BUSINESS PLAN

Paolo Cartagena Nader Naderpajouh

Sanket Naik

Tuesday, December 9, 2008

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Table of Contents

Executive Summary ..........................................................................................................................ii

The Company .................................................................................................................................. 1

Management Team ..................................................................................................................... 1

Business Strategy ........................................................................................................................ 1

The Service ...................................................................................................................................... 1

Security Policies and Airline Cooperation ................................................................................... 2

Network Efficiency ...................................................................................................................... 2

Service Channels ......................................................................................................................... 3

Pricing .......................................................................................................................................... 3

The Market ...................................................................................................................................... 4

Sizing the Market ........................................................................................................................ 4

Segmentation .............................................................................................................................. 4

Target Market .............................................................................................................................. 4

The Customer .............................................................................................................................. 5

The Competition .......................................................................................................................... 6

Sales and Marketing ........................................................................................................................ 7

Selling Approach .......................................................................................................................... 7

Marketing Strategy ...................................................................................................................... 8

Promotional Plans ....................................................................................................................... 8

Business Risks .................................................................................................................................. 9

Financing Strategies ...................................................................................................................... 11

Rationale for Growth Financing Strategy .................................................................................. 11

Financial Background Information ............................................................................................ 11

Financials ................................................................................................................................... 12

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Executive Summary

The rigors of planning a trip once required tedious phone conversations with airline reservation

services and long lines to retrieve tickets at the airport counter. If the customer reserved a trip

far in advance, they had the privilege of waiting for their tickets to be mailed to their home.

We have since progressed to a network of user-empowered airline reservation systems. There

are self-booking venues online and electronic tickets that can be printed at home or retrieved

at self-serve airport kiosks and ticket counters. More recently, e-ticket barcodes can be scanned

at the terminal using smart phones!

These savvy airline travelers have full calendars and thriving social networks of impromptu

events; schedules are bound to overlap. There are currently no services facilitating the

aftermarket exchange of airline tickets within a network of unsatisfied travelers.

How can disruptive innovation change the way passengers are served? Our company is

enabling this new world of self-sufficient optimization of travel itineraries. Switchtix.com is an

online company that fosters a network of airline passengers in search of an exchange of their

original airline ticket with passengers that have their desired trip itinerary.

The company’s strategic intent is to accomplish the following:

Transform the market of itinerary changes

Be a profitable business

Benefit airlines

Benefit airline passengers

Our business idea has world-wide market potential with over 1 billion passengers per year of

which more than 15% are non-consumers of itinerary changing services. Being the first

aftermarket network of airline tickets will allow our company to be an undisputed leader. The

switchtix.com business model is designed to pursue asymmetries of motivation, have low fixed

costs, be asset-lite, offer a low cost solution at a trade-off, and target non-consumers.

Disruptive innovation tools pursued by switchtix.com encourage a business patient for growth

but impatient for profitability, with a clear plan to learn using a discovery driven planning

approach. The “testing” phase of our business has been designed to start in Europe (Madrid-

Barcelona route) with a plan to expand operations to the United States. After four years,

switchtix.com projects to be a $6 million dollar business with high profitability and

marketability.

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The Company

Management Team

Board President and CEO: Paolo Cartagena

Board Members: Nader Naderpajouh, Sanket Naik

Business Strategy Transform the market of itinerary changes: Our business will enable an online aftermarket to exchange airline tickets where reselling or purchasing tickets is prohibited. We will also strive to be a single registered exchange market for airline tickets similar to what the NYSE is for the trading of securities. Be a profitable business: Switchtix.com will target non-consumers by offering a low-end solution to changing itineraries. The offering is focused on important performance dimensions (e.g., price and flexibility) but involves a tradeoff (i.e., not finding a match for your exchange). Being the first aftermarket of airline tickets in the world will allow our company to be a pioneer. Users will be leveraged by network externalities that discourage them from leaving the network. An emergent approach to develop our business idea will assure the best use of investors’ money and shape the right go-to-market strategy. Benefit airlines: Switchtix.com will benefit all participating airlines by increasing their revenues and reducing their costs (Figure 1).

Benefit airline passengers: Passengers who want to change their itinerary will have a low-end option. They will manage their time better, save money, and have a more satisfying experience when travelling.

The Service

Figure 1: Revenue and Cost Benefits to Airlines

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Our company offers a very clear, simple, airline ticket aftermarket service for airline customers.

The successful execution of our service is contingent on five major components: security

policies, airline cooperation, network efficiency, pricing, and service channels. The security

policies and airline cooperation are external components that we must comply with and

therefore have limited control over. Network efficiency, pricing, and service channels are all

internal components that we can manipulate to our best advantage.

