public offering 3. a stock repurchase program

Florida Air’s projections predict:

A

loss of money at the end of their first financial term (EBIT= -$391,377)

Largest growth in profit by the end of term 2 (EBIT = $1,208,597)

A steady increase in COGS, anticipating a growth in customers over time

The company’s gross margin will continue to grow along with their profit but profit drops in term 4 (EBIT = $

2,153,159) before seeing growth again in the term 5

Recommendations

In their search for capital, Florida Air failed to establish a

good MVP before launching their venture.

Because Florida Air failed to establish a MVP and instead

decided to bootleg in acquiring 4 planes before securing

capital, they are heavily reliant on investors investing in their company but lack valuable information to support the expected performance of the company.

I would personally not invest in Florida Air under the terms offered.

None of the projections about the company’s performance are supported by an reliable data.

There are a large amount of risk factors involved in Florida Air’s becoming a success, particularly:

Availability of

l

anding slots, internal issues with management, chance of inadequate funding, questionable competition with predatory pricing

These factors, coupled with the large overhead Florida Air has together make the future of the company highly uncertain and therefore not trustworthy.

I would have suggested Dan establish a “leaner” MVP (perhaps 1 plane) upon launching his venture, gather data on customers, pivot if necessary, and then present his business model to potential investors based on data supporting the projected performance of the company