How Commercial Operators Are Redefining Business Aviation Charters.

Tuesday 16th May 2017

SurfAir

If business aviation is to grow in the new economy, it needs to expand to a larger demographic of users beyond blue-chip flight departments and high-net-worth individuals. This is the premise business aviation analysts have agreed the industry must accept as it contemplates a future fraught with change.

As we'll see in Part 2 of BCA's examination of innovative concepts in marketing charter, forward-looking operators are bringing the principles of the so-called "shared economy" to private aviation, broadening it to a wider class of users. These new business models are emerging to replace or augment the traditional business aircraft ownership and charter/management models since the 2008 recession and its aftermath, one lingering effect being flat sales of new business jets and a glut of relatively young used ones.

While fractional ownership brought a new class of users to the benefits of business aviation -- albeit in parsed-out shares -- many participants ultimately left the programs when their shares were devalued as a result of fractional providers running up hours and cycles of their customers' aircraft with chartering and card schemes. Now these former fractional owners are themselves turning to charter and membership programs to continue exploiting the advantages of business aviation without the burdens of whole aircraft ownership.

Pointing out that in 2015, two million people worldwide accessed business aviation in comparison to 800 million traveling via the airlines, Embraer has hypothesized an intriguing business model that could further enlarge the population of business aviation users as well as stimulate new aircraft sales. Put forth by the former CEO of the company's Executive Jets division, Marco Tulio Pellegrini, who departed Embraer in April to head Industria Aeronautica de Portugal (owned 65% by Embraer), the proposal suggests formation of alliances between manufacturers and leasing companies, the latter which would buy new aircraft, subsequently leasing them to charter providers for scheduled operations between city pairs offering robust business traffic.

The alliances would identify key markets that could support a premium level of service based on convenience and, especially, time savings when compared to legacy airline service. Operating between general aviation terminals or executive FBOs, these services could streamline passenger processing and security clearance as well as offer luxury onboard comfort, catering and curb-to-curb accommodations akin to traditional business aviation operations. Furthermore, specific customer groups could be targeted in alignment with business centers, e.g., finance and legal, and the model would be based on providing direct point-to-point service as opposed to the airlines' hub-and-spoke distribution system.

In Pellegrini's example, ideal stage lengths for the scheme would average 1 to no more than 2 hr. duration, and to attract lessors to the concept, relatively high utilization of the business aircraft employed would be a necessity to reduce operating costs and premium fares.

The Bliss Jet team: (left to right) Chief Operating Officer Omar Diaz;
Executive Vice President Toni Drummond; and President and Chief
Executive Officer David Rimmer.

An objective of the concept would be to alter perception of business aviation from an indulgence of the wealthy to premium air transportation for business leaders According to an informed source within Embraer, the concept is still active but awaiting completion of a reorganization of the Executive Jets division in the wake of Pellegrini's departure.

One That's Trying It

Now, an attempt to implement a scheme very much like Pellegrini's concept but on a transoceanic basis officially began operations April 16 between New York's LaGuardia Airport (KLGA) and London Stansted Airport (EGSS) using Gulfstream business jets. This is Bliss Jet, the creation of David Rimmer and Omar Diaz, both with extensive backgrounds in business aviation: Rimmer formerly ran Alerion and Excel Aire charter/management companies and began his aviation career as a BCA associate editor, while Diaz, currently a consultant, has worked in the private jet and helicopter industries for two decades.

The two conceived Bliss Jet after market research revealed that many business jet owners were flying commercially across the Atlantic to do business rather than adding cycles and hours to their airplanes and paying high fuel costs. Still, they wanted to avoid the time-wasting hassle of airline travel and security processing. As part of that research, Diaz told BCA, the pair studied most-traveled international city pairs, finding New York/London (not surprisingly) topping the list, with more than 800,000 people flying the route in first class every year.

"For the concept we visualized," he said, "we needed to capture 1,000 of them annually. These people are paying $8,000 to $12,000 one way on British Airways, depending on when they book their flights, since having to reserve at the last minute, you will pay through the nose. What could we offer that the airlines couldn't? The answer, primarily, was time savings."

