TaraLetsFly.com: proposed business plan for an online travel agency with a search engine for flights offered by Local Airlines / Charity M. Ignacio

Year : 2012

Number of Pages : 131 leaves

Executive Summary

This is a business plan for TaraLetsFly.com. TaraLetsFly.com is conceptualized as an Online Travel Agency (OTA) with an online flight booking system available on its website. Local tourism has been improving in the country and the number of Filipinos engaging in travel has been increasing. The continuous expansion of the online community is also noticeable with the growing population of Filipinos on Facebook, frequency of online seat sales popularized by Cebu Pacific and the number of online promo sites (such as Groupon Ph, Deal Grocer, Cash Cash Pinoy and Ensogo) with local offerings including some travel packages. With this growth, it is apparent that the confidence on online transactions has also been increasing. For those who book their flights online, one of the difficulties for consumers is to search through different airline websites for the best flight schedule at the best prices. TaraLetsFly.com leverages on making an online flight booking facility that consolidate flight search. While there are several sites that offer such service for international flights, to date, there is no local version of this designed for consumers. At best, there is a website that offers this facility for travel agents only. This is a niche that can be explored, targeting online Filipino and foreign travelers and tourists going to and from the Philippines, and planning their inter-island travels with the Philippines. Literature review was done for four main topics : business plan, business models, first-mover advantage and barriers to entry. From the literature review, the structure of the business plan was derived. It also shows the different kinds of business models and how the business model can be used as the foundation for building the business plan. It is also discussed the sources of first mover advantages and the potential barriers to entry. The methodologies used for the strategic market research, projections and financial research as well as their limitations are discussed in this business plan. For the strategic market research, an online survey is conducted to learn more about the target market. An interview was also done with some airline representatives as well as with an IT practitioner who is also an owner of a travel agency. For the projections, the sources of data and trends are identified. It is also discussed how Linear Regression is used for these projections. For the financial research, the companies whose financial statements were used as models for the financial estimates are identified and the reasons for choosing these companies are discussed. The assumptions for the computations are also discussed. The business model is the main foundation of this business plan, thus, the business model of TaraLetsFly.com is discussed in detail. Its vision and mission involve providing travel planning tools that will help travelers and tourists as well as the travel industry. Osterwalder's Business Model Canvas is used to design this business plan for TaraLetsFly.com illustrating the relationships among customer segments, value proposition, channels, customer relationships, revenue streams, key resources, key activities, key partnerships, and cost structure. For financial analysis, capital spending and fund requirement are estimated that amounted to 4 million pesos. Profit potential is shown from the apparent growth in air travel and growing revenues of airlines. Projected earnings from commission and discounts as well as advertising are computed from 2014 to 2018. It is assumed that there will be no earning in 2013 because this year is allotted for development. Although, the venture is already expected to have some revenue of around 13.7 million pesos in 2014, operational expenses, payment from loans, and such a conservative projection turn this revenue into net loss of over 85 thousand in its first year of operation. However, by 2015, it is expected to make around 3.4 million net income and it goes up to nearly 6 million net income and increasing its asset value to 16 million by 2018. These are reflected in the pro forma financial statements. Analysis of the factors of return on investment was also done that showed the venture's net present value, internal rate of return and profitability index of benefit/cost ratio at two different discount rates. The discount rates used are 10 percent and 50 percent. 10 percent is used for estimating the venture's value with only the inflation in mind. For the last decade, the inflation rate has not even reached 10 percent. 50 percent is computed for to take into consideration that a venture capitalist expects to see returns from their investment. All the assumptions for the computations are enumerated.

On the other hand, computing for the Return on Asset shows that the venture can build up enough assets, most of which are in cash, that can be better utilized to increase returns and profit margins. Three companies were used as models for the financial estimates including Infobuilder Technologies, Inc., Vinta Systems, Inc. and Ensogo, Inc. For the industry analysis, it has been established that the Department of Tourism does not have accreditation for online travel agencies. If such will later on be established, it will serve as an advantage for TaraLetsFly.com in terms of barriers to entry and assessing good quality service providers to partner with in providing tours and accommodation. For now, TaraLetsFly.com is only affected by RA 8792 or the Philippine Electronic Commerce Act (ECA). While the competing rates as low cost carriers of most local airlines means lower earnings for TaraLetsFly.com, this can be compensated by the expected volume which is not surprising for a country that is an archipelago. The study shows that the target customer segments of TaraLetsFly.com travel for work, leisure, vacation with family or friends at an average of twice a year. They are frequently online from around 3 or more times a day for 1 to 3 hours each time and spend much of their time in social networks, engaging in email exchanges and research or data gathering. There is also preference for online booking using credit card. The study also shows that the country is technologically ready for such venture as majority of the online population now already making purchases online. Many already book their flight online using the different websites of airlines. It has been established that 30 percent of Cebu Pacific's sales are done online and SEAir is getting around 80 percent of booking online. An online survey targeted towards online Filipinos was conducted in February 2012 that is partly the basis of the government plan as well as the marketing strategies of the venture. The projections are based on trends seen on available data and some conservative assumptions with regards to the market share that TaraLetsFly.com may get. This paper provided the opportunity to better understand the needs of an online travel agency (OTA) and its profitability. A competitive analysis of the business model was done using six forces analysis which is similar to Michael Porter's five forces analysis but modified by Kathleen Allen to include analysis on technology in addition to the analysis of barriers to entry, threat from substitute products such as the traditional travel agents and online booking facilities of the airlines, buyer's power, supplier's power and expected rivalry. In addition to these, the sources of first mover advantages, as enumerated by Narayanan, were analyzed and it was found that it can take advantage of first mover advantage by maintaining a good reputation and being the standard of others that may want to get into a similar venture, having preemptive positioning with continuous developments in the website, having people get used and feel at ease in using the website, possibility of getting better rates for being an industry leader and early profits. As for the design and development of the website, there were three approaches that are considered : 1. Development of the platform around the global distribution systems (GDS) to connect to airlines. 2. Use of a combination of metasearch and screen scraping techniques, or 3. Acquire on off-the-shelf travel application. From the analysis, it is apparent that the third option is more ideal. Aside from this, the design and development of the website has been divided into phases and these phases were based on the survey responses regarding the features that are more important for most users. Towards the last part of the paper, the key people in the venture have also been identified and how much shares they will hold. The employment and bonus plans have also been discussed that explains some of the large increases in the projected operational expenses. The discussion also includes plans of distributing dividends to its shareholders after the company has paid off its debts. With a starting capital requirement of 4 million pesos, using very conservative projections and large increases in expenses each year, TaraLetsFly.com is expected to have an asset value of 16 million pesos by 2018.