NBAA 09: Believing the dream

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Did last year's death of DayJet - the Florida start-up that was going to tempt America's suit and briefcase brigade from airlines and automobiles into frequent, accessible and reasonably-priced Eclipse 500s - end the air taxi revolution in North America?

The spectacular failure of a business that planned by now to have hundreds of very light jets criss-crossing the south-east of the USA - filled with contented corporate travellers - seemed to prove what cynics had been saying for years: that imposing a pay-per-seat, low-cost airline model on the business aviation charter market - based on branding, sound business disciplines and economies of scale - was a pipedream of deluded entrepreneurs.

Many would argue that the nascent sector was in trouble long before the credit markets and eventually the world economy went into tailspin in 2008. Eclipse Aviation's struggle to get its VLJ certificated pushed back the plans of the early adopters who had based their business models on the low-cost twinjet.

linear air eclipse vlj linear air
 © linear Air

Some air taxi pioneers made seemingly schoolboy errors, failing to ensure that their aircraft were equipped to fly in harsh Mid-Western winters. Others appeared to be in an endless process of being just one signature away from major investment, with the credit crisis of 2008-9 finally dashing any remaining hopes.

The radical idea of the VLJ being disruptive technology - Eclipse founder Vern Raburn's vision that lowering the cost of owning a jet would rewrite the rulebook of general aviation - collapsed along with Eclipse itself.

But the air taxi dream survives in North America, thanks to a group of dogged entrepreneurs. They may no longer believe they can change the world overnight. But with aircraft including single-prop Cirrus Aircraft SR22s, Embraer Phenom VLJs and a handful of the Eclipse 500s that made it to market, they still think they can bring down the costs of operating business aircraft and open the world of private charter to a much wider constituency.

"DEMOCRATISATION"

Joe Leader, chief executive of the Air Taxi Association - founded to represent these new carriers - insists air taxis are about the "democratisation" of air travel, bringing links to the rest of the country to communities that are bereft of a scheduled air service.

While only 330 cities are served by commercial airlines and that number is dropping every year, there are 5,000 airports small aircraft can access. "With an air taxi service, you can live in a town of 20,000 population and be able to fly to hundreds of cities around the USA," he says.

However, frustratingly, the biggest hurdle seems to be convincing the travelling business public of their usefulness. "The primary problem has been creating the demand. The number one thing I encounter is that business executives genuinely don't know air taxis and charter are an option and won't change the way they are booking their travel," says Leader.

According to Leader, there are about 30 companies in the USA operating what could be defined as an air taxi model. In his opinion, that means offering a price point broadly comparable with an airline's club class fare - around $1,500 per flight - and operating in a way designed to optimise the use of the aircraft, keeping it flying with passengers for as many hours as possible each day. However, that critical mass has been hard to attain; most of these 30 businesses are flying just one or two aircraft. Only about half a dozen enterprises have a fleet of between five and 25.

One of these is SATSair, at almost five-years-old arguably the most venerable air taxi operator in the USA. Based in Greenville, South Carolina, SATSair had without fuss built a loyal customer base throughout the south from Virginia to Florida with its fleet of 26 SR22s, notching up 60,000 flight hours and 13 million revenue seat miles. However, the economic downturn has been tough on a company that never had the luxury of a backer with deep pockets and had to finance its growth largely from its own profitability.

With investment still hard to come by and revenues down 30% year on year - although the current decline has been pegged back to just 10% - SATSair removed 12 aircraft from its fleet at the start of this year.

imagine air cirrus sr22 imagine air
 © Imagine Air

Chief executive Steve Hanvey insists that, rather than a panic measure, the downsizing was absolutely the correct response and has made the company more efficient, with revenues per aircraft tripling in the past nine months. "Even with the worst economy this nation has seen in a long time, we had our best financials ever in quarter two. I don't think there can be any question about the financial stability of our model or the willingness of people to adopt it," he says.