Typical interior treatment of a Gulfsteam operated on behalf of Bliss Jet's
LaGuardia-Stansted service for $9,995 per seat one way. Credit: Bliss Jet

This became the "anchor" for the service. "Commercially, you have to arrive 2 hr. before the flight and go through the whole process of checking in, checking your bag, going through the TSA security check with all that entails, and getting to the boarding lounge," Diaz said. "For our service, we ask passengers to arrive 30 min. before the scheduled flight at the Marine Air Terminal at LaGuardia where they get out at the curb, take 25 steps into the lounge, get the security screening from a professional company owned by a former FBI agent, get ushered to a van and driven right to the airplane. Over at the airline terminal, at 30 min., you've just checked your bag.

"On one of our Gulfstreams," he continued, "the passenger is already one-third of the way to London by the time you board your airline flight. On the other end, at London-Stansted, customs comes on board and clears the passengers, then everyone gets deplaned to a private terminal in the Inflite Jet Centre FBO. "

In bringing the concept on line, Diaz and Rimmer relied on their mutual experience and contacts in business aviation. The concept was to use long-range business jets operated by contracted FAR Part 135-certificated operators to make scheduled transoceanic flights from FBO to FBO under the Department of Transportation Part 380 public charter regulation. "We got the approval in November 2016 and struck deals in mid-February with operators and FBOs," Diaz said.

Following that, the new company embarked on a testing, or route-proving, program, carrying out a series of revenue flights, averaging six passengers per flight. At that time, operators signed included White Cloud Charter out of White Plains, New York, Jet Access Aviation at Palm Beach and Journey Aviation at Fort Lauderdale, Florida. At press time, discussions were underway with a fourth. "Under the public charter allowance, we must specify to the DOT who we are going to use for a particular schedule," Diaz said.

The test flights involved Sunday night departures from LGA with arrivals the following morning at Stansted. Return flights left Thursday afternoon and, depending on the winds, arrived Friday before midnight or Saturday after. Aircraft used for the trips were Gulfstream IV-SP, V and 550 types. "The seating varies between 12 and 14," Diaz explained, "but we are capping it at 10 passengers per flight. Under provisions of Part 380, none of [the passengers] need to know one another. There's no membership fee -- our commitment is to get them to London and back with a private experience. The fares are always the same no matter when you reserve and are priced at $9,995 one way."

Time Is $

"It ain't cheap," Diaz admitted, "but the [high-worth individuals] will pay for it to save the time, and you can't buy time. The average business jet owner has bought the aircraft for time savings, so this saves them $70,000 to $90,000 a flight on a trip to Europe in their own plane. So to avoid that, they fly domestically to New York on their own aircraft and then transfer to an airline. Now they can do it with us, saving them lots of time. We're bearing the cost of operating the flight. And a last-minute booking saves them $3,000 to $4,000 [rather] than doing it on British Airways."

The other advantage, Diaz claimed, is using the private terminals. "Others have tried a pseudo-version of it using airliners but were confined to having to access airline passenger terminals. We cut all of that out. It's expensive to use a gate -- they charge by the minute. We are limited to 22 souls on board or we have to use a gate, so with only 10 on board [13 total with crew], we can use the private terminal. We pay one ramp fee between $800 and $1,000."

After six moths of operations, Bliss Jet plans to add a second round trip per week and possible expansion to other destinations, e.g., Dubai, Beijing, São Paulo and the Caribbean.

"We've been feeling 'the invisible hand' of the airlines and regulators," Diaz said. "'Are you an illegal airline?' But once we explain it, they disappear. We would want to become the ultra-first-class service for the airlines, and we look forward to a time when cooperating airlines might actually book some of their high-end passengers on Bliss Jet."

Another attempt aimed at pulling passengers off of the airlines and inviting them into chartered business aircraft is Overland Park, Kansas-based MemberJets. Intended "to break the gap between commercial and private aviation and the lack of service on the former and high prices on the latter," MemberJets was founded three years ago by Ty Carter, who previously plied careers in investment banking, aviation insurance and risk management. (A private pilot, he reports having logged 8,000 hr. of total flight time, 6,000 of them in a Pilatus PC-12.) "We wanted to open it up to a new demographic, the middle market -- more than the 'One Percent' say, the 'Five to Ten Percent,'" Carter told BCA.

