Turbulent take-off for taxis

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In an interview with Flight International a week before its 19 September announcement that it was grounding its aircraft and cancelling future flights, DayJet founder Ed Iacobucci was candid about the air taxi pioneer's perilous situation. Although it was attracting new customers by the day to its per-seat on-demand service, the cash-starved company's survival depended on finding new sources of funding and "it could be that there aren't many available next year".

The end for the troubled Florida-based start-up - which was operating just 12 of the 239 or so Eclipse 500 very light jets it planned to acquire as part of an initial firm order - came sooner than feared for Iacobucci and others who have staked money and reputations on the success of the air taxi concept. After months of desperately trying to source growth capital, what Iacobucci described in his valedictory press release as the "most serious capital crisis of our lifetime" killed the last hopes the former IT entrepreneur had of securing the money DayJet needed to stay in business.

 © DayJet

DayJet's collapse is grim news for a sector that promises to revolutionise the way the USA and the rest of the world does business by making regional on-demand private aviation available, if not to the masses, then to millions of ordinary business executives and middle-class leisure travellers. The credit crunch had already made venture capital extremely hard to come by - DayJet's high-profile failure means anyone looking for a loan to fund a venture that includes the words air taxi or aviation in the next few months will likely find their calls unreturned.

The problems faced by the VLJ manufacturing start-ups have not helped the situation. DayJet's launch was delayed for more than a year by the Eclipse 500's certification problems, and 16 of the 28 aircraft it had taken delivery of were awaiting a crucial avionics upgrade before they could be flown in revenue service. The bankruptcy of Adam Aircraft earlier this year had already put paid to Magnum Jet's plans to launch operations with the A700. Linear Air of Boston says its plans to expand from a fleet of its current four leased Eclipses has been held back by 12 months by delays in getting hold of new examples of the VLJ.

DayJet's demise will further cloud a sombre mood at next week's National Business Aviation Association annual convention in Orlando, where manufacturers and operators alike will be worried about the effect on the US business travel market of downsizing in the banking sector and a fall in corporate confidence generally. Although demand for business jets in the rest of the world had outstripped domestic sales before the current crisis, North America remains a critical market for the industry. The durability of air taxi businesses, in the USA and overseas, is vital for the fortunes of VLJ programmes such as the Eclipse 500 and Embraer Phenom 100 - although airframers including Eclipse and Embraer are quick to stress that on-demand charter will make up only a minority of their overall VLJ sales.

SENSE OF ADVENTURE

Two years ago, when Flight International last looked in detail at the emerging air taxi sector (Flight International, 10-16 October 2006), there was a sense of adventure and opportunity, with a number of start-ups, including Magnum Jet and Pogo, lining up multi-million dollar financing to follow DayJet into the market in a big way. A handful of regional businesses, such as North Dakota-based Cirrus Design SR22 and Diamond DA42 operator Point2Point and SATSair in Greenville, South Carolina, had already begun offering air taxi services with modest fleets.

However, some of those who were sceptical about the revolutionary potential of the air taxi concept at the time feel vindicated by the DayJet failure. One of these is Teal Group's vice-president analysis Richard Aboulafia, who describes the vision of mass business travel on VLJs as "George Jetson stuff", a reference to a 1960s cartoon series about a futuristic American family who whizz around town in a jet pod.

satsair sr22 
  ©SATSair

"The price point and the need to raise capital are problematic at best for an air taxi system," he says. "There is always going to be a volume of demand that justifies charter operations, but nothing like the mass transit operation that was once envisaged." To work, the business model needs an airline-scale network, he says. "But the task of financing this sort of critical mass to achieve profitability is sheer daunting. It just eats costs."

Aboulafia's scepticism is certainly not shared by the Air Taxi Association (ATXA), a "market acceleration" organisation set up in June last year to promote the concept of high-utilisation private air travel. Rather than seeing air taxis as a sector being strangled at birth by the current financial crisis, it believes the infant industry is still at "early adopter" phase. "We are still right at the beginning of the market," says ATXA president Joe Leader. "People get excited and you have to work out some kinks, but the business models are progressing and more people are following."

Key to the market's long-term growth potential are a number of "dynamics", believes Leader. Firstly, there is the inefficiency of the USA's sclerotic hub and spoke airline system, which can mean many fruitless hours at airports to do a point-to-point business trip of a few hundred kilometres, a situation not helped by the withdrawal of many regional flights by the cash-strapped airlines. Secondly, there has been the arrival of much more fuel-efficient aircraft, not just VLJs but advanced pistons such as the SR22 and DA42, which means "air charter is not restricted to the very rich any more".

