Plane Conversations

Part 3 in a 4 part Series

There is a huge gap between the time it takes to get from origin to destination by Private Aviation and the time it takes on the Airlines. In some cases, even a small, single-engine, propeller aircraft can get you there quicker than the airlines. In all cases, a business jet aircraft can get you there quicker and here is why:

• Your schedule:  You start by setting your own schedule when you use private aviation. If it makes sense to leave at 7am, then you leave at 7am. You set the time of departure based on when you want to arrive on the other end. Have a meeting at 10am?  Then you set your departure time to arrive in time to make your 10 am meeting. Easy enough. No traveling the night before.
• Closer airports: With over 5500 airports in this country and only 500 of them having any commercial service at all you have an additional 5000 airports to choose from when you take a trip via private aircraft; so, in all cases you can get closer to your real destination. Instead of going into the large commercial airport closest to where you want to go, most of the time there is a smaller airport that saves a lot of driving once you get there. That also works on the departure end. In larger cities there are several airports located on different sides of town, allowing you to pick the one closest to your home or office and leave from there. If you live in a small town, then you no longer have that sometimes one to two-hour drive to a big city to catch an airline flight. In our home state of Tennessee, we have more than 80 airports; so, no matter where you live in our state, you are no more than 30 minutes from a public airport. Smaller airports are less congested, giving you the added benefit of less time holding in the air or on the ground due to busy airport traffic jams.
• Direct Flights: You always go direct with private aviation; so, you waste no time going though a hub airport with one to four-hour layovers and multiple boarding processes just to get to your destination.
• No standing around: Flying in private aircraft, you can show up between five and ten minutes prior to the departure time you set, park close to the private aviation terminal and, in some cases, pull up next to the aircraft to unload bags. You are greeted by the pilots and you board immediately. You can skip the time wasted riding the shuttle to the terminal from long-term or off airport parking, queuing up for baggage checks, security screening and then waiting at the gate for 45 minutes.  There is no way you can plan on getting to the gate just five minutes before scheduled departure – the air mass-transit’s Contract of Carriage forbids it.

When you compare the two methods of air travel, the savings of time by flying private aircraft can be hours per trip and, in many cases, even days.  When we get people to their meetings and back on the same day, they tell us that the airlines would have taken two days with a limited meeting schedule or three days if they wanted a full day of meetings.

Everyone has a value on their time and it is especially important to quantify that value when you think in terms of productivity in business. Those who charge directly for their time like accountants or lawyers can easily quantify their time and compare the options to see if they can gain productivity by using a more efficient means to travel. Most travelers don’t think about it because they assume that they don’t have an option. What if we gave them a tool to measure the productivity of alternate means of travel? Could that close the gap?

What is your time worth?

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In an attempt to regulate the airlines on the issue of leaving passengers sitting on aircraft on the tarmac for extended periods of time it appears that the DOT may end up making things worse.

Michael Fabey of the Travel Weekly online magazine says in a recent article:

As a result of new federal rules limiting tarmac delays, airline officials and analysts predicted that in coming months, airlines are certain to cancel an increasing number of flights for bad weather or for a host of other reasons, rather than face heavy new federal fines for holding passengers too long on a tarmac.

The new Transportation Department regulations, which take effect April 29, subject U.S. airlines to fines of up to $27,500 per passenger in instances where the airlines fail to allow passengers to deplane after three hours on the tarmac or fail to provide those aboard with food, drink and other comforts.

“For us, that could be as much as $4.4 million for one flight,” said American spokesman Tim Smith. “No one’s going to play with that. There will be many more cancellations as a result. Everyone is gearing up for this.”

So did the “experts” in congress and the DOT solve the problem or create a new one that is worse than the old one?

Being more of a free-market capitalist, it seems to me that this is one they could have left alone. I mean, if the airlines mess things up badly enough, often enough for long enough, it costs them money and customers. They don’t want that with or without any intervention from the federal government.

