Rethinking Revenue

air-taxi-12One of the curses of private aviation start ups (the great air taxi revolution!) is the obvious – not enough utilization, not enough income and giant killer overhead. The dynamic between revenue and utilization is the simple reality that when both go up the fixed costs are less per flight, per hour, per passenger, etc. While this may be airplane economics 101 the landscape is littered with brave and smart people with vision who, in the words of someone in 2005, wanted to “darken the skies” with Eclipses. As we know, that didn’t happen, in large part because Dayjet, despite having the best minds and resources, didn’t happen.

But how can it be that smart well financed people fail so often? The only explanation I can offer, from my 20 years in the industry as a pilot, consultant, and yes, air charter company owner, is that airplane owners suffer from a fundamental vision problem once the word “airplane” comes to the dinner table, business meeting or accountant’s office.

In the observant words of one of my business partners, “They are all great entrepreneurs, until they put their airplane cape on.” The airplane cape is a euphemism for throwing out the rules of business since the emotional charge that many of us get from being around aircraft allow us to do very stupid things quickly, with little or no preparation. A good example of this is buying an airplane.

I’m guilty of this behavior.  And, therefore, I can’t judge others equally afflicted. Why did I buy it? Not sure, … my airplane cape was on and I had a romantic notion about doing more bush flying (“getaway up north… fishing, etc.. “) and being able to haul the dogs with me wherever I went.  That would be great I thought. Has it happened in the past 1.8 years since owning the world’s oldest and most tired Cessna 185? No. Even more amazingly is that I convinced my accountant to go 50/ 50 with me on the deal. I’m not sure if I’m a good salesguy or his airplane cape was on.  Either way, I’ve badgered another poor soul into a money hole. Ok, enough about me. Back to the problem at hand – making money.

To fly an airplane for profit is a crazy exercise, but some people do it well. We call them “the airlines.” Everything is measured, milked and pushed. Crew members in a Part 121 (in the US airlines are regulated under FAR Part 121, air taxi under FAR Part 135) airline framework make in some cases 50% less than their colleagues do in business aviation. Even the fuel costs less. Yes, the very same fuel that comes out of the same big pipeline from down south. The airlines pay a flow fee of pennies per gallon to put their own stuff in their planes, while business aviation folks pay 2x or 3x what the airlines are paying.  The simple fact of life of being part of the elite is that you have a target on your back, and that target ensures that you’ll pay more for everything you touch.   The front windshield plates on a business jet can cost 5 to 7 times more than the same window on a Boeing 737 or Airbus A320.

But the airline business is no picnic either. They come and go, but some people do it really well. People like Southwest Airlines, Westjet etc. They actually make money for their shareholders for many consecutive quarters, to the amazement of many bystanders.

But when you look closer at those who make money, you’ll see there is no magic, just a simple recipe:

  1. Ensure it is flying all the time – otherwise it is dead weight financially, etc.
  2. Don’t have too many aircraft types, in fact have one. One sim, one set of tires and one set of tools to fix it.  (Amazingly this gets ignored by too many people, often.)
  3. Be amazing on the service side – repeat revenue is the best revenue – make them come back.  If they don’t come back you’re dead because they are finite.
  4. Understand that “The Southwest Effect” is a real thing – you open up a new market when you find pricing that many more people can afford.

That’s about it.

The good news is that the era of technology we live today allows for all of the above to be real for an on demand air taxi company. There are opportunities opening up across the US, Europe, Asia, India and Africa to rethink how small business and corporate aircraft can not only be operated profitably, but can offer their services to a broader segment of the population. In fact, it is a universal axiom that one requires the other. So long as you want to redefine (or be the first!) to open up a Southwest size business opportunity in the air taxi space, you must accept the fact that catering to the elite traveler is not only the wrong direction, but dooms you out of the gate.

Want to hear more about Adam’s obsession with things like Proletariat Air Taxi?  Watch this dated, but still relevant video from 2005 to see how bent he is on ushering in a new era in aviation.  Also, you can always email him.

About airwebster

Aviation, technology, trends, society and the economic drivers that make it all happen is what makes me tick.
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One Response to Rethinking Revenue

  1. airwebster says:

    Not to pick on these guys, but here’s an example of what won’t work: This snapshot shows a quote from Boston to Bangor, ME for about $6500 in an “air taxi.” If I live in Boston, and have a nice car, and an emergency to deal with in Bangor… I’ll probably drive to Bangor no matter how much stupid money I’ve allocated to burn this week, month or year. That’s a big bite of my stupid money.

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