Author Archive
What The Heck Is An Asset?
When you go into a store to buy anything, the rational person will always compare the quality of the object against the price of the object versus any alternative products or markets.
When you buy a home, the property is characterized by descriptions for “quality” (construction, neighborhood, schools) and a series of ”quantities” (number of bedrooms, square footage, price)
When you cross the road, you look both directions in order to assess the quantity and the quality of the traffic that may or may not kill you. Are the traffic slow moving pedestrians or are they fast moving trucks?
When a bank makes a loan, they “quantify” all of your valuable things like your home, cars, 401K, and personal income and they use the credit score to measure the quality of your finances (debts, credit pulls, past history, bankruptcies, etc).
Supply and demand cannot, absolutely cannot, be determined by any other means other than by measurements of quantity and quality.
In fact, economics is the science of incentives where the fundamental graph is the supply and demand curve. Both supply and demand behave according to inputs of quality and quantity, specifically price and availability. Supply and demand for anything absolutely cannot be determined by any other means than by coordinates of quantity and quality.
Investors manage risk.
Risk is an asset, if it weren’t, insurance companies would not exist. There are three things that an investor must know in order to manage risk. 1. They MUST be able to identify their exposure to peril. 2. They MUST be able to estimate the probability that the peril will or will not impact them. 3. They MUST be able to determine the cost of the consequences in the event that the peril happens.
Again, within the definition of risk – to which ALL INVESTMENT RESPOND, are the characteristics of an asset; what is the quantity (1) and (3) and what is the quality (2) of the peril. If the investor does not CLEARLY SEE these three positions, they will not invest. Period.
This is what drives successful markets and what kills unsuccessful markets.
To ignore the fact that all rational human behavior, intentions, decisions, reactions, conversations, relationships, education, ideology and every other state of human consciousness in a market, corporation, community, family, or social network ARE NOT characterized in the form of a quantity and a quality, is frankly, ignorant to ones market, irresponsible to one’s community, and incompetent to one’s profession.
Yet so many people do not see themselves as an asset. Maybe someone should give people permission.
The Failure of the “Water Flow” Theory
One of the misconceptions in airline traffic markets that continues to confound carriers is a carry-over from the highway traffic engineering profession. The “water flow theory” states that traffic is like water, if you dam up one thoroughfare, traffic will spill over into neighboring streets. This is not actually what happens with human behavior, yet the theory persists.
So commercial carriers still think that if they constrain supply, demand will increase and people will pay more. It is equally wrong to assume that constraints in the commercial aviation industry will translate into a proportional spillover into private aviation. This is likely not going to be the case either.
Furthermore, the absence of a commercial aviation presence does not automatically translate into a growth opportunity for private aviation any more than the absence of a automobile thoroughfare leads to a growth opportunity for motorcycles.
Instead, we look to the economic growth engines as found in dynamic communities surrounding New York City, San Francisco, Nashville, Austin, Los Angeles, and greater Boston areas. Each is socially integrated by a combination of social capital, creative capital, and intellectual capital developed independent of a commercial aviation hub, not necessarily as a result of it.
Our suspicion is that the relationship between Private Aviation services and its potential market is tied closer to the organic integration of diverse communities rather than random flows of traffic responding to commercial aviation problems.
The argument that traffic will be diverted from Commercial Aviation to Private Aviation is still valid but for reasons that we may not expect. Private aviation is perfectly scaled to strategically bring into contact social, creative, and intellectual capital assets from diverse communities such as NYC, Nashville, Austin, etc. This is a subtle but profound difference.
Likewise, the highest value economic benefit does not come from random interactions; rather, it comes from highly targeted and strategic combinations of factors that produce economic growth – then they are allowed to interact randomly to induce innovation.
This same objective is the mantra for Brand managers, Social Media Gurus, Economic Development Agencies, Technical Conferences Organizers, Recreation Industries, and Innovation enterprises, in fact, the ideal private aviation customers.
The degree to which the private Aviation Industry can enable strategic high-value interactions is the degree to which the ‘interaction market’ will flow to the lift services that they provide.
The Last Mile of Social Media
Aviation supports a role in society that is analogous to the Internet itself. While the hard work gets done at the points on the ground, Aviation provides the diversity of ideas that can congregate.
Sure, Twitter, Facebook, and Linked in are great for broadcasting across the globe, but nothing can happen until the rubber meets the tarmac. Emerging trends in the Last Mile of Social Media portend opportunities for Private Aviation.
The following video describes how the components of the next economic paradigm must act locally, but share globally. For anyone wondering what to do next or where the great opportunities are, think about building out the Last mile of Social Media.
Who Exactly is the Aviation Community?