A veteran airline dispatcher commented to the article by stating:

“The new regulations will demonstrate the Law of Unintended Consequences, and I say this as a 35+ year airline dispatcher. There have been a few past irregular ops events (NWA/DTW, JBU/JFK, CoEx/RST, and AAL/AUS) that generated huge delays (7+ hours) and were all admittedly intolerable and handled poorly. The lunacy of the new regs is that in the effort to preclude such rare 7+ hour delay events (apples), an “all delays are equally evil” tact has been taken, with the “solution” to now apply with more common 2-4 hr. delays (oranges) one sees when weather, and airport/airspace constraints occur. Pre-emptive cancellation for snow are one thing, but thunderstorm season is another, and no airline is going to let a flight blow the 3-hour limit and incur a $3M+ fine for each flight. Cancellations? Count on them, but don’t blame the airlines–all the non-airline “experts” drove them.”

I wonder if anyone at the DOT or in Congress asked any of the dispatchers and operations people at the airlines what they thought about the solution(s) to the problem prior to making a new rule. Probably not! What?  Go ask the people who deal with this every day? Heaven forbid! They probably had a hearing and heard from the senior management of the airlines (whom they don’t trust), then from a panel of experts (whom they do trust in spite of the fact that the experts may have no practical operational experience).  After hearing from both groups, but without talking to the people who make it happen day after day, Congress drafted and enacted a new rule.  

It was a parade-inducing headline for proponents of the measure, but the people in the operational trenches don’t see any parades in the practical applications.

All of this was done in an effort to appease the public who is fed up with the broken air mass-transit system.  So, instead of actually fixing the problem in cases of the rare, extreme delay, they’ve created the problem of cancelled flights in the case of the common delay.

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2 in a 4 Part Series

In this discussion, we will focus on the gap of pricing between Private Aviation and Airline Travel. Is there a way for us to partially bridge the gap? And, if so, how much do we need to bridge it to make it worth the time savings and better experience?

A round-trip airline ticket from Nashville, Tennessee, to New York City (BNA to LGA) costs between $525 (with one stop) and $1100 (non-stop).  Expedia publishes a travel time of 3:45 for the one stop and 2:00 for the non-stop, a difference of an hour and 45 minutes.

Flying the same route in an eight-passenger private jet costs approximately $10,000.  That price is the same whether you fly by yourself or if you take seven friends or business associates with you. You save at least two hours of terminal time avoiding the airline and your experience will be better.

Most of us have difficulty justifying this price since we seldom need to take seven friends or business associates with us; so, the price per person is $10,000 or maybe, at best, $2500 if there are four of us going.  That’s often still a tough sell.

As I see it, there are only two ways to bridge the gap between the two modes of travel:

• Bring the total price of the private aircraft charter down relative to the mass-transit price
• Fill the aircraft with eight travelers

The first solution can work from both sides.  The gap shrinks if either airline fares go up or air charter prices go down.  If both things happen, the gap shrinks even more.   While I don’t believe the gap will ever be totally closed, every incremental movement works to the advantage of our industry, taking into account private air travel advantages in the other two gaps – passenger experience and time savings.

Private air travel can bring the price down when fleet utilization goes up. Many of the costs of traveling by private jet are fixed; so,  you can lower the overall operating costs with higher utilization, which allows you to spread the fixed costs over a wider base AND which allows the traveler to buy at a lower price point.

Private air travel can also bring the costs down by utilizing new technology aircraft that are more fuel efficient and cost less to maintain, thereby driving down the variable operating costs to deliver the service.

These two ways of driving down costs have been used by the airlines to deliver a consistent service at lower price points. Southwest and JetBlue are the best current examples of this in the US air mass-transit system.

That leaves us with the problem of filling the seats. How do we fill enough of the seats on private charter flights to drive the costs down for each person traveling? Can we solve this problem? Would travelers migrate to a private jet flight if they could buy the seat for $1250 round trip ($10,000 divided by eight) when they could pay $1100 on the airlines?

