Plane Conversations

There is a war brewing within the online travel agency space over Google’s recent move with Google Flights and Google Hotels.

Google began positioning its new flight-finding feature at the top of general search results for airline booking information earlier this month. And its new competitors in the $110 billion online travel industry aren’t happy about the search giant crashing the party, according to a recent Wall Street Journal report.

Chasing The Market To The Bottom

Travel is hot for 2012 and beyond.  An increasing number of people say they’ll do more leisure traveling in the coming year, and even more say they’ll fly if they can find good deals in 2012. Good deals are going to be hard to find. The airlines attempted to raise prices 22 times in 2011 (and nine of those attempts were successful).

Business travel spend is expected to have grown 6.9% in 2011 compared to 2010, hitting $250.2 billion.  The forecast for 2012 is 4.3% growth in business travel spend for 2012 (or $260.9 billion).

While revenue growth in the travel sector looks promising the user experience continues to decline. Flying today is like traveling by bus with few frills and even fewer fun times.  Consider some of the recent headlines:

1. Airline Technology Leading to Customer Alienation
2. Airlines Score Lowest In Customer Satisfaction
3. 92% of Executive Unhappy With Business Travel Experiences
4. Airline Delays, Cancellations and Complaints Rise

I could go on with an endless list but by now the picture should be obvious. Current market dynamics within air travel services is propelling a race to the bottom and Google knows this.  In other words air travel suppliers have boxed themselves into competing on price and thus air travel services have become a commodity. The meaning of the term commodity is used to describe a service for which there is demand, but which is supplied without qualitative differentiation across a market.

Google knows that search has the greatest influence over consumer choices for travel services. 93% of people who seek information on travel services use search. Consumers seek ratings and reviews, news articles, word of mouth and blog post which in the end influences their decisions. When there is little differential in a market then price becomes the initial decision factor followed by “social influences”, i.e. quality of the experience.

As a result, the present online travel bazaar is very competitive and the margins are shrinking . The  tight competition led the market to compete on price rather than experience. Google recognizes this and simply stepped in and made the shopping experience better. Google doesn’t care about the price of air service they care about providing the price to consumers seamlessly.

As fortunes are made by leveraging technology to become ever more efficient, there is yet far greater wealth to be had by unleashing the discovery of new experiences and creation of new opportunities. That is exactly why we created Social Flights. We are changing the direction of the race to the top.

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Airlines are taking a beating from on-line conversations.

In yesterday’s article titled “Four Strategic Social Experiences” we illustrated, using a word cloud, what a consumer might find if they were searching for shared experiences about a particular airline. Not good.

A new report from PhoCusWright finds that “Flyers are essentially giving airlines a grade of C+, which is barely above satisfactory,” said Carroll Rheem, director of research for PhoCusWright. “But even more concerning for airlines is that their most valuable customers — business travelers and those with higher annual household incomes — are even less happy than the average.” Airlines are stuck in a spiral to the bottom.  They all compete on price and subsequently as margins get squeezed so does service.

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From our first article with Plane Conversations, we have advocated for general aviation, pointing out how aircraft charter can be a logical solution to travel difficulties and why corporate flight departments and private aircraft ownership are far more than the corporate excess Main Stream Media supposes.  However, we realize that while we have said that air mass transit is not always your best solution, there are particular instances when it does  makes the most economic sense.  In those cases, travelers have to suck it up and deal with the hassles and inconveniences of scheduled air service.

One of those hassles is airport security.  As I have said before, while I am not a fan of the process, I recognize the need for it and I understand that it is a necessary evil.  In July, a woman was arrested for disorderly conduct at the Nashville International Airport when she refused to allow her teen-aged daughter to go through the body scanner.  This meant that the girl had to be screened using a standard pat-down, a procedure far more thorough than it looks on Law and Order.  The mother wasn’t happy with that, either.  She proceeded to complain loudly, repeatedly and abusively enough that the airport police finally put her under arrest.  She has now achieved some kind of bizarre martyr status in the Main Stream Media.

This absolutely blows my mind.

Her attitude reflects  a common sentiment, though.  The traveling public insists on government protection for fliers. Snicklefitz Traveler cries, “Keep me safe!  Keep me safe!  But do it by screening that other guy, ‘cause I’m not a threat.”  “Keep me safe, but handle it in the way that I want, even though I don’t really know how the whole process works.” “Keep me safe, but don’t inconvenience me.” “Seat me next to people like these….”