The third factor, says Leader, is aircraft utilisation. While the fractional sector was the first to properly realise the benefit in maximising the utilisation of an aircraft, air taxi start-ups have taken that concept one step further by "aggregating demand" to sweat their fixed assets as much as possible and cut down empty legs. Lastly comes the technology to allow operators to do that. Computer software that predicts when and where demand for air travel will peak was key to DayJet's business model and is a "game changer" for low-cost business aviation, he says.

Despite the pessimism surrounding the market following DayJet's collapse, Leader believes that a psychological barrier among business travellers is all that stands between the air taxi sector and success. "There is still a giant gap between a full-fare airline ticket and owning your own fractional share, but when people realise that gap is bridgeable the market becomes huge," he says. "Once they realise that they can use 5,000 airports rather than the 300 served by the commercial carriers, it will democratise private air travel throughout the country. Three people travelling together is a very effective use of an aircraft."

BIDING THEIR TIME

DayJet's demise has left around three or four air taxi networks operating around North America, with a number of others preparing to or having just launched services. Still others - including Pogo - claim to be biding their time for the right aircraft to become available, the Federal Aviation Administration to clarify the regulatory environment and the all-important finance to come on stream. "We're waiting for the dust to settle," says Pogo founder and president Cameron Burr, whose start-up postponed an initial public offering in March due to "current market conditions".The territory covered by the market has expanded too, from the East Coast, where the first operators were based, to Chicago and the Midwest and California.

The term "air taxis", while convenient, is misleading, with as many different business models as there are operators, and some rejecting outright the term. "Air taxi is a misnomer," insists Burr. "We're in the branded air taxi market." Gad Barnea, chief executive of southern California start-up Miwok, which plans to establish a network of franchised aircraft operators, calls his concept an "air taxi and airline hybrid". To Bill Herp, chief executive of Linear Air, air taxis suggests "mom and pop" charter operators. "We're creating a brand. We have 15,000 individuals on our database," he says.

Perhaps one of the most striking features of the fledgling air taxi market in the USA has been the success of business models based on single-pilot piston aircraft, particularly the SR22. While VLJs, especially the Eclipse 500, were initially touted as being at the vanguard of the air taxi revolution, it has been these lower-cost aircraft - more available over the past two years than VLJs - on which many start-ups have based their initial fleets. They include arguably the country's most successful air taxi start-up, SATSair, together with SR22 operators Atlanta-based Imagine Air, Miwok and BlueSky Taxi, which flies out of the Chicago area.

imagine air sr22
 © Imagine Air

In business for almost four years and flying more than 80h a month, SATSair is the grand-daddy of US air taxi operators. With a fleet of 26 SR22s it covers nine states up the south-east coast from Virginia to northern Florida and will fly into around 600 airports this year (the SR22's runway length requirement is just 750m). Customers effectively hire the aircraft by the hour, rather than DayJet's per-seat model, so three fly for the same price as one. However, the extra load restricts where the SR22 can fly without a fuel stop and the average passenger number is 1.8. SATSair sells most of its flights in pre-paid blocks of up to 200h (it costs $550/h for 50h, compared with a one-off hourly charge of just under $700).

When SATSair launched the typical customer was a small-business owner, but now the company is beginning to break into the professional and academic sector, says chief executive Steve Hanvey, with even some regular users of larger business jets opting to downsize to the SR22 for "business leisure" trips. Clients tend to be those for whom the "productivity of an individual is crucial", he says, drawing a chart to illustrate an example of the time saving to be gained from a one-day business trip by air taxi rather than scheduled airline or car. "Once the customer internalises this, they understand it," says Hanvey. "We can't advertise this, so almost all our publicity comes from viral marketing."

For all its success, SATSair has hardly led a revolution. Its fleet has stayed static for about 18 months and its growth has been steady rather than stellar. The business is profitable largely because it keeps its costs tight, with functional rather than grand offices and a small sales and operations department. "A lot of people are very impressed when we show them what we do because they like the fact that we are not spending money," jokes Hanvey. He believes "the market is there" for SATSair to double its fleet every two years to around 100 aircraft. That could include jets. The company has also agreed to acquire "a number of" Cirrus Vision SJ50s once the single-engine personal jet becomes available around 2010, extending its non-stop reach to cities such as Chicago, Miami, New Orleans and New York.