A 10% pricing gap put into the overall matrix of price, time, and experience is a game-changer.  With that narrow of a gap, those who are used to the airline experience, but who tolerate it only because there is no real alternative, are likely to move to private aviation. Those who are already used to the price of private aviation might not sacrifice aircraft exclusivity; but, realistically, they aren’t the ones walking the bridge we just made from air mass-transit to private aviation anyway.  While some of them make take advantage of the shared aircraft, they aren’t really our target market.  We want the passengers using air-mass transit only because they have no alternative.  We want the passengers who have given up flying altogether due to the negative experience and wasted time.  We want the passengers who are in search of the better mousetrap because we believe that private aviation is it.

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Part 1 in a 4 Part Series

There are three distinct gaps between flying by Private Aircraft and Air Mass-Transit:

• Price: In most cases, flying by private aircraft is more expensive than flying by airlines. The best way to understand it is to compare the price differences between taking a taxi or limousine and taking the bus or metro train. It is difficult to get the price gap to close when one form moves masses of people between points on a schedule and the other form moves a few or even only one person on-demand. How can the limo ever be as cheap as the bus?

• Efficiency of Time: In most cases, flying by private aircraft will be more time efficient since you set the destination airport and schedule, rather than flying on the route structure and schedule the air mass-transit service sets. Air mass-transit routes may not include the airport closest to your origin and/or destination and the flight paths may not even be the most direct routes between the two airports. The nature of mass transit requires the traveler to show up early at a terminal that may or may not be close to their true origin and then queue up to get through the systems of ticketing, boarding and security,  all adding time to the total travel. Private aircraft, for the most part, avoid all of these time killers. Measuring the time difference is easy enough for most of us and putting a value on our time should also be easy. Once our time value is quantified, we can measure the time gap and put a value on it. Quantifying that time gap in dollar terms helps close the price gap.

• Experience: The passenger experience gap existing between the two forms of travel is one which no one can yet precisely quantify, but is one that we know to be vast just from our own experiences. Those who use private air travel often talk about the experience and rationalize that the experience itself justifies the price gap. When those passengers cannot totally make the time-price gaps meet, they make the final closure based on the quality of the experience. Traveling in a private aircraft is as pleasant and social as taking a road trip with friends or family – or perhaps even more so. Traveling on the airlines is as pleasant and social as taking a road trip with the Griswolds – or perhaps even less so.

How can we quantify all of the gaps between private or business aviation and air mass-transit so that we can accurately measure them?  Once we quantify and measure the gaps, how do we close them so that more travelers will be drawn to the superior mode of travel we have to offer?

Closing or shrinking the gaps will make it possible for more people to use private aviation as an alternative to airlines and, in some cases, even other forms of travel. Could it be that people who have chosen not to travel at all due to the negative experience and wasted time factors of mass-transit travel may choose to travel again?

Does this make sense?

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It looks like Congress may finally get back around to figuring out how to pass a bill that will fund the Next Generation Air Traffic System (NexGen). Hopefully, I will see this happen in my career, I still have 15 years left if all goes good.

It is frustrating to me that the lawmakers want to wrap up controversial provisions into a bill thats primary purpose is not controversial. Everyone in aviation agrees that the traffic control system needs to be modernized. It will save fuel and time in the air which is both green and more productive for our economy. It will also increase the margins of safety with better traffic management. Both general aviation and the airline industry support the development of NexGen.

So, what is the hold up?

Somehow congress can not seem to simplify things and get something done.

They have to add in provisions that we can’t all agree on so things get stalled and nothing happens. What can we not agree on?

• Who pays for it? GA versus Airlines
• Should we be auditing European Repair Stations? A Union Protectionist Issue
• Should we make it easier for FedEx employees to unionize? Another union issue. Big company against the union
• Passenger Rights? The People versus the Airlines
• Pilot Work Rules and the Oversight of the Airlines: Pilots versus the Airline Management and additional regulations 

In that list that I just mentioned, which of those issues, if any,has the first thing or, for that matter, anything at all to do with modernizing our air transportation system through the deployment of new technology? With the exception of who pays for it, none! And I will bet you that we can come to some solution on who pays for it.