Security measures are not created out of a vacuum.  They are in response to a specific threat or incident.  Thanks to Richard Reid, we have our shoes screened.  Thanks to Umar Farouk Abdulmatallab, we have our bodies scanned and our groins checked.  Organizations all over the world use both women and children as soldiers and terrorists.  Security screening is a thankless job and the TSA an easy target for criticism; but, the fact is, the TSA has to get it right every time – or as close to every time as humanly possible –  because the cost of being wrong could be catastrophic.  The terrorist has to get it right only once to achieve that same catastrophic effect.

Flying is a privilege, not a right.  To take advantage of the privilege, we must agree to abide by the rules of the airlines, airports and related agencies.  If you disagree with the measures in place, you don’t have to fly.  People crossed the oceans in ships.  They settled Utah using hand carts.  There are other ways you can get to your destination.

By the way, the attractive, harmless people in the photos are Alyssa Bustamante, a 15-year-old who strangled, stabbed and cut the throat of her nine-year-old neighbor and Anders Breivik who murdered 77 people in Norway.

If Timothy McVeigh taught us nothing else, he should have taught us that evil may look innocuous and that not all of those who would do us harm are from outside our borders.

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Recently I was talking with a friend about business flying.  He is not in business nor is he a pilot.  But he had trouble getting around the notion that business aircraft are all about excessive luxury for the super-wealthy.  I commented that there might be some merit to his claim if the majority of business aircraft owners were all super wealthy individuals.  But they aren’t.  This opinion also belies a scarcity mentality that assumes if someone “has” then it is because they have taken it from someone who, as a result, “has not”.  Funny, but we forget that the vast majority of the world lives on less than 2$ per day and considers anyone who has an automobile to be “rich”.  Perspective and assumptions are often overlooked in these discussions.   Personally,  I reject the idea of a closed economic system and the resulting scarcity mentality that accompanies it.  But, alas, I digress.

Yes there are aircraft owned by the super-wealthy who utilize them mainly for pleasure.  But that is the exception (as well as their prerogative, by the way.)  However, according to a 2009 study from the National Business Aviation Association (NBAA) small businesses own the majority of business aircraft.  Less than 1 in 4 passengers on business planes are top level leadership.  More often, 70% of the time, business aircraft are used to transport mid-level mangers, sales, support and technical staff. 1  The image of the aircraft being utilized only by the CEO or COO as a luxury is simply not factual.

The practical uses of business aircraft are many.  You can more efficiently fly into airports not serviced by the airlines and reduce the expense of hotel stays and car rental.  Employees can work during the flight and not waste precious time standing in line at security or waiting for standby flights because their original flight was cancelled.  Those travelling on business aircraft said that they felt 20% more productive on the plane than in the office and felt that on the airlines they were at least 40% less effective.2

The larger businesses that operated corporate aircraft are reguarly among the most profitable (which means, in turn, they are able to hire and employ) and respected in our country.  NEXA Advisors, LLC, conducted a study to see if business aircraft ownership actually had a correlative effect on the health of the business operating the aircraft.  In short, yes, it did.  It made a solid positive difference in these companies.  The report’s conclusion was, “Business airplane users continue to outperform nonusers in terms of revenue growth, profit growth, and asset efficiency.” 3

Moreover, what is lost in the grandstanding on Capitol Hill and the media’s constant badgering of Business Aviation is how much business aviation contributes to our economy and to the success of companies that employ tens of thousands. Aviation and it’s related businesses directly employ more than 1.2 million people and infuse $150 billion into the economy.  Aviation is a signficant contributor to our nation’s health.4

The businesses operating their own aircraft were to be found on lists such as : Business Week’s 50 Most Innovative Companies, Fortune’s 50 Most Admired Companies, Business Week’s 25 Best Customer Service Companies, Fortune’s 50 World’s Most Admired Companies, and Corporate Responsibility Magazine’s 100 Best Corporate Citizens.5  Again, the caricature of the business jet operator is found to be just that -a caricature that does not accurately represent reality.

