Avinode / BusinessIQ
Magnus Henriksson, business development manager at Avinode, assesses the attempts of three short-haul operators in the US – Surf Air, Wheels Up and ImagineAir – to democratise business aviation.
During 2013 Surf Air and Wheels Up very publicly entered the business aviation market and have, in a short period of time, built a strong brand while simultaneously claiming to be innovating the way business aviation aircraft are being used. When launching Wheels Up, founder and CEO Kenny Dichter made the statement that they aimed at “truly democratising business aviation.” Several years earlier, in 2006, a company called ImagineAir announced its entrance into the business aviation market serving up a true one-way air taxi service claiming to offer an “affordable personal air taxi.”
These three companies have different business models, serve different geographical areas, operate their aircraft in different ways and target different client groups. However, they all have one thing in common in that they are bringing the business aviation product to a new audience, different to the normal charter operator, at an ‘affordable’ price point using non-conventional fleet aircraft such as the King Air 350iER (Wheels Up), Pilatus PC-12 (Surf Air) and Cirrus SR-22s (ImagineAir). In this article, we examine what these operators are doing differently, what their operational performance looks like and try and answer the question: are they really democratising the industry and distributing their product to a wider audience?
First, let’s look at the operators and their business models:
Once launched, the Wheels Up team kept busy and a continuous steam of press releases and news stories was flowing and the company seemed to move forward at lightning speed. Today, Wheels Up is still one of the hottest topics in town but the number of press stories has slowed and the focus has instead become operational.
MUST-READ: Everything you need to know about Wheels Up
The business model of Wheels Up is that it offers individuals as well as corporates a membership to join the Wheels Up Club. An individual pays a $7,250 annual fee and a corporate membership is $10,000 per year. This membership offers clients the ability to – among other things – charter the aircraft at a guaranteed occupied hourly rate on a ‘pay as you fly’ basis. The logic here is that the client only pays for the time they are spending onboard the aircraft (no positioning is charged), which reduces the cost for utilising a business aviation aircraft. The running rate to use the King Air aircraft is currently $3,950 per flight hour.
The company recently reached 1000 members and is currently operating 24 King Air 350i aircraft and has taken delivery of the first nine out of the 10 fabric refurbished Citation Excels from Textron Aviation. By the end of 2014, Wheels Up will operate a fleet of 27 King Airs and 10 Citation Excel. These aircraft are distributed between three different regions, north-east US, south-east and the west coast.
Surf Air falls somewhere between an airline and a business aviation operator. It currently operates a fixed number of routes on a set schedule (an airline like model), but it is selling its product more as a business aviation solution. For a fixed monthly membership fee ($1,600 per month approximately), the individual member is allowed to fly as much as they can. Bookings are made through the website or app and reservations can be made up to 20 minutes prior to departure. The aircraft fly from small airports where passengers can park their cars right outside (a valet will take care of it) and walk straight onboard the aircraft to avoid the queues and hassles of regular air travel.
Surf Air is selling all the benefits of business aviation apart from deciding your own route; deciding the time and getting the aircraft for yourself. Surf Air currently has over 900 members and 350 additional awaiting deliveries of further aircraft. In August 2014, Surf Air announced an order for up to 65 additional PC-12s to be delivered over the coming five years; 15 out of these 65 were firm orders. For this deal the company managed to secure $65m in financing through venture capital firm White Oak Global Advisor, plus $8m from an additional equity run. Surf Air is targeting commuters who spend 2-6 hours in the car or regularly flying between their route airports.
Launched in 2006 as a truly one-way air taxi operator, providing its clients with a fleet of Cirrus SR-22 single-engine aircraft, ImagineAir is based in Georgia to target the south-eastern US. Clients do not pay for the re-positioning of aircraft; booking can be made directly on the website and discounts are offered for one day return trips. ImagineAir has a varied suite of offerings for its clients including pre-purchased jet cards and loyalty programmes. Its main target groups are business and leisure travellers in the south-eastern states who spend 3-8 hours in a car.
Wheels Up became operational in January 2014 and has rapidly grown its presence in the market. The number of departing flights with a Wheels Up King Air 350i has increased from 144 in January 2014 to 961 in November 2014 – a growth of 567 per cent. However, since the peak in August 2014 of 1,031 flights, activity has slightly decreased over the autumn in terms of flights, but the total fleet hours has increased.