The biggest problem - and it is not one that will be eased by the DayJet failure - is obtaining growth capital from a battered and sceptical finance community. "We have a customer demand beyond what we can support," says Hanvey. "We would have more aircraft today if the investment side was more open to supporting evolving air taxi concepts." For the air taxi model to truly work, critical mass is needed, where obtaining a flight at short notice is, in the oft-used phrase, as easy as hailing a yellow cab. "It takes a density of aircraft and a density of customers. You can't achieve that with five aircraft or even 26," he admits.

Atlanta's Imagine Air is a more recent arrival in the air taxi ranks. Originally intending to launch operations in 2007 with the Eclipse 500, the start-up "noticed what SATSair was doing" and switched tack, starting services with one SR22 in April last year, says director Haroon Qureshi. It now operates five and it is looking to add more next year, with plans to replace its options on the Eclipses with two Socata TBM 850 single-engine turboprops, which would allow it to stretch to Florida and parts of Virginia. With a territory covering a radius of 2.5h from Atlanta, Qureshi says the service comes into its own "replacing a drive for two people on a one-day business trip". As with SATSair, the company believes it is only scratching the surface of its potential market. "People are learning about air taxis," says Qureshi. "We are still at the stage of building awareness of the alternative to congested highways and getting treated like an animal on commercial airlines."

SIMPLE MODEL

BlueSky's strategy is similar to those of SATS­air and Imagine Air, launching services in January this year and now operating four SR22s, with three on order, from three base airfields in the Chicago metropolitan area. Its model is simple, says chief executive Jerry Zak: flights can be booked down to 2h in advance and, so long as a flight begins or ends at one of the Chicago airports the customer pays only for the time on board from "propeller started to engine extinguished". On other trips, the shorter positioning flight is charged for. At $495/h, the company's mission is to "bring business aviation to middle-class business people", says Zak. Since its inception, BlueSky has carried a "few hundred passengers" to and from about 450 airports in the Midwest.

Miwok's proposition is different. Although it too has opted for the SR22, the San Diego-based company plans to recruit independent aircraft-owners to its branded air taxi network and will sell on a seat-mile basis. Its first operator (it avoids the legal term "franchisee"), based in the southern Californian city, will launch services in the second half of October with four SR22s leased from Miwok, and Barnea says the company is looking at a pool of 500 potential operators all over the country. He admits the way the business is set up is unique. "To the FAA we are a charter broker," he says. "But we add a very sophisticated economic model to make sure the operator is profitable. We can't guarantee but would expect that operator is making money within six months, which in aviation is unusual."

Not all air taxi start-ups are wedded to the benefits of pistons, however. Kentucky's YourJet hopes to become the first US Part 135 operator to fly the Diamond D-Jet in commercial service by this time next year. "We decided on single-engine jets before anyone else considered them," says chief executive Todd House. "We liked the Eclipse but realised we had to have a single-engine jet two years ago before the fuel crisis." For House being based in Louisville will offer the air taxi operator "the best geography bar none" with two thirds of the US population within 1,100km (600nm). He also believes YourJet will help "jumpstart economic regeneration" in one of the USA's poorer states by "connecting businesses to the regional market".

An air taxi evangelist, House - a medical doctor and former military pilot - goes as far as to say that on-demand, low-cost private aviation will all but replace regional airlines within five to seven years, so long as it is offered at the right price. "If you want to blow the top off this thing, keep it cheap," he says. "Everybody thought that Henry Ford's vision of a car in every driveway was absurd. But that's what we want to do with air travel. Everybody, no matter where they live can join the global market."

DayJet was the most high-profile Eclipse 500 operator, but one air taxi firm that has managed to build a successful fledgling business around the VLJ in the huge markets of Boston and New York is Concord, Massachusetts-based Linear Air. Despite the credit crunch, the company managed to close a deal for $3.5 million equity finance in July, taking its total amount raised to almost $10 million, launching the VLJ service over the summer. Linear Air, perhaps unusually, leases its four Eclipses (it also operates four Cessna Caravans mostly on leisure charters) and, like SATSair, says its biggest challenge is delivering enough seats. "In the past two months we have had 60% more demand than we have had capacity to serve," says Herp.

Unlike SATSair, however, the reason is not lack of finance, but lack of availability of Eclipses in the secondary market. It hopes to remedy this next year by taking delivery of around 15 more of the VLJs. Despite the problems with the Eclipse, Herp is convinced it still offers the best solution to air taxi operators. "There is nothing else in town. The [Cessna] Mustang is just not competitive." Serving more than 160 airports from Ontario to the Carolinas, Linear Air opts for the charging per-aircraft revenue model, with a fee of $2,000 per occupied hour and $1,000 for every hour the aircraft is unoccupied, with a $75 an hour waiting charge. It also flies with two pilots. "It's a safety issue, but also one of customer perception. It means we can focus on the needs of the customer as well as the operational side," says Herp.