Security Policies and Airline Cooperation

We plan to acquire the necessary security clearances to provide airline ticket exchange services:

1) All security clearances are met once the original tickets are issued and 2) The exchange of the

passenger’s information will be handled by the airlines and simply facilitated by our company.

In addition to security clearances, other economic benefits described in the following segment

(e.g., the reduction of airline costs associated with customer compensation) will convince

airlines of the advantages of our business.

Network Efficiency

An outsourced programming specialist will deliver the designed exchange software, with all the

elements and capacity to ensure the smooth, simple, and proficient exchange of tickets.

Outsourcing this element of the system ensures expertise and minimizes our company’s start-

up time. In the event that outsourcing the exchange software is not feasible, there are several

exchange software models available through other resources, but will increase our start-up

time.

The ability to synchronize multiple airline flight/ticket databases and link them to the exchange

software will be kept within our company as this is our core business.

Our secured payment and identity protection features are also key components of increasing

the efficiency and reputation of our service (i.e., passenger’s information will never be divulged

to other passengers involved in the exchange). These are key components to our business

model that will enable us to build and maintain a large network of users and provide optimal

exchange options.

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Service Channels

Ticket exchanges will be provided through as many channels as possible: our website, ticket

exchange kiosks at airport gates or e-ticketing machines, and on-board personal airline

entertainment systems. Through these channels, our service will be easily accessible at all

times, and users will even be able to pass time on an outbound flight looking for exchange

possibilities for their return flight.

Pricing

The final internal variable enabling our exchange service is pricing. The theory of our ticket

exchange can be explained as “exchanging a ticket is just changing the name on a piece of

paper.” Our price point for this service is $9.99 per exchange. This price benefits both airlines

and customers and trumps the competing alternatives for airline fees that can cost up to

hundreds of dollars. Figure 2 shows a comparison of ticket exchange fees among popular US

airlines with the cost of our service.

Figure 2: US Ticket Change Fees by Airline

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The Market

Sizing the Market

Madrid-Barcelona route (≈4.4 million passengers per year)1

US market (≈700 million passengers per year) 2

Segmentation

Target Market

The target market is non-consumers. This portion of the market consists of people who have a

desire to change their ticket but they do not. In an effort to understand our target market, a

survey was conducted at Indianapolis International Airport consisting of 129 subjects (Figure 3).

1 Air passenger transport in Europe in 2006, Eurostat

2 Bureau of Transportation Statistics, 2008, www.bts.com

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In the target market, the ideal customer

has to be a flexible, frequent flyer who

does not mind flying alone (Figure 4).

Out of the people surveyed, 36% did not

mind travelling alone. Group size would

be an essential piece of information as

finding an exchange match for a larger

group would present a greater challenge

as opposed to finding one for a smaller

group. Frequency of travel, if higher,

means that a passenger uses the aerial

mode of travel on a regular basis and hence would have a higher probability of wanting to

exchange a ticket.

These preferences can be applied in any market with its intrinsic characteristics. Therefore,

diverse strategies based on the same core ideals would be developed for assorted markets. For

example, in Europe, the major group with this core trend may be business travelers and

backpackers. However, in the US, the main focus may be on just business travelers.

The Customer

For the start-up phase, different routes have been investigated. The main criteria were volume

of passengers, type of passengers (discussed in Segmentation), number of airlines active in the

route, and difficulty of running a business in that venue. Based on these criteria, the Barcelona-

Figure 4: Market Map

Figure 3: Summary of Survey Results

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Madrid route, being the most populated route in the world (4.4 million passengers per year),

was selected for the start-up phase. This selection can be justified by the following:

Ease of operating within borders of one country

Minimal security issues in European airports

Fewer number of airlines

Furthermore, the business can be doubled by adding only one destination within Spain (Palma

de Mallorca by 1,757,000 passengers per year to Madrid and 1,740,000 passengers per year to

Barcelona). The next step would be expansion into the US market, with potential expansions

into Europe and East Asia.

The Competition

As of now, a passenger can change itineraries through the following solutions:

Pay change fee to airline

Buy refundable ticket

Buy another ticket (abandon current reservation)

The alternative is to do nothing and fly on original flight, with a great opportunity cost to the

customer. The survey shows that approximately 16% of passengers fall into this category of

non-consumers. Our service will differentiate by competing on important performance

dimensions from customer point of view, as indicated in the Performance Map (Figure 5).

Figure 5: Performance Map

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Sales and Marketing

Selling Approach

Our primary sales channel will be our website, switchtix.com. On this website, users will be

able to log-on and create a unique user account. Users will be able to input key flight

information (“offer”) for the reservation they have but would like to exchange. They will also be

prompted to input search criteria (“request”) for a flight they wish to get. The search criteria

can be very vague, just a date or time of day, or very specific, such as a specific airline and/or

flight number. Obviously, the more general the search criterion, the greater chance the user

has of finding a feasible match.