Without a doubt business aircraft have a degree of luxury about them.  And why not?  Do you chastise someone for having leather seats in their car?  An .mp3 player?  Satellite radio?  GPS?  But those things are pretty standard these days in our cars.  Perhaps one of the major issues is that business aviation stands in stark contrast to the miserable state of the commercial airline experience that we all know only too well.  If you had the choice of driving in a 76 Plymouth or a 2011 MKZ, would you really have to think long about the choice? (And for the record I drive a decade-old Ford Taurus with 140,000+ miles)  If it’s your car or boat or plane, why not make it comfortable and functional?  But at the end of the day, that’s not the point as my friend’s faulty assumptions illustrate.

Most businesses don’t operate aircraft because they simply like the luxury.  They operate them because they make practical and financial sense.  They don’t buy an aircraft so they can look cool and yet lose money.  No, they have learned that business aviation can make good business sense.  And the business aviation industry stands ready to be an integral part of the equation to help individuals and business achieve the success that, in the end, makes us all stronger.

1.  Real World Business Aviation 2009, page 5 (http://www.nbaa.org/business-aviation/Real-World-of-Business-Aviation-2009.pdf)
2. IBID, page 6
3.  The Bizav Advantage: The case for bizav, in dollars and cents Robert P. Mark, Business Jet Traveler, Oct 1, 2010
4. Aviation Week, Kansans Demand Obama End BizAv Rhetoric, July 22, 2011
5. IBID, Mark

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This post first appeared on 4.26.11 in CS&A Insurance blog – Clear on Top

How do we determine is something is dangerous?  Is there a universally known definition or just a matter of opinion?  Webster defines the term as follows:

dan·ger·ous – adj – able or likely to inflict injury or harm

If we stop and think about the literal definition of dangerous, we realize that it applies to most things in our life.  We start off each day with dangerous acts…shaving, taking a shower, cooking breakfast, driving to work…all of which have the ability to inflict injury or harm.   How many of us have cut ourselves when shaving?  How about burned yourself while cooking?  And what about having an accident in a car?   The generally accepted odds are that 1 in 4 people will be involved in a serious car accident in their lifetime.  Let’s take that a step further, based on the average number of automobile trips made by Americans in their lifetime the odds of being killed in an accident are 1 in 140.  Driving is the most dangerous activity undertaken by most Americans on a daily basis and very little thought is given to the dangers encountered because it is just a routine part of life.

Why does the general public view flying as being dangerous?  Any time we cheat the laws of gravity we are entering into a “dangerous” scenario by definition; but is it really dangerous, or is it just different?  According to the National Safety Council, the odds of being killed in a plane crash are about 1 in 250,000.  In comparing these statistics you are 1,786 times more likely to die in a car than in a plane…in other words you are more likely to die on the way to the airport than in flight to your destination.

So what is it that is driving this dangerous view of flying?  In short, lack of education and the media.  This is a funny combination in my mind because the media is supposed to educate, but often times they are just as uneducated as the masses to which they are pontificating.  How does a blind man know what color the sky is?  He trusts the person describing it to him, even if that person is colorblind.  In absence of knowledge we tend to believe whatever sounds the most accurate.  So without further ado I give you some media quotes concerning recent flying scenarios making headlines.

“The Monday night close call, left Obama’s jet 2.94 miles away from slamming into the 200-ton C-17 plane…” – New York Post

This is what is known in the aviation world as a “go around”.  It happens on a daily basis and exists for just such an occasion.  When the required separation cannot be maintained or does not exist, the controllers direct the pilots to break off the approach and send them around to try it again.  Let’s put this in perspective just to give you an idea how far 2.94 miles is…try 15,500 feet.  This is a greater distance than all those aircraft that pass over your house on approach to landing if you live within 30 miles of a major airport.   If their landing lights are on when they fly over your house at night, they are probably below 10,000 feet and only 1.89 miles away from slamming into your house.

“The pilots landed their planes safely but without help from the airport tower.”  – ABC News

“Planes forced to land without help from tower at Reagan Natl” – America’s Newsroom     

News flash…the tower does not and cannot help a pilot land an airplane.  The tower can only give direction and recommendation just like the traffic cop at an intersection.  Pilots land without help from the tower thousands of times every day…it’s how we were trained from Day 1.

Let’s face it, flying is still a widely misunderstood activity and as long as there are reporters there will be inaccurate news reports.  As pilots, we are a relative minority and the understanding of flight is still a wondrous mystery to most.  The how’s, why’s, and what if’s are the stuff of Hollywood legend.  Entire movies have been made around the fear of flying and the perceived dangers that they instill are numerous.  Aviation activities still draw front page news, from the airshow to the accident and the engine failure to the ATC actions.  Is flying dangerous?  Yes.  Is it more so than other daily activities?  No.  It is up to us as pilots, air traffic controllers, and all other aviation support personnel to do all we can to operate as safely as possible and calm the fears of the general public.