Pogo - which has raised $15 million of the $75 million it says it needs to launch and is now earmarking early 2010 for a launch of operations - says it is in a "great position" to review the various new small jets as they come onto the market and make a commitment when the time is right. "We're enjoying being serial daters," says Burr. "We're in no rush."

As with many truly breakthrough markets, it is rarely the pioneer that establishes itself as market leader and, following DayJet's demise, air taxis looks as if it is following that pattern with some of the early entrants making the mistakes that those who follow will be able to avoid. On the other side of the Atlantic, a host of start-ups is about to unleash air taxis on the European market, hoping that the DayJet experience does not sully their chances of financing their ventures. In the long-run, believes ATXA, fortune really will follow the brave, both the operators and those providing the funds. "There is a great opportunity for financing the right business opportunities," says Leader. "Financiers and entrepreneurs who change the way people travel will reap big rewards."

It may have ended in failure and knocked any remaining confidence among the finance community about funding similar operations, but DayJet's audacious attempt to widen the market for business aviation on a grand scale has convinced many that the air taxi model of high-utilisation, targeted, on-demand private aviation does have a future. The air taxi revolution might not be tomorrow, but it certainly has not gone away for good.

A TALE OF TWO CABBIES

While researching this feature in the first week of September, Flight International took a courtesy flight with each of what were then the USA's two biggest air taxi operators: DayJet and SATSair. The contrasting customer experience over the one or two hours spent in the care of each company highlights their different business models and perhaps hints at why just one is still flying.

With SATSair, we flew from Volo Aviation's fixed-base operation at the sleepy Manassas Regional airport, a 1h drive south-west of Washington DC, to the company's main base, the downtown airport in Greenville, South Carolina. Met by the pilot, after a quick safety demonstration of the Cirrus SR22 piston-single (including the unique parachute-release mechanism) and pre-flight check we were airborne within 10min. Headphones on, we were able to sit in the front seat and maintain a conversation with the pilot for most of the 1h 40min flight.

Boarding an SR22 - which involves climbing on to the wing and through the overwing door - might not be everyone's cup of tea, especially the less nimble, but few SATSair passengers appear to be deterred, says the company. Those interested in flying - most SATSair clients - tend to chat with the pilot and enjoy the view. Those who have other business can sit in the back and listen to music on the headphones.

The pilot acts as flight dispatcher - ensuring the aircraft meets its load requirements - baggage handler, and, as the only SATSair employee most passengers will meet, a company ambassador.

DayJet was much more like conventional corporate aviation. Met at the dedicated DayJet desk at the FBO at Boca Raton, Florida airport by a check-in assistant, who verified our identity and pre-submitted weight, we were escorted with luggage out to the waiting DayJet-liveried Eclipse 500, in which the two pilots were waiting for the 40min flight to Orlando Executive airport. Boarding through the side door and sitting behind the pilots in the three-seat cabin before being met at Orlando by a representative of the FBO, complete with golf buggy, the experience was more upmarket than SATSair.

But DayJet's two pilots, twin-engined VLJs and more sophisticated ground and behind-the-scenes infrastructure clearly created a higher cost model that ultimately could not be sustained, at least not at the numbers DayJet was attracting.

CHANGING ATTITUDES TO GENERAL AVIATION

With between 75 and 100 of the 3,200 SR22s in service being used as air taxis, Cirrus founder and chief executive Alan Klapmeier might feel that he has a stake in the success of the emerging market. But he believes the sector is only part of changing attitudes generally to general aviation that aircraft like the SR22 make possible. Traditionally, aviation enthusiasts have flown aircraft as much for enjoyment as for business reasons, he says. "There's almost a guilty acknowledgement that it doesn't really make sense. But you don't have to love airplanes to benefit from personal aviation."

With an eye on sales to future owners, Klapmeier says air taxis are "a wonderful way to introduce people to GA. Passengers are taking their first steps to the realisation that this sort of air travel is attainable. It changes their perception of distance."

But uncertainty about the air taxi market is one reason Cirrus does not single it out as a key driver for future sales of its in-development SJ50 Vision single-engine jet. "We don't focus on it because of the need to raise money. The air taxi market has been seen as unsubstantiated, with a lot of questions being asked," he says. "Our case for the SJ50 is that it is going to be successful because we have the names and addresses of people who are going to buy it."