During the same time period the company has grown its fleet by around 450 per cent, so activity growth is of course spurred by increased supply, but activity levels are increasing faster than the fleet size is growing. The average hours per tail are also growing steadily at around 20 hours per tail in January 2014 to the current level of around 50 hour per tail per month. To compare, an average King Air 350 on a charter certificate does around 20 hours per month. If we assume that Wheels Up is doing approximately 25 per cent positioning (slightly lower than industry average due to ability to optimise fleet movements), this would mean that they flew 895 revenue hours in November making over $3.5m in flight revenue.
Average flight time for a Wheels Up King Air flight is currently around 1 hours and 15 minutes and the average flown distance is around 277 nm. Since the Citation Excel fleet has only been operati onal since June 2014 it is excluded from this analysis.
A route analysis on Wheels Up travel patterns shows no big surprises as traffic is highly concentrated around the three hubs, north-eastern, south-eastern and California. Teteboro is by far the most commonly used departure airport followed by White Plains, Nantucket, East Hampton, Morristown and Boston. Nantucket and East Hampton have a seasonal explanation and will most likely fare down on the list when a full year review can be made.
Doing the same analysis for ImagineAir, but now comparing to 2013 numbers, the data tells us that in 2014 ImagineAir has made 3,730 flights between January and November, a 20 per cent increase versus the same period last year. During the same period it has also grown its fleet, which as a result, has made the average hours per tail decrease slightly year over.
That said, ImagineAir does put on an impressive average of 41 hours per tail which is almost 100 per cent more than other Cirrus SR-22 on charter certificates, and in October and November 2014, it put between 50-60 hours on each tail. ImagineAir also seems to be affected by a strong seasonal trend where April-November is its peak period. The average flight time for an ImagineAir flight is approximately 1 hour and 18 minutes and the average distance is 193 nm.
A route analysis on ImagineAir travel patterns shows no big surprises as traffic is highly concentrated around its Georgia base with Atlanta, Charleston and Brunswick being the most popular departure airports.
Since Surf Air flies on a fixed schedule and the business model is not relying on the hours the company put on each tail, the same type of operational analysis would not provide any deeper insights. But to provide some details, during Jan-Jun 2014 Surf Air did, on average, 16 flights per day, and as of July this number increased to almost 21 flights per day. San Carlos (KSQL) to Santa Barbara (KSBA) is the most frequently flown route closely followed by Hawthorne (KHHR) to San Carlos (KSQL).
Are these operators democratising the industry?
First and foremost it is important to acknowledge that all three companies are definitely innovative and the industry should salute their efforts to try new ways of distributing the business aviation product, especially as they are targeting a somewhat new audience.
But are they really democratising the industry? Let’s review the operators one by one.
ImagineAir is targeting clients that would like to replace a 3-8 hour drive with the efficiency of flying. One of its most popular routes is KPDK (Atlanta) to Brunswick (KSSI), a trip that would take roughly 4h 45min to drive, so right in the sweet spot of clients that ImagineAir is looking to get. A quote for this trip starts at $1,199 (depending on when you would like to depart) with a flight time off 1h and 23min. With all the hassles of getting to and from the airport, you are most likely looking at a time save of somewhere between 2-3 hours. The price is definitely not comparable to driving a car, but on the other hand it’s cheap enough to spark interest and offer up the product to a whole new set of clients who would not normally be utilising business aviation.
With a $15,750 initiation fee, $7,250 in annual dues (starting second year) and a cost per hour of getting on the King Air at $3,950, Wheels Up is playing in a different league. On the other hand, for an individual looking for a club membership with all the fringe benefits, and who lives within one of the company’s geographical target areas, Wheels Up is probably a good solution. It is cheaper than fractional and comparable – or even cheaper – than regular charter depending on what type of trips the customer is doing.
For an individual working in the Paolo Alto area who flies on average once a week to LA and occasionally flies down to their beach house in Santa Barbara, for around $1,600 per month they are actually close to being able to justify the direct cost of purchasing a Surf Air membership, and then we are not even considering the indirect value add by avoiding the travel and hassle of getting to SFO and LAX.
So, to answer our question, Wheels Up is doing a great job when it comes to branding and perhaps even changing the industry. Its business model is a serious threat to both the regular charter operator as well as fractional, but is the company democratising the industry? Our answer to this is no.
ImagineAir is getting closer to being able to claim the title and is actually able to introduce new individuals to our industry, which we all should be grateful for.
With Surf Air, being neither an airline nor a business aviation operator, it’s hard to put them in a box, but they are definitely exposing (at least) 900 individuals to some of the benefits of using business aviation, and at a price point where you can actually justify it directly. So our conclusion is that Surf Air is democratising business aviation – if that’s the industry they are really in.
Avinode , Member Stories , The Node
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