In my 19 January article, I argued that automobiles are economically more efficient than buses because they allow for more options in the quality of interactions that a passenger can choose as opposed to a scheduled service route alternative.
On the Contrary
In this article, I will argue the opposite point that people isolated in cars decreases the quantity of interactions that can often expose opportunities and more options. Therefore, by eliminating these random interactions, the communities that support their social needs are in fact weakened.
Ironically, the point of contradicting myself is to validate the strengths and uncover the weaknesses of a business strategy for the Private Aviation Community.
For example:
We can validate that idea that highly-optioned, point-to-point travel is a key advantage of Private Aviation. We also notice the curious absence of the “community” of our clients in our calculus. The assumption is that community is static whereas aviation is dynamic.
The paradigm shift is that aviation is static and community is dynamic
Jane Jacobs wrote extensively on the three following pillars of community:
1. Communities provide the resources that families cannot provide for themselves.
2. Communities consist of convenient and responsive commercial transactions.
3. Communities capture the speaking relationships among neighbors, acquaintances, and friends.
Strategy Revisions:
The strategic opportunity for Private Aviation is to look deep into communities that we serve. What resources can Private Aviation provide that families cannot provide for themselves? How can Private Aviation make all commercial transactions more convenient and responsive? Finally, how can Private Aviation empower the speaking relationships among neighbors, acquaintances, and friends?
Expanding the market for Private Aviation may be as simple as expanding the definition of Aviation Community far beyond where the competition is contracting theirs.
Trade In The Market For Social Currencies
The commercial aviation industry in the United States, as a whole, experienced a net loss in revenue in 2008. The key metric to watch is the Revenue Per Mile (RPM) since the predictable behavior of the commercial airlines, individually and as an industry, will largely be in response to RPM.
Revenue Per Mile may be impacted by internal efficiency, modernization, and technological change. However, RPM may also be influenced by shifting cost back to the passenger in the form of lost amenities.
For the purpose of this analysis, we’ll call that shift a social cost denominated as a social currency. For example, charging extra for that oversized bag does not move from the loss to profit column of the accounting statement; rather, it is simply shifted to a social burden column which will manifest in social media as a future public relations nightmare, a poor review in a social network, loss of loyalty and goodwill, or learned travel behaviors such as denying the carrier of extra revenue by not carrying that extra bag.
At first, social costs will act as a liability against the offending carrier (such as the five hour tarmac tours). Over time, as tacit collusion among the carriers unfolds, the social currency liability shifts to the industry as a whole where the aggregate decision is to simply not travel, to bundle travel events, gang travel legs, or choose alternate modes of transportation.
Few people realize that Social Media itself is a competitor to commercial air travel. Today, groups of people can integrate and coordinate more tightly, ultimately reducing the need to travel or organizing their travel more efficiently. Meanwhile, business travelers are adopting a host of technologies that keeps them informed and connected virtually.
The commercial airline response to financial strain may, in fact, lead passengers to alternate modes of transportation; physical and virtual.
While commercial and private aviation is reacting to RPM denominated in dollars, the customers are responding to a social currency. Private aviation has accurately identified the burdens imposed by the commercial airlines industry to distinguish itself as a viable alternative. Now, the challenge is to express this as a social currency denominated asset prior to converting back to dollars denominated ticket price, not after.
Fighting Terrorism with Social Currency?
(Author’s note: The following is meant to engage new ideas rather than promote any specific scheme or ideology)
Given the events of the last few months weeks, it’s time to for the aviation industry to get serious with Social Media. This article demonstrates how an alternate currency can be used to severely reduce or eliminate terrorist risk in commercial aviation. Think I’m kidding, read on.
Obviously an airline will not let you board an airplane if you don’t have the financial currency sufficient to buy ticket. Why should an airline let you board an airplane if you do not have social currency sufficient to fulfill your social obligations while in the air?
People with extreme social currency deficiencies are routinely stripped of their rights by a jury of peers and isolated from society for a period of time (where they would not board an airplane anyway). While there are many systems in place to manage the various degrees of social currency deficiency, none appear to be able to identify a terrorist without also violating the rights of non-terrorists.
Human Writes
However, many people are willing to share information about themselves to associates with whom an economic benefit is shared or exchanged. This happens a billion times per week on Linkedin, Facebook, and Twitter – why not among fellow passengers? After all everyone is already connected by six degrees.
What would a terrorist’s Facebook profile say about them? Do they have a lot of referrals on Linkedin? Do they post great work on Flikr? Is their community orchestra featured on My Space? Are their posts popular on twitter?
Should a social currency credit score become imperative to social transactions as the financial credit score is for financial transactions?