During the growth phase, additional sales channels will be investigated, including but not

limited to:

Self check-in kiosks at airport terminals

In flight entertainment systems

Switchtix.com kiosks

The website will utilize a search engine

custom-designed to analyze the database

of “offers” and “requests” to find feasible

exchanges. These exchanges may be

straight-forward, two-way matches, where

travelers are simply swapping their

reservations, or can be more complex. The

main goal of our website design and layout

will be to offer an appealing and user-

friendly interface to an otherwise complex

matching process. Once a match is found,

all parties will be notified via telephone, e-

mail, and/or text message (per user’s

request). An exchange is finalized once all

parties review and accept the new

reservation. The exchange process is

described in four simple steps (Figure 6).

Figure 6: Ticket Exchange Process

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With the increasing popularity of the “smart

phone,” boarding passes can now be emailed

directly to passengers. By taking advantage of this

technology, we can e-mail the new boarding passes

to our users immediately after an exchange is

finalized. We expect this will build user confidence

in the validity of their new itineraries.

Marketing Strategy

Phase 1: Start-up

Our marketing and advertising strategy during the start-up of our business will rely heavily on

low-cost internet channels and word of mouth.

Phase 2: Growth

This phase will include expanding our business into the U.S. market. During the growth phase of

our business, we will likely consult an advertising agency to broaden our marketing strategy.

Phase 3: Steady State

During the steady state of our operation, we will focus on increasing our network efficiency as

well as investigating complementary features that will enhance the user experience.

Promotional Plans

Our business model depends very heavily on a broad network of users. Therefore, as we launch

our company, we will need to gain a modest number of users very quickly in order for our

business to be successful. We plan on offering free exchanges to all users for the first 6 months

of our operation. The financial impact of this promotion is discussed in the “Financing

Strategies” section. We expect to gain a broad base of users early on and use word of mouth to

move from the initial “testing” phase into the “growth” phase of our business. As an

alternative, each individual user could be granted one free exchange during the first year of

operation.

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Business Risks

Risk has been analyzed from two perspectives. One is the competition’s point of view, and the

other is from the operational aspects.

Concerning competition, an analysis of Porter’s Five Forces has been performed to identify

threats and devise appropriate strategies to combat them (Figure 7).

The other perspective is operational risk, including but not limited to exchange rate

fluctuations, an airline industry wide crisis, and the pursuit of wrong strategies. The risk of

exchange rate fluctuations would be dealt with multiple strategies. In case of revenues in

different currencies, hedging would be considered. The pricing strategy in other major markets

with different currencies will also be considered.

Figure 7: Porter's Five Forces Analysis

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Another major risk could be an airline industry wide crisis. Due to its asset-lite characteristics, e-

commerce businesses have an advantage compared to other asset intensive businesses in the

industry. In the case of an industry wide crisis, the system can be switched to other

transportation options. The business model can be simply adjusted to serve other modes of

transportation.

Finally, a plan to learn (Figure 8) was prepared to shape strategy as we refine assumptions so as

to avoid mistakes with important consequences. As part of this plan, we are implementing

discovery driven planning to identify the most important operational and financial assumptions.

Checking these assumptions when considering decisions during start-up will build up

confidence to avoid mistakes with disastrous impacts.

Figure 8: Plan to Learn

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Financing Strategies

Rationale for Growth Financing Strategy

1. Start-up phase: Bootstrap financing and possibly an angel investor to start company and

plan the strategic start-up phase. One round ($350,000) of venture capital to finance

working capital for Madrid-Barcelona route and to survive the net loss from the first

stage of start-up phase—when the marketing strategy to grow the network of users is to

provide free service.

2. Growth phase: Additional two rounds ($1,250,000 each) of venture capital to start

operating in most flight liquid airports in the United States. Business is profitable;

however a step-up in working capital is needed.

3. Steady phase: Final phase of venture capital financing ($2,700,000) to increase working

capital to service the entire US market. At this stage, the company will study possible

ways to grow globally. Selling the company or access capital via public financing or debt

will be options. Other sources of revenue will be studied— online advertisements, cross

selling, and exchanges in other industries are some of them.

Financial Background Information

Our company intends to operate with a high reserve of cash as a precautionary measure

and to survive the primary changes in strategy—start-up to growth and growth to

steady phase.

Switchtix.com will need an industry expert to assist in negotiations with cooperating

airlines. For this, the company will hire one independent consultant that has vast

experience in the airline industry, preferably with Iberia.

As part of his or her compensation package, switchtix.com plans to offer options of up

to 5% of our company’s equity. For later stages, our company will avoid offering options

to consultants as a measure to minimize the dilution of ownership from investors and

entrepreneurs.

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Financials