MemberJets founder Ty Carter claims "a passion to share more aviation with more people." Credit: MemberJets.

Like Bliss Jet, MemberJets is licensed by the DOT as a Part 380 indirect air carrier. "What they are doing is empowering operators to set up their own shuttle operations on a per-seat basis rather than selling charters to a single client," explained Jeff Reis, a consultant who assisted Carter in setting up MemberJets. "Previously it wasn't possible to do that, so MemberJets becomes the indirect air carrier using the service of these operators."

The two assembled a team to compose a software suite allowing operators to be inserted into a system for on-demand charters and advertise scheduled routes on a per-seat basis. Tapping into the shared economy, a second feature enables individual customers to crowd-source flights to destinations of their choice. "It allows indirect carriers to hold themselves out to offer scheduled air travel on a per-seat basis, an important distinction between a Part 121 air carrier that does it directly," Reis said.

The company currently has eight Part 135 operators on the platform, collectively representing 150 business jets. Carter identified half of the operator group as International Jet and Mountain Aviation, both of Denver; Kansas City Aviation Center, Kansas City, Missouri; and Jet Linx, Omaha, Nebraska.

"We vet them all for safety compliance based on Wyvern and Argus [audits] and through Greg Feith, a former NTSB investigator who assists in safety compliance," he said. "Under Part 380, you have to float a bond, hold all fares and related money in escrow, and post a notice of all flights to the DOT." (See Part 1, BCA, April, page 52.)

Meanwhile, members sign up with the program and pay a $250 annual fee, allowing them access to the marketplace and flights posted in the system. "You log onto the platform, which is mobile friendly," Carter said. Four types of flights are listed: scheduled with origins and destinations, i.e., shuttles, where the customer can book a seat; flights to special events; on-demand charters; and crowd-sourcing, where the traveler can request a flight, and the operator will "build the trip out," with a minimum number of seats that have to be sold. The operator dictates price per seat and minimum seat fulfillment to ensure profitability.

B-to-B Advantages

The concept also focuses on charter brokers, where, according to Reis, most contemporary tools focus on business-to-consumer, that is, "a company trying to directly empower operators to be connected with the travel client or a membership." But the business-to-business link that is missing is "offering a service to the broker who has the client and allowing him or her to purchase individual seats on the aircraft. In the conventional charter model, the broker cannot purchase seats on an airplane, only the entire aircraft. Our platform allows them to purchase individual seats, and MemberJets aggregates the seats and then finds operators who can fly them. From the operator's perspective, they are fulfilling a charter for MemberJets, and from the broker's perspective, they are completing a seat fulfillment through MemberJets' Part 380 certificate."

MemberJets protects its operators' profitability by honoring retail rates for the service, which Carter claimed is unique. "Operators want to get a fair charter price, so MemberJets is allowing the operator to sell the charter at the full retail price. So using an eight-passenger business jet as an example, the individual fare would be one-eighth the retail cost of the charter. The operator doesn't see that -- only the overall cost of the charter. Customers receive discounts from operators on every flight because we can provide them [the operators] with the volume to absorb that."

The software platform was in development for two years. "It's an enabling technology," Carter said. "It's about changing how people fly, giving business travelers another option. There are a lot of players in the space, but no one empowers the operators the way we do through our software platform and the ability to access Part 380, enabling them to market their aircraft in a way that they were unable to do before."

MemberJets currently supports a dozen employees. Offering the service only domestically, as of the end of March, the company had signed more than 200 members while its operator group had performed approximately 130 flights since starting from zero in January.

"We are encouraged by what were seeing from the market," Carter observed. "Everyone is trying to go directly to the consumer, but we are trying to add value to the charter brokering industry and the operators. It pays off with higher utilization for the aircraft, maintains margin and profitability on every flight, and brings in an entirely new user base. We just signed a deal with [executive search firm] ExecRank that will be offering our service to its 10,000 active members and partner companies. This is among a portfolio of services through strategic partnerships we offer our customers."