Maybe I am simple-minded, but why can’t these guys in D.C. simplify this and pass a clean bill that funds what we all agree needs to happen and fight it out over the rest in separate bills? Is there some legislative rule against simplicity? If there is, then we need to change the rules.  Or maybe we just need to fire the rule-makers and vote in some new ones who understand how to get things done.

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A Saturday, February 27th article in the Columbus Dispatch, by  Marla Matzer Rose covers the story on NetJets and Warrens Buffett’s letter to the stockholders regarding the company’s performance.

I posted on November 17 about the announcement of NetJets pilot layoff. At that point, revenues were off 41% and new aircraft sales were off 79%. Since that post, more layoffs have happened and in this article, the following is stated by Warren Buffett about the financial situation at NetJets:

“In the eleven years that we have owned the company (NetJets), it has recorded an aggregate pre-tax loss of $157,” Buffett said in his letter. “Moreover, the company’s debt has soared from $102 million at the time of purchase to $1.9 billion in April of last year. Without Berkshire’s guarantee of this debt, Net Jets would have been out of business. It’s clear that I have failed you in letting NetJets descend into this condition.”

Buffett said he had been “bailed out” by David Sokol, whom he appointed CEO of NetJets in August after the abrupt resignation of longtime CEO Richard Santulli.

Buffett praised Santulli for instituting “top-of-the-line standards for safety and service” at the company that are being continued, but said that the leadership of Sokol, who is chairman of Berkshire-owned MidAmerican Energy, and considered one of Buffett’s likely successors has been “transforming: Debt has already been reduced to $1.4 billion, and, after suffering a staggering loss of $711 million in 2009, the company is now solidly profitable.”

Buffett echoed what Sokol has said about NetJets, that it is “likely to operate at a profit in 2010, assuming there is no further deterioration in the U.S. economy or negative actions directed at the ownership of private aircraft.” For 2009, NetJets posted a $711 million loss. The losses were largely due to write-downs on the value of aircraft, with a smaller amount attributable to the cost of laying off workers.

Much like the financial performance of the airline industry, NetJets has not made a profit in aggregate for the past 11 years.

Something is wrong with a business model that has an aggregate loss over the long haul and we are plagued with it in both the airline and private aviation industries. More money has been lost than has been made, and because the industry is glamorous, more money will pour into bad business models in the future.

According to Mr. Buffett, the company is now solidly profitable since all of the cuts in both pilots and overhead. So what has changed about the business model to fix it? Do they shrink their way to profitability?

What created the situation in the first place? Was the model broken to start with and just needed a deep recession to make it obvious? How do you lose more in one year that you can make in 10 years? 

On this site we talk about the airlines and their broken system but private aviation has its fair share of issues and financial problems. Something has to change if we are to sustain long term viability as an integral part of the national transportation system.

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With the dawn of industrialization came mass production, and mass production lead to mass marketing.  Mass marketing lead to the growth of mass media including Newspaper, Radio and TV.

Everything was driven by costs and profit and pushing stuff out to the consumer who also happened to be part of the mass of producers and marketers.  If you make it cheap enough and market it to the masses, they will consume it.

With everything geared towards the masses, mass transit developed in the cities to move people to and from their jobs as workers in the large corporate factories that mass produced.

Mass transit started with the rail system and then added buses and eventually the airlines developed into the mass transit system of the air.

Mass transit is all about price and when price is the driving factor, the needs of individuals are sacrificed for the needs of the masses. Load everyone up like cattle, route them through the hubs, off load and reload on to the next flight that gets you somewhere near your destination, maybe not so quickly or in the most comfortable or sociable environment, but do it cheaply.  It feels more and more like riding the metro rail?