Banks and Insurance companies already rely on a highly invasive “Credit Score” to establish financial risk profile as a means of protecting themselves and their other clients. Why wouldn’t an airline use a social credit score to establish a social risk profile as a means of protecting themselves and the lives of their other clients?
Ruse and lose
Sure, the bad guys can adapt to social media as they have adapted to all other measures. The problem is that the greater the size and scope of their social media ruse, the more difficult it is to maintain the ruse. A threshold score could be set to nearly eliminate this possibility. Those folks can then simply opt into the full body scan.
The Paradigm Shift
As the saying goes, the attacker needs to be successful only once, while the defender needs to be successful every time. The concept of a Social media credit score flips this paradigm on it’s head. The attacker’s social credit score needs to be successful every time. The defender needs to be successful only once.
Aviation Marketing: What are the Options?
The market is never wrong; cars are more efficient that buses. Otherwise most people would not spend an average of 7000 dollars per year to own and operate a car instead of buying a yearly bus pass for 400 dollars. So why hasn’t private aviation taken off?
ROI (Read Only the Index)
On the basis of ROI (return on investment), bus economics are superior to car economics. But not so obvious in this equation is the freedom for diverse interactions to occur between people, institutions, conversations and ideas. With car economics, more targeted ideas are exchanged, more transactions executed, more high-value productivity is delivered, and greater access to socially valuable options is assured.
Options are assets
An option is defined as the right, without the obligation, of executing a business objective. Yes, stopping for a gallon of milk on the way home from work is a business objective. As Warren Buffet so famously said prior to the fiery dot com tailspin, “if stock options are not a liability [balance sheet line item], then what are they?”
A Balancing Act
Also not so obvious is that some types of human interaction have been accelerated by an astonishing rate in just a few short years due, in no small part, to social media. Yet, other types of human interaction remained static, regulated by the availability of travel options. This increasingly upset balance that will drive something…maybe even a jet.
With a standard ROI model, private aviation costs too much. However, with options analysis, the business case improves. Options are the new financial system and variance is the new financial instrument. People are now in a position to demand immediate results. Time, conversations, and experience are the new currency. They value the right, but not the obligation, to change their minds. The financial crisis has taught them to collect assets and reject liabilities – human contacts are an asset and trivial encounters are a liability.
Anatomy of an option
A financial option has several important parts: a strike price, an exercise price, an expiration date, and settlement terms. The difference between the strike price and the exercise price reflects the variance (volatility) of the product. High variance commands greater difference in price of the strike and the exercise price (either buying or selling). This is what people are trading among themselves in social media – they are trading options.
Read the rest of the book
The value proposition of private aviation is likely due to private aviation’s inability to articulate financial products other than ROI. The marketing of private aviation must be done in a manner that is very different than how the major airlines advertise their travel products. The distinction will surely be fought in the ROI vs. Options domain.
Can Social Capitalism Help Private Aviation?
Corporate Aviation has become the whipping boy of modern American excess; a proxy statement for the priorities of Wall Street domination over the security of Main Street taxpayers. The industry is being attacked from every angle from the bailout of big three automakers, environmental impact, homeland security, and the use of public air transportation assets. Despite equally compelling data that the industry is good for the American economy, a huge PR problem remains.
If you can’t beat them, join them
The question is whether it is smarter to try and beat back the old reputation or to build a new one. The advent of social media has brought forward a concept called “Social Capitalism” wherein it may be in the best interest of a capitalist enterprise to meet social priorities rather than Wall Street priorities. Ultimately, Wall Street does not keep the wheels up – it’s the people who go to work every day.
Let me demonstrate with the following sobering example:
Steve Jobs, the president of Apple Inc., with a 5.1 billion dollar net worth, was able to get a “priority” liver transplant in Tennessee rather than in California because he took advantage of a social arbitrage opportunity. Many organ transplant centers have different wait times for transplant patients; some as short as four months and some as long as three years. There is no law against being on more than one waiting list but the patient must be able to arrive on call within five hours of notification of an available organ. This condition greatly favors people with access to a corporate jets idling on the tarmac.
Out with the old and in with the new
In the old economic paradigm, a corporate jet service would advertise to sick wealthy people and help them game the system over the rest of the population. In the social capitalism model, all corporate jet services would be available to all transplant candidates at a known price. This game changer would result in a national database that closes the social arbitrage opportunity for transplants even for those who own their jets.
Controversy is king
I use this highly controversial life-and-death, rich-and-poor, for-better-or-worse example because it is on par with the degree to which the best and most ethical carriers take the seriousness of their mission. It is also on par with the degree to which private aviation has the ability to shift entire markets, huge swaths of social organization and economic development with strategic placement of a social capital lift product.