Customers have scaled back on buying pre-paid block hour bookings at a discount and prefer to pay on an ad hoc basis instead. This, says Hanvey, is a sign of economic nervousness. However, improving traffic and enquiries in the past few months have encouraged SATSair to look at bringing back some of its furloughed aircraft. Hanvey is also back on the road to look for backing. "Investment is hard to come by right now, but we are talking to good quality people," he says. "[The failure of] DayJet has not helped talks with investors, but the fact that we have survived means we have proven the air taxi model with the SR22," he says.

In a sign that co-operating with rivals is more important than undermining them in such a fragile market, SATSair earlier this year signed an agreement with fellow SR22 operator Imagine Air of Atlanta to recommend each other's services to passengers and reduce empty legs.

"It's been a good learning experience," says Imagine Air chief executive Ben Hamilton. "We're all in it together in this business, so it makes sense to work together if they have requests outside their service area and vice versa." The company operates five SR22s and Hamilton says typical clientele include "small businessmen, architects, musicians and the like. We're not flying executives of Coca-Cola [whose headquarters are in the Georgia city]."

Like SATSair, Imagine Air charges per flight rather than per seat - DayJet's ambitious model - and three passengers can fly for the same price as one, providing they keep within a 235kg (520lb) limit. Similarly, customers only pay for the leg they fly.

Despite Atlanta being one of the world's biggest airline hubs with flights to dozens of US cities, Hamilton says that does not affect Imagine Air's prospects. "If you're flying from, say, Columbus, Georgia to Savannah, Georgia, you'd have to connect through Atlanta, or, more realistically, drive six or seven hours, the same time as it would take by scheduled airline. In fact, we are competing with cars more than we are competing with airlines," he says.

Similarly, Hamilton says the downturn has not affected the privately funded business too drastically. "It's not like the dot coms. We were never looking for the capital to ramp up quickly to 50 aircraft and attract 1,000 customers at once. We want to grow one customer and one aircraft at a time, building organically and adding planes from profit."

NON-STOP-OFFERING

Imagine Air is looking at a second type so it can extend its non-stop offering beyond the SR22's limit of about 320km (590nm). It had originally been an Eclipse customer and the in-development Cirrus single-engined jet or the Socata TBM 850 are possibilities.

Another veteran of a young sector is Linear Air, which has survived despite being an early Eclipse customer and being left with four of the VLJs after the Albuquerque-based manufacturer went under.

"Diligence and good luck" and the fortune to secure financing ahead of the credit crunch has seen the Concord, Massachusetts-based company keep two of its four Eclipses flying and the business afloat, according to chief executive Bill Herp. Linear Air has also added a string to its bow by becoming a Federal Aviation Administration-approved training centre for the Eclipse 500 and its FAA inspectors.

Despite "hunkering down", business over the summer has been extremely strong, with August revenues doubled over a year before. "Cashflow has been positive in the past few months," says Herp.

Now everything hangs on the new owners of the failed Eclipse business resurrecting first parts supply and Linear Air embarking on Plan B: taking on management contracts some of the 265 Eclipse 500s produced and building its fleet that way.

"Our ultimate vision remains 300 aircraft, but that would mean Eclipse production restarting," says Herp. "But we don't need 300 to be viable. We can be pretty solid with 10 and can get to 30 by tapping the owners of Eclipses."

jet suite phenom 100 interior jet suite
 © Jet Suite

After everything, Herp remains an evangelist for the original VLJ. "There is no other aircraft that has the market appeal of the Eclipse because of its remarkably low fuel burn," he says. "The Phenom 100 and [Cessna] Mustang are not much more attractive than older Citations or Learjets because they have the bigger fan on the engine and burn so much more fuel."

There are others with dreams of an air taxi revolution still intact. And for Alex Wilcox of California-based Jet Suite, the Phenom 100 is exactly the aircraft the air taxi market has been calling for. The company, which has funding from a New York merchant bank, launched quietly with one Phenom 100 in May but plans to enter the market in a big way at the National Business Aviation Association convention.