Be professional, train appropriately, and be personable.  Just because we can fly does not mean we are above anyone else.

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Originally published on Clear On Top on 4 March 2011

Federal officials released a proposal recently to the Federal Register that will limit the use of the BARR program to owners and operators of aircraft who are deemed to have a “valid security concern”.  For a little over a decade, the Block Aircraft Registration Request (BARR) has provided a way for owners and operators with a privacy concern to have their N# and the corresponding flight information be blocked from public availability.  Without the BARR, real-time information for any aircraft on an IFR flight plan is available to the public through the internet.  Public use websites exist that provide ownership and tracking information on the aircraft including it’s location, altitude, airspeed, destination, and estimated time of arrival for little or no charge.  To take this to the next level, apps exist for the iPhone and other smart phones that allow a user to point at an aircraft flying overhead and be provided with all the aforementioned information pulled from this public domain.

If this proposal is passed owners and operations will be required to re-submit written certification of a “valid security concern” on an annual basis for approval.  The proposal defines a valid security concern as follows:

“A Valid Security Concern is a verifiable threat to person, property or company, including a threat of death, kidnapping or serious bodily harm against an individual, a recent history of violent terrorist activity in the geographic area in which the transportation is provided, or a threat against a company.”

Ed Bolen, President of the NBAA, issued a statement today saying that the proposal will grant “an unwarranted invasion of the privacy of aircraft owners and operators, a threat to the competitiveness of U.S. companies and a potential security risk to persons on board.”  Bolen’s entire statement along with much more information concerning the proposal can be found on the NBAA website.  I encourage you to take a bit of time and learn about the very real threat to your privacy that is lurking around the corner.  We have 30 days to make our comments heard before this proposal comes up for action…the time to speak up is now.

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A LA Times article by Hugo Martín discusses what those who travel on the airline have experienced in the past year and it looks like we can expect more of the same in 2011.

Passenger demand has returned with the upturn in the economy and airlines have limited their growth in inventory (seats) in order to make a profit by increasing their yield per flight. Less empty seats means more control over pricing and greater yields per flight. Simple supply and demand economics.

That’s all great if you are on the selling side of that equation. If you are on the buying side it increases the likelihood that you will get bumped off a flight. When a flight cancels your next flight out may be the next day, not a few hours later, because that next flight in a few hours is already sold out.

Load factors in this article for Delta and United are running at around 84%. Load factors at that level mean a lot of flights are full at peak times and many are oversold. I don’t mind a full flight if you just get me home on time and don’t lose my stuff. I do mind it when you cancel the flight and tell me you will get me home the next day.

The LA Times article posts some interesting comments from a survey by Zagat of 8000 frequent fliers:

* The only thing missing is a blindfold and a cigarette.

* My bags get better service, but they pay extra.

* The only difference between economy and business classes is a shrimp on your salad.

* “Unwelcome aboard!”

* I don’t love getting up-close-and-personal with the head of the person in front of me.

* Who made them mad at their customers?

* Entree selections should be labeled “choose your poison.”

* When two crummy medium-size airlines merge, all you get is a crummy large airline.

* Seats make an iron maiden seem comfortable.

Business Aviation continues to have unprecedented opportunities to meet the market of frustrated travelers with a better proposition. As airlines turn into mass transit systems that sell a commodity (seats) are there still people willing to pay for service? More importantly can business aviation save time over airline travel and do people value their time more or less in today’s economy?

I think I know the answer but from my viewpoint I am biased. If the airlines just got me there on time I think I could tolerate the rest. But when I don’t get there on time then all of the service failings start to really get to me. Too much time in a crowded terminal waiting on that “next flight” is not good for travelers to reflect on the experience

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A January 17 press release from Embraer announces that Embraer delivered 100 Phenom deliveries in 2010 making it number one in most deliveries. That’s pretty impressive for a new aircraft that was only certified at the end of 2008, and especially taking into consideration the economy.

An excerpt from the press release:

One hundred aircraft delivered: more than any other business jet in the world.

São José dos Campos, January 17, 2011 – Embraer’s Phenom 100 entry-level executive jet was number one, with 100 deliveries in 2010. Together with the other airplanes of Embraer Executive Jets’ portfolio, the Phenom 100’s success is also reflected in the Company’s increasing market share, which is the fastest growing in business aviation in terms of units delivered.