So the airlines developed terms for describing productivity and efficiency that sound much like production manufacturing terms:

• CASM: Cost per available seat mile.  A seat mile is one seat covering one mile.
• RASM: Revenue per available seat mile. The amount of revenue generated for every seat available covering a mile.
• RPM: Revenue per passenger mile.  The revenue generated per passenger flown flying one mile.

All of this sounds like mass production.  Are airlines in the business of providing transportation to the flying public or are they in the business of producing ASM’s and selling them at a profit generating RASM?

Is there a point where driving the CASM down to make a profit overrides best safety practices?  That is a question being asked in the Frontline Documentary entitled “Cheap Flights”.  I will leave that answer up to the safety experts for now.

Does the public merely want to get from origin to destination and back again for the lowest possible cost?

Will the public pay for something better than mass transit delivered at the lowest cost?

In the economy of the future, people will be more aware of the value of their time and they will have the tools to quantify its value.  They will also value the experience of travel and quantify that experience in a social cost or benefit.

Just as people are longing for the personal touch and experience of buying their food at the farmers’ market versus buying mass produced food, they will long for and seek out solutions to every facet of their lives, including travel that gives back quality, experience and relationships.

And let’s not forget that people want their time back, spending it how they choose, and not how the systems of mass production forces them to spend it.

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It is a little too early to tell how this situation, involving the use of a small single engine aircraft by a suicidal man who wanted to get back at the IRS, will affect general aviation.

Every time something happens with an aircraft the media jumps on the hype wagon and starts sensationalizing the event. The politicians soon follow with the idea they can create a new law or rule that will prevent what just happened from ever happening again. Let’s hold another congressional hearing and turn the TSA loose to solve the problem!

An Associated Press article headline says, ” Texas Plane Crash Exposes Gaps in Air Security.” Give me a break here! You could just as easily say, “Texas Car Crash Exposes Gaps in Ground Security.”

Some of the recommendations coming in from “the experts “say that we should not be able to fly small aircraft without filing a flight plan. In this case, that would have made no difference. If you understand the flight plan system, as  many in the press do not, you would know that.

This event is a sad and tragic for the families of those who have been affected but it does not deserve some new law or rule change that will affect general aviation.

General aviation and a small single engine Piper Cherokee (not a private jet as reported by many media sources) are not the cause.

The aircraft was the tool of the day that this man chose, sadly enough, to use to get revenge and kill. He was the owner of the aircraft and in that case no different than anyone who owns cars and trucks. No rule and no amount of security can get inside a man’s head to determine the day he will decide to use a personal means of transportation (or any other device or piece of machinery, for that matter)  as an instrument of destruction.  

This deranged man could have just as easily walked into the building with weapons or explosives and done more damage in terms of lives and property damage. It happened that way in Huntsville, Alabama, two weeks ago when a college professor shot and killed three colleagues and wounded three more. All it took was a pistol. It happens that way more times than we want to think about.  Mr. Stacks could have also used his car, a motorcycle, or a truck like Timothy McVeigh and caused massive damage.

So, as a society, we cannot say that the aircraft was the problem and that we can prevent this from happening again if we change all the rules to keep people from freely flying their aircraft. What next? I can no longer drive my car down the road because it might be used as a weapon by some crazy person bent on seeking revenge in a suicide attack?

Hopefully cooler heads will prevail and the ambulance-chasing media and “experts” with an opinion about the dangers of aviation will not take over the conversation.

As a society, we have to acknowledge that we are vulnerable and that we cannot totally protect ourselves from every possible danger.  We do the best we can do without destroying our liberties and freedom, and then go on with living our lives.  As Benjamin Franklin counseled over 200 years ago, “The man who trades freedom for security does not deserve nor will he ever receive either.”

In the meantime, those of us in the industry need to be prepared to defend ourselves and our freedom to fly in this country.