Xojet's 165 pilots fly the operation's core fleet an average of 45,000 hr.
per month. JetSmarter members have access to the aircraft at discounted
rates. Credit: xojet

Pointing out that in 2015, Part 135 revenues totaled $15 billion, while the airline industry showed a net profit of $25 billion, Carter believes this disparity presents "a huge opportunity to expand private aviation and bring the efficiencies of jet travel to a demographic for which it has been previously unattainable. We are trying to alleviate the inefficiencies and hassle of flying on the airlines by offering an alternative that also benefits the operators and brokers. That's the premise of how we're doing it and why we're here -- a passion to share more aviation with more people."

'Democratizing' Private Aviation

Alliances between online brokerages/aggregators and operators are all the rage in the crowd-sourced air charter-verse these days, and another one that has received considerable attention in the business press is the XOJET/JetSmarter partnership formed in 2015. In this case, it's like a marriage between two elephants, as XOJET claims to be the third-largest private jet services company in North America behind NetJets and Flexjet and the largest offering on-demand charter, while JetSmarter bills itself as "the world's largest mobile marketplace for private jets."

According to XOJET CEO and Chairman Brad Stewart, the company has "morphed" quite a bit over the past 10 years since its inception when it was primarily a fractional ownership program.

"We define ourselves not by fleet size," he said, "but by the number of clients we serve and broker -- 7,000 since inception. Every year we serve about 3,000 to 4,000 and have 1,500 in membership programs."

XOJET's 165 pilots fly the operation's core fleet an average of 45,000 hr. per month, while a separate shuttle operated independently for an unnamed client racks up an additional "several thousand" hours a month. Additionally, XOJET claims it logs several thousand more hours through its on-demand brokerage business. The operation's core fleet, which "floats," consists of 24 Cessna Citation Xs and 17 Bombardier Challenger 300s.

The company's fleet operations headquarters is located in Sacramento, California, at the former McClellan Air Force Base, while executive offices are sited in Brisbane, south of San Francisco, with sales offices in New York and Los Angeles. Employees number between 400 and 500, including pilots. The dedicated shuttle, an FAR Part 125 scheduled operation wholly owned by XOJET, operates six Embraer ERJs throughout the Western U.S., employs 50 pilots and is overseen by its own CEO.

JetSmarter was launched in 2013 by Sergey Petrossov, a Russian émigré raised in Florida, to offer custom charters and sell unused seats and empty legs. Operating out of Fort Lauderdale, the booking company claims it has lowered the cost of entry into private aviation using a software platform based on algorithms, artificial intelligence ("AI") and "mobile distribution" that optimizes inventory to drive down pricing.

Under the partnership, the platform powers an XOJET-branded mobile app allowing XOJET's clients to book charters on the operator's Citations and Challengers. The payoff to JetSmarter is real-time availability of XOJET's aircraft and discounted pricing equal to XOJET's Preferred and Elite Access programs. Further, XOJET clients are able to book shared charter flights and shuttles by seat and harvest last-minute deals on other operators' aircraft through the branded app portal to JetSmarter's listings.

Memberships in JetSmarter (independent of XOJETS) range from $7,000 to $11,000 per annum (plus a $4,000 initiation fee) and yield a panoply of benefits including cut-rate prices on crowd-shared charters. More than 7,000 members have been signed, and since non-members can use the booking service, as well, sans bennies, Petrossov claims 300,000-plus users have booked flights on his mobile app over the last two years. Since inception, Petrossov has raised $157 million from a variety of investors against a $1.6 billion valuation of his startup.

The JetSmarter mobile app lists three categories of service: JetShuttle, or shared private flights, where members can search for and book a seat on a scheduled flight. Routes include New York to Boston, Washington, Atlanta, Chicago, Las Vegas, Miami, Palm Beach, San Francisco, Los Angeles and London.

JetCharter is perhaps the most creative service. It enables members to initiate and customize their own shuttles, either by chartering a jet for themselves and sharing the cost with their friends, or purchasing individual seats and throwing the subsequent charter onto the JetShuttle page of the app, creating a shared flight available to other members.

JetDeals, or exclusive one-ways (i.e., repositioning, or deadhead, inventory) on private jets, where members can book flights to new destination cities on a daily basis.

