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Walking Peru
Executive Summary

AN OVERVIEW OF PERU

Peru is located on the South Pacific coast and ranks among the world's most attractive tourist destinations. Its geographical diversity, archeological, art and cultural heritage, traditions and folklore far exceed its Machu Picchu, Nazca Lines and Lord of Sipan fame.

Beaches of unsurpassed beauty along its almost 3,000 km coastline, impressive mountain landscapes in the Andes, and virgin jungle in the heart of Amazonia are ideal tourist and sport attractions.

In August 1990 Peru opened its economy to free markets through a reform and adjustment program. Results since 1993 include GDP growth, inflation under control (see Table 1), and a strong bargaining position vis a vis multilateral organizations. Present and committed investments during the next five years should lead to stable GDP growth over 4.5% annually, i.e. more than twice the current population growth rate.

Peruvian and foreign investors enjoy equality of treatment before the law in all economic activities (Legislative Decree 662). Foreign investors are assured full currency convertibility to remit abroad their earnings and other royalties from the use and transfer of technology.

Another important government achievement is the current climate of political and social peace. Peru is moving along the path of democracy on the basis of the constitutional principle of active citizen involvement in successive elections. The government has achieved remarkable results in its struggle against violence and Peru now lives in peace with thousands of Peruvians returning to their homelands and promoting regional development.

In this general climate of revitalization, some industries stand out, including tourism. Indicators of this sector's potential are:

 1993199419951996
Income (US$ million)268402520673
Average expenditures per person (US$)8479419801029
Source: Central Bank (BCR) Prepared by the authors

Like few other countries, Peru can boast a rich variety of symbols and unique products.

South American ruminants like the vicuna and the alpaca, marinaded fish "cebiche," unique "pisco" grape brandy, Pima cotton and giant grain corn, the highest train crossing and the deepest canyon on earth are all found in Peru.

Everything is there to attract investment and turn tourism into a spectacular growth industry based on quality services focusing on customer satisfaction. In the middle and long term, Peru's tourism industry shows bright prospects for development and economic growth.


EXECUTIVE SUMMARY

Business Presentation
A recreational tourism company, Walking Peru will create opportunities to visit Peru's choice tourist attractions through environmentally friendly activities. Our company will initially focus on passive recreational sports not requiring specific knowledge or physical training. In a subsequent stage, other sports offering will require minimum learning for independent individual practice.

Our window of opportunity is the possibility of showing the world Peru's tourist attractions from a different viewpoint, and creating an easier and fun way to enjoy nature that breaks away from traditional molds.

International and local travel has expanded continuously over the last four years in Peru at an annual average rate of 28.95%. The government's image promotion agency Promperu has estimated growth to continue at the rate shown below:

Tourist flow199419951996199719981999
International386,000485,000668,000861,0001,110,0001,420,000
Domestic1,007,0001,347,0001,855,0002,391,0003,055,0003,944,000

Our company expects to fill a void in traditional tourism by projecting a corporate image. Planned business lines will result in the Airwalk, Sandwalk, Seawalk, Riverwalk and Snowwalk subproducts designed to closely adapt to their respective environmental settings. Business lines will be managed using the scheme below:

Potential Market
Market penetration in the initial stage will rely on the Airwalk: Hang-glider excursion promoted as natural, safe and fun way to fly.

Target market is made up of local and international tourists from 18 to 50 years. International tourists are expected to comprise 60% of the total audience. Local clients are estimated to come from the departments (states) where the activity will be carried out. Market research shows potential customers willing to pay for the Airwalk excursion are 70% foreigners. Among Peruvian potential clients, 83% belong to the high and middle income levels or a total of approximately 730,000 persons. Only 6.6% of the potential market is included as future clients or 13 daily flights at each sales point. The percentage was determined on the basis of initial Airwalk installed capacity, itself subject to projected initial investment constraints.

Competitive Strategy
Generally based on a differentiated product approach, our strategy places a premium on quality and coverage. It provides clients with required complementary services to give them added comfort and security at the site. For market positioning, our efforts will focus on Cuzco and its three points of sale in Machu Picchu, Pisac and Chinchero. Airwalk's closest competitors are isolated and sporadic excursions with limited services to the clients. Offerings in this group include ultra-light aircraft and delta-wing flights. Introducing the hang glider option requires agreements with tourist promotion agencies, travel companies, and hotels which together will offer a comprehensive package for domestic tour operators selling abroad. These packages are exempt from the 18% sales tax.

Product
Airwalk. Hang-glider excursions, our initial product, are hang-glider or tandem engine flights.4 A professional instructor is provided during the 30 minute flight. Travelers come into close contact with nature, appreciate the tourist sites and can easily resume the flight after the visit. Franz Schilter, a long distance hang-gliding world champion from 1993 to 1995, will develop this line of business.

Pricing Strategy
Based on market research findings, we have set the price at US$40 including all stages from flight preparation to landing. Circuit service pricing will depend on specific circuits chosen by clients.

Promotion
A promotion plan through television, radio, the Internet and three-fold brochures is detailed in the enclosed advertising campaign. The plan's goal is to create awareness of the company and the product while luring clients through aggressive sales promotions.

The Management Team
Three MBA experts will contribute their managerial skills. T. de la Cruz is an experienced operations design and implementation professional for service companies. P. Neira has experience as legal counsel with adventure sports companies and international competition organization. M. Rios has started and consolidated companies that reached a US$2-3 million turn over after just three years.

Financial Plan
A five year operations projection shows 80.72% returns on investment and net present worth of US$1,520,889 from a launching capital investment of US$763,335 for the company and its first line of business. Projected flow is as follows:

ITEMS12345
Net Income1,813,9702,050,6932,255,0902,428,3032,571,699
Total Cost1,336,2831,504,6921,701,0751,720,0131,942,034
Net Margin477,687546,001554,015708,290629,665

The tax rate has been set at 30%. Costs include lease payments, overhead, depreciation and amortization.

1 CANATUR: National Tourist Chamber
2 Source: Apoyo Opinion y Mercado S.A.
3 Prepared by Promperu, the government's image building agency.
4 The option between a hang-glider and an engine driven flight depends on altitude. Engines are needed above 2,000 meters of altitude.


Walking Peru
Table of ContentsAppendices
0. Executive Summary
1. Product Concept
2. Tourism Industry
3. Market Analysis
4. Competitive Advantages
5. Products
6. Marketing Plan
7. Operations
8. Organization
9. Financial Results
Perus's tourist calendar
Survey and Results
Letters
Operations schedule
Investment budget
Capacity expansion
Revenues first year
Most likely scenario
Contingency scenario
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