Countless social service organizations are trying to send volunteers around the world to help displaced populations, provide medical care, and to fight social injustice. It’s not about giving money, it’s about giving access. The industry should simply publish aggregate routes structures, coordinate prices, and generally bring the industry into the light of day. Give regular people access to the benefits enjoyed by corporate executives and the industry will be rewarded magnificently.
An individual billionaire or a billion individuals
People connected by social media have the power of all PR firms combined. They are stronger than the media and they are becoming stronger than many corporation and even governments. Give people a reason to talk about private aviation and they will – don’t give them a reason to talk about private aviation – and they will talk about you anyway. Silence is not golden, it is suicide. The difference between the cost of beating back the existing PR onslaught and the price of a social capitalism campaign may closer than anyone expects.
iHub, iSpoke, iLift
The physical world has organized itself around the Airline Hub and Spoke system. As a result, Airline economies of scale have become subsidized in many ways by limitations imposed on passengers. Everywhere that the private aviation industry can reorganize this oppressive world, the business case for private air travel will improve.
The Good, the Bad and the Disrupted
Look at virtual world of social media like a Hub and Spoke system where social networking websites are the Hubs while the desktops, laptops, and iPhones are terminals at the Spokes. Now, if you overlay the aggregate private aviation route structure on this social media “route structure” instead of trying to beat the heavies in their own game, you will become the disruptor instead of the disrupted.
Can’t make a bet without odds
The private aviation industry can develop predictive models from data mined from social networking sites to proactively identify “people hubs” that demonstrate a high connectivity between certain city pairs at certain times, certain seasons, events, meet-ups, birthdays, holidays, etc. In other words, private aviation can offer “Lift Products” corresponding to social and professional networks of real people in real time.
The mutt lives longer than the purebred
Innovation comes from diversity, not similarity – if private aviation can disrupt the cattle drive that people are forced to abide by, a new proposition can be provided to people and what they value most highly; their social value system. However, in order to empower others to innovate, we must first innovate among ourselves.
As airplane folks, we know that most problems are usually more complicated than they look. We rarely expect a problem to be easier than it appears. What if we are wrong?
This ain’t rocket science…
Maybe we would be surprised at how fast people can make value based decisions. Maybe we have no idea how fast a market can shift using social media. Maybe we don’t realize how easy it would be to simply steal the economies of scale away from the airlines and give them back to the customer and pocket the difference.
Citizen Airlines, LLC
I live in Edmonds, Washington, near Paine Field – home of the sprawling Boeing manufacturing site for the 747, 777, and 787 aircraft. For years, the county executives have been trying to lure major airline service into Paine Field claiming that the economic benefits would far outweigh the drawbacks. Paine Field is about one hour north of the Seattle Tacoma Airport and about three hours south of Vancouver International.
Airline expansion hurts communities
Many efforts over the years to locate another airport in this gap have hit political and environmental land mines. Paine Field expansion is no different. For years, the county, state, and FAA have been funding “improvements” that look a lot like accommodations for scheduled airlines. The county executive has been courting carriers and lobbying ‘unaffected voters’ and legislators to this grand economic development cause.
Community activism counter-attack
The citizens of neighboring communities have not stood still. They have commissioned studies of every environmental and quality of life factor from home value impact to distracted learning at local schools. They cite urban blight, social deviance, and under development at other similar expansion projects. Political careers are made and broken over support or opposition to the airport expansion.
The Market rules
So far, the market has not proven large enough to support a major B737-sized scheduled service. Ironically, there have been very few studies of the impact of private aviation service expansions. Little data is discussed related to the noise foot print of small jets versus large jets. Very little data is presented to the community about distributed vs. concentrated air and car traffic flows and the upscale effects of a private aviation presence.
Jobs! Jobs! Jobs!
To the community’s advantage, small private carriers can soak up and diffuse the market that would eventually support a major carrier. These battles are raging all over the country against the political mantra of Jobs! Jobs! Jobs! Local communities are running out of money, lawyers, and stall tactics to fight them.
Citizen Airlines, LLC
With the price of seat on a (full) private jet often being about the same as a business class ticket on a major airline, local communities may want to go into the travel agency business. By keeping a community database that identifies and matches travelers to destinations combined with some proactive social media marketing, Citizen Airlines, LLC can stave off an airport expansion by competing with it.
Empower yourself, empower your community….
Meanwhile, thousands of unemployed citizens are available to manage an on-line branded community jet service (operated by a private carrier). Advertising and marketing can be transferred to the community in exchange for reduced rates and shared access to private aviation reports and data which would help them fight airline expansion.
This requires that the private aviation industry empower communities who are not necessarily their direct customers but are stakeholders none the less. Social Capitalism is the act of elevating oneself by elevating the entire community. By giving people a voice, the industry would get a bullhorn.