Marketing itself initially to the big metropolitan areas around Las Vegas, Los Angeles and San Francisco, the company plans to take delivery of roughly one aircraft a month from January and reach a fleet of 60 aircraft in the next few years.

BUSINESS PLAN

Key to Jet Suite's business plan is a "card-like product" where customers will be pushed towards pre-paid bulk purchases of flight hours. Many people in the traditional card market are "overpaying at $6,000 an hour in a 20-year-old Hawker 400" and are "low-hanging fruit", says Wilcox. "We would be able to offer Los Angeles to San Francisco for half that price."

The company - whose clients include iconic aircraft designer Burt Rutan of Scaled Composites - says traditional charter companies also make the mistake of operating a different type for every mission. "We are going to operate a uniform fleet without legacy costs," says Wilcox. "It's the best of the low-cost carrier rule book applied to regional charter."

On the opposite coast, another start-up with big ambitions is about to launch itself seriously. Privately funded Kavoo is based in Danbury, near Boston - the name is loosely based on the airman's "clear and visibility unlimited" phrase suggesting a "perfect day to fly". It has a fleet of five SR22s, with an additional Beechcraft King Air, and plans to grow to eight SR22s by the end of the year and "add another 15 as we roll out into other markets", says chief executive Richard Humphrey. "We started this summer with a soft launch, but we feel that if ever there was a right time for this type of business model, this is it."

Humphrey, like many of his counterparts, believes that the secret to making a success of air taxis is a one-type fleet and backfilling empty legs, by creating a well-known "sky limo" brand that can sell capacity online. "In the charter sector, typically one-third of return flights are occupied. There is so much waste. Our goal is 60% and eventually 80%. That is how you get the price to come down," he says.

Other air taxi ventures are finding the going harder after stalled attempts to launch a particular business model. Todd House, a Kentucky medical doctor who founded Your Jet, wants to be the first US Part 135 operator using the Diamond D-Jet single-engined jet with a fixed price offering that is aimed at "the mass market".

He has six on order and hopes to take his first delivery a year from now. But he says it has been difficult to get sufficient investment to really start an air taxi system. He admits too that he is "taking a gamble" that the Canadian-built D-Jet will be "problem free". With a Phenom 100 due as well, House plans to start a simple charter business and slowly develop a high-utilisation air taxi concept. "We will need to generate cashflow first. We are standing on a new frontier, but it could be three to five years before we can get there," he says.

Chicago's Blue Sky has also had its share of troubles. "The air taxi idea is great, but you have to pump a lot of money into it," says Mark Kiela, owner of the SR22 operator. The company has had to downsize from four to one SR22, although it still has a Cessna 421. Part of the problem with the single-engined aircraft was the difficulty in crossing Lake Michigan. "If the engine goes, you don't want to be flying over freezing water," he says. "The whole game now is about surviving," he says. "We don't have a big brother to bale us out."

Other start-ups are putting their faith in radical business models. Despite its first operator failing last year, "putting a big dent in our plans", California-based Miwok is piecing together a new network of companies flying SR22s under a kind of brokerage or franchise arrangement. Miwok itself, based in the Bay area near San Francisco, does not operate its own aircraft but provides businesses with a "pricing model to run a revenue management system" in return for commission. The set-up, says chief executive Gad Barnea, "has never been done before", and so far Miwok has three SR22s operating under its umbrella.

Like a number of air taxi companies, whose owners have come from an internet background, Miwok has identified social networking as the ideal way of spreading the word about its services without spending a great deal on advertising. "We are big users of Twitter and Facebook," he says.

Because Part 135 operators are not allowed to offer scheduled flights, the internet is a way of making the most efficient use of the resource. "Eventually people will be able to invite people to join them with a seat on the plane. As more people join you, the more the price for the flight comes down," says Barnea.