Thanks to AOPA for jumping in there to defend our industry. http://www.aopa.org/aircraft/articles/2010/100218crash.html

http://www.aopa.org/aopalive/?category=latestcontainer&watch=A0YnY3MTrDq8rUrycPqf1GLG7LjUMpPC

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Delta Air Lines’ recent acquisition of North Carolina-based Segrave Aviation speaks volumes about the airline’s recognition that private aviation / business aviation is a viable part of the air transportation system in the United States.

At a time when major air carriers are reducing capacity, pulling out of small markets, and scrapping to make a profit (which for the most part has not happened in a long time), Delta is doubling the size of its corporate jet charter subsidiary Delta Air Elite.

These guys are on to something.

Maybe they see the real value of a system where General Aviation plays a role that compliments the Air Mass Transit System as opposed to viewing us as the enemy?  More and more, airlines seem to be consolidating into route structures that serve the high-density traffic lanes between major US cities on domestic routes and between major US cities and major centers of commerce worldwide on international routes.

Can General Aviation serve as a feeder to the airlines much like their subsidiary and code-sharing commuter airline partners have done over the past 20 years?

General Aviation has the flexibility to move with the markets of demand much easier than the airlines do. Flights can be added at the spur of the moment as demand changes with travel seasons, or even events such as conferences and conventions where thousands of people move to a city for a three day event.

And we all know, for sure, that General Aviation delivers a much more stress free and efficient travel experience than the airlines have delivered so far.  

So maybe the mantra should be if you can’t beat them out of business, buy them?

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Our company sells refurbished turboprop regional airlines all over the world. In the last 18 months, in the middle of the worst aviation recession in memory, we have sold and delivered aircraft to Nepal, Canada, Columbia, Venezuela, Haiti, Dominican Republic, Australia,and Zambia to name a few.  All of this in a time when used aircraft sales in the United States came to a screeching halt and have yet to recover.  And the sales could have been higher.  Had small airlines who are looking to expand their fleets been able to get financing, we would have sold twice again what we were able to sell around the world. Albeit there is risk associated in financing aircraft for small airlines in other countries, most of the businesses we deal with are well run and not as highly leveraged as the big airlines in Europe and the United States. These small businesses have not had the luxury of obtaining financing for new aircraft and so they typically pay cash,after saving for years, or finance a very small portion of the purchase.

A December 10 article in The Wall Street Journaldiscusses ExIm bank’s effect on Boeing Commercial Airliner sales. The number quoted is that one in four of Boeing’s sales are funded though the ExIm Bank guaranties. Without this government-backed financing Boeing would not be where they are today.

Recently our company was introduced to the process of working through the  ExIm program as an opportunity to get backing on the sale of aircraft to a small airline in Central America.  ExIm works much like other US programs that guarantee loans for loan underwriters to induce the underwriter to make a loan they might not otherwise make.

In a theoretical sense I believe in the free market economy, but a free market economy needs a level playing field, with rule sets that apply to everyone in the market. In the case of most international trade, and especially in aviation, governments across the world intervene to the benefit of their national industries. So if Airbus gets help from the European Union and its home country of France, but Boeing gets no help in any form from the United States is that fair trade in a freemarket economy?

Let me take this back down to the small business level where most of the jobs in this country are created. In the case of our company a big percentage of the payroll is tied to buying, refurbishing and reselling these used regional airline turboprop aircraft. We have yet to receive any handouts from the government for anything. We haven’t asked for any handouts. We pay our taxes (hard to count how many different ones) like everyone else. So, is it wrong to go to ExIm and ask them to back loans to sell small aircraft to airlines in developing countries who will use these aircraft to develop their own transportation infrastructure?

I don’t know the default rate of the ExIm program’s backed loans. I am not sure it is published and I’m certainly not suggesting a  process that encourages bad loans. I am simply suggesting a process that provides capital for transactions that are sound in business principle but outside the realm of traditional banking sources.   

Without capital it is hard to grow the economy, both here in the US and abroad. For the case of our small business, when other small airlines around the world can obtain the capital to grow, jobs and profits are created here in the US.

Not a  bad proposition?

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