Business Essay 

Question 4:

There are many arguments in favour of Flylo's project.  Firstly entering the Asian market at this time seems wise. Incomes in selected Asian markets are forecast to rise strongly (7.2%) - which is must faster than Europe; Flylo's alternative market to venture into. Demand for air travel is increasing quickly in the Asian market due to it being such a huge place and it's the easiest form of transport, unlike in Europe where other transport methods are popular. Also, as an increase in demand has risen to 12 %, this results in new customers seeking air travel which may lead to Flylo gaining customer loyalty. 

However, there are many reasons why entering the Asian market may be a bad decision for Flylo. The average rate of return on the Asian project is 17.5% which is lower than past figures Flylo have managed to achieve in years such as 2011. Investing so much money in a part of the world new to the business is risky enough. Despite connections with Air Thailand, Flylo have little knowledge regarding the Asian air transportation market, therefore the 17.5% figure does seem discouraging. 

Alternatively, the net present value for this project for the first four years is £84 million, which seems positive - especially considering this would be the first four years of the investment in this type of project. Rhona has admitted a real profit and a relevant share in the market will take some time, but forecasted sales do show a steady rising investment. This suggests that the current time is an ideal opportunity for Flylo to enter the Asian market. 

On the other hand the investment Flylo needs to raise to enter the market (£400 million) is enormous, especially considering Flylo have already borrowed money in the past. The businesses non-current liabilities have risen since 2011 - taking the companies gearing ratio to 52.29%, which is higher than the 50% statistic that suggests a business is highly geared, resulting in a possible rise in interest rates which may lead to Flylo being unable to pay off the loans when payments are due. 

As well as this the company have a poor liquidity rate. Figures decreasing in the past few years along with venturing with Air Thailand (a company in a weak cash position) could threaten and damage the project as a whole. Risky, considering the early stages of the project only suggest small profits. 

However, entering a joint venture with Air Thailand could be deemed a smart thing to do. As Flylo are entering a market completely new to them, teaming up with a company already established in the Asian market and with knowledge of it may help Flylo to establish themselves in the market and although Flylo will have to pay 8% of its Asian revenues annually, the help of Air Thailand giving up some routes etc seems more than worth it. 

When considering both aspects of the argument, it is a close judgement with many pros and cons to each side. Personally, I would recommend Flylo do enter the cheap air travel market in Asia, as I believe there is an open window for it at the moment and Flylo may miss their chance. The rise in Asian incomes as well as air travel being the easiest method of transport in Asia is very encouraging for Flylo and do suggest now is the perfect time. The case study also suggest Rhona Jackman's main aim is to grow the business as a whole and the Asia opportunity would fully support this aim. The fact that it's a joint venture, makes it much less risky especially in the marketing sector. 

As long as Flylo keep costs and prices low in the developing market, I believe they hold a great chance in enjoying a good share in the market that is growing quickly. Flylo should go ahead and venture into the Asian market.