“Its clean-sheet design, superior cabin comfort, amazing performance, low operating cost, as well as the jet’s great looks, have thrilled our customers,” said Luís Carlos Affonso, Embraer Executive Vice President, Executive Jets. “We are honored and thankful to our customers for their choice and confidence in the Phenom program and in the Embraer brand.”

Our delivery group at JetQuik, led by Bill Minkoff, has delivered 16 Phenom 100 and  2 Phenom 300 aircraft to customers in the US and Europe since October 2009. The acceptance and deliver process gets smoother with each delivery. Embraer is building great aircraft.

We are proud to be managing and operating two Phenom 100’s in charter service. They have gained good market acceptance with our charter passengers and are proving themselves as they get time in service.

Congratulations to Embraer for making a great entry level business jet.  I look forward to seeing the Legacy 450 and 500 aircraft when they reach certification and production.

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Part 1

I read a lot and try to keep up with what is going on in our industry, trends, innovations, economic forecasts for aviation and the economy on a macro level, what and how the airlines are doing, and so forth.

However, my best perspective about Business and General Aviation still comes from where I sit working in the middle of a business that charters, manages, sells, maintains, fuels and stores aircraft. We also partner on two flight schools that do primary and advanced flight training. I am surrounded by and involved with just about every aspect of general aviation.

2010 was a year that started out with no clear understanding of whether it would be the year of recovery or a repeat of 2009.

The first 8 months of the year were up and down on monthly revenue in charter. Some months looked great and some looked like 2009. It is hard to run a business without predictability in revenue and activity. How do you staff for that and plan cash flow? We managed to hang on.

We have been very fortunate to have a maintenance division of the company that never slowed down during the recession due to the type of maintenance we specialize in. We perform work on and refurbish small regional airline aircraft and the demand for these aircraft worldwide didn’t change much during the recession. Small airlines around the world and the communities they serve need aircraft. Aviation in many countries is not so much a luxury but more of a necessity of travel with poor road infrastructure. The weakness in the small regional airline market seemed to be more the lack of financing than lack of demand.

Our FBO’s showed steady improvement this year over last year. Fuel sales volume was still not at 2007 levels but it got closer. I like upward trends more than downward trends.

The good news really happened in the last 4 months of this year. The phones started ringing more and our charter flights picked up tremendously. As I reviewed it yesterday, and compared to the last 4 months of 2009, I almost couldn’t believe the numbers. Our revenue in charter was up 65% over last year from September through December.

What happened to cause this increase?

A few things on our end helped, including an increase in the size of the charter fleet with 8 new aircraft additions over the past 12 months. Included in that mix was a 30-seat turboprop that met a void in the market. Without too much marketing effort this aircraft started flying immediately when it went into service at midyear.

Looking at the external factors, the airlines and the system they operate in continued to add frustration and inefficiency to air travel. More TSA hassles, more delays and cancellations added to the misery factor. Reduced seats and increased demand created profit for the airlines but caused trouble for the business traveler. Full flights don’t allow much flexibility when cancellations happen due to weather or maintenance. It is not so easy anymore to rebook on the flight leaving two hours later. Sometimes that turns into “we will get you there tomorrow”.

Demand for travel has come back but the friction in the system has gotten worse.

That is good for those of us who are in the business of offering alternatives to scheduled airline travel.

So my guess is that we also benefited from the economy and the airline system. I will take the gift the airlines are handing us and smile.

The snowstorm in the Northeast this week generated a lot of year-end flight activity for us. Stranded vacationers were willing to charter flights to get where they needed to go.

So this year ended up a whole lot better than it started, and I am encouraged that the opportunities for our company and for our industry are going to improve in 2011.

Even in a shaky and uncertain economy people still need to travel. Businesses have proven their resilience to keep doing business and make things work even when the forecasts from some are doom and gloom. Face to face business has yet to be replaced totally by the videoconference. I still can’t share a meal with you through the video screen.

I believe we have amazing opportunities as an industry to improve the efficiency of businesses by saving time and stress on their most valuable asset – their people.

From my perspective I will take 2010 as a year of learning to adapt and innovate and treading water without sinking.

In the next posting I will throw out some ideas and thoughts about what 2011 and forward could look like.

Happy New Year

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