"One of today's trends is the 'democratization' of private aviation," XOJET's Stewart said. "One approach is private airlines like SurfAir and another is the digital brokerage: plane sharing and booking full charters via a digital app. JetSmarter is positioned to be the winner in that second vertical. We entered into a five-year partnership where they are our exclusive distribution channel. On top of that, they purchase repositioning inventory from us for their clients."

JetSmarter is the fastest growing charter brokerage in the U.S., Stewart pointed out, "offering many benefits to their customers. We are exclusive to them in terms of distribution, but they are also using other fleets -- for example, Delta Private Jets, Jet Suite, Travel Management Company and Jet Edge. They specialize in repositioning inventory, shared shuttles and digital brokerage of whole aircraft. Ride sharing saves money. Customers get the same pricing our retail clients get."

The 'Anti-Airline'

And speaking of SurfAir . . . this Los Angeles-based private airline was founded during 2012 and 2013 by Wade Eyerly, a frequent traveler whom it is claimed developed it in response to the "pain points" of commercial aviation. "He put a team together to use business aviation in a shared-use model," Jim Sullivan, SurfAir's senior vice president for operations, said. The start-up inaugurated in-state operations in June 2013, servicing Burbank, Santa Barbara and San Carlos markets. Today, SurfAir serves 13 destinations, all in California, from an operations center at Hawthorne that houses dispatch, operations and maintenance functions. "We operate under a provision in FAR Part 135 for commuter airlines operating aircraft of nine passenger seats or less," Sullivan explained.

Replicating Private Aviation

Under the SurfAir business model, the company strives to offer the "private aviation experience" and is constantly studying airplanes that could fit that template and price point. While the traditional airline model is to cram as many seats into the airplane as possible to reap the highest number of fares, surprisingly, Sullivan claims SurfAir actually doesn't want its aircraft to be full in order to give its members the "private aviation feel" and flexibility to get onto a flight on short notice. Average load factor is 60%.

"So we are always looking for business-type aircraft with not too many seats, something we can operate from an FBO rather than a passenger terminal." FBOs used include Atlantic Aviation, Signature and Jet Center LA. At Santa Barbara and San Carlos, SurfAir uses its own facilities and is supported on the ramps by, respectively, Atlantic and Rabbit Aviation.

While SurfAir currently operates under Part 135, Sullivan emphasized that the company views it "as the floor rather than the standard. We operate to a Part 121 standard wherever it is practical, so we adopt the best practices for safety because 121 promotes the highest level of safety." The company's Hawthorne dispatch center is staffed with licensed dispatchers and duty managers to process flight releases and conduct dispatch functions and flight following.

"We file and fly IFR, always with two pilots, and our captains are all ATP-certificated even though Part 135 doesn't require that for this class of airplane," he said. "Additionally, we do full-flight Level D simulator training at FlightSafety International's DFW facility in the only Pilatus PC-12 full-motion-base simulator in the country."

Total employees number a little over 200, 70 of whom are pilots. The company reports having signed just under 3,000 members in the program, up from a few hundred at startup. "We are close to breaking even and will be profitable shortly," Sullivan said. "We do a little on-demand charter for the members who request it. We fly the aircraft an average of 200 hr. a month, so there is not a lot of room for on-demand work."

Earlier this year, SurfAir management announced a European program in partnership with TAG Aviation and has advertised it on its website. "While the E.U. has approved single-engine turbines for IFR night ops, there is a jet product there at a longer stage length and higher price point," Sullivan said, "however, we have not made a fleet decision on Europe at this time." One thing that has been decided is that the Euro operation will be set up as a separate endeavor under the umbrella of a holding company.

"We believe this brand and model has a worldwide potential," Sullivan said, "as there are a lot of city pairs with the right stage lengths. I expect we'll see something emerge in the second or third quarter of 2017."

What BCA has described here is just the beginning. Alternative, disruptive business aviation charter options are popping up everywhere, exploiting obscure corners of the regulations and challenging the status quo. It's a new web-driven world that may totally recast private air transportation. Fasten your seat belts, raise your tray tables to their full and upright position . . . and hang on.

Aviation Week - BCA Article:     http://bit.ly/2qrtcmg

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