Plane Conversations

The Battle of a Thousand David’s against the one Goliath.

The title could be both looking back in retrospect, looking at the situaiton in the present tense, and looking at the future.  How did we beat back the powerful lobbyists when General Aviation took on the Airline Transport Association that represents the mainline airlines?  Did we really beat them or is it an ongoing battle with a brief respite?

The battle I speak of was over proposals to put in place European style aviation user fees that would eventually cripple general aviation as they have in other parts of the world.  The old style of slugging it out on “the hill” in D.C. would have left General Aviation (GA) in the dust licking it wounds.  ATA had the money and the mainstream media (via advertising dollars) on its side.  GA, with several less powerful organizations fighting the battle itself and the big media perception problem, appeared to be outgunned.  

What these organizations did have was numbers.  1.3 million aircraft owners, pilots, and aviation workers who make their living flying, maintaining and fueling general aviation aircraft every day, as well as small and medium sized businesses who use small aircraft to grow their businesses.  Big media portrayed our industry as one that serves what they called the “fat cats” who ride around in big corporate jets wallowing in corporate excess while asking for government bailouts.

For a while, we let them get away with it. Then the voices started speaking up.   

The fight looked pretty dismal two years ago when we were up on the hill going around to different congressional offices asking for support.  We had some friendly receptions but we also had some chilling ones.  You could tell who had been visited by the ATA lobby and their PACS.  It was not a partisan issue we experienced.  In fact, the most chilling reception we had from the Tennessee congressional delegation came from an East Tennessee Republican congressman who we wrongly assumed to be a supporter of small business (GA).

Most of us thought it to be a losing battle but, still, none of us would go down without a fight.  I can’t speak for the organizations that represent us, but at the time I think they probably saw the battle as an uphill fight.   The organizations that supported our interests seemed to be behind the power curve and lacked the money to work the hill the old fashioned way.  What we did not understand at that time was the power of the grass roots organizations like AOPA (www.gaservesamerica.com) that mobilized their 500,000 plus membership to inundate congress with calls and letters.  Alliance for Aviation Across America formed in 2007 to take on the cause and now has over 4,400 members, including all of the major associations that represent GA.  www.aviationacrossamerica.org  The formation of this alliance was probably the most brilliant strategy of this game.  Politicians can’t ignore the sheer numbers and the broad cross section of this alliance.  They realized they were taking on mainstream America – famers, small business, factory workers, pilots, maintenance technicians….. Not good politics in the middle of a recession!

We also did not understand the power of social media and the technology surrounding it.

All of this tells us that the power should no longer be allowed to rest in the hands of the paid for lobbyists and politicians in DC.  The power rests in the consumer, the individual voice willing to comment on the articles and blogs, the activists who send emails, write letters and make visits to the hill in DC.  Alliances whether informal or formal take on a new power that money can’t silence.  Whether you agree with the Tea Party movement or not, you have to agree that it represents a shift in power that comes from the bottom up and it is only the beginning.  More ground swell movements will follow and emulate.   

 The politicians are scared of this new shift in power. It is not business as usual.  As a good friend says, “it is business as unusual”.

 For the first time in the history of our great country, since its founding 225 years ago, the term “We the People” may have new meaning and significance.

 So looking forward, how do we keep winning the battle?

 First we have to be right.  And if we are right, then we have to win the hearts and minds of the consumers (the people), because the real power moving forward rests in the pocketbooks of the consumers who have gained a voice in the market place.

Do not expect them to relinquish that voice. In fact, expect it to grow louder and stronger as social technology allows the voice to be heard loud and clear.

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There has been a lot of press lately about the airlines continuing to add fees for everything they can think of.

I don’t know what these guys are thinking when they do this.  

An article on CNN’s site quoting airline consultant Robert Mann, says the following about their thinking:

 Airline consultant Robert Mann of R.W. Mann & Co. expects the carry-on and possible toilet fee to remain firmly in the realm of the aggressive discount carriers, who capitalize on “an infinite demand for very low fares.”

“A lot of people will put up with a lot of inconvenience and crazy fees in order to think they got a low fare,” Mann said.

Can they not just figure out how to charge a price and make money to cover it? Are they trying to modify our traveling behavior through a pricing scheme?  

There is now proposed legislation requiring the airlines to disclose their add on fees to the customer in a way that you would really know what you are paying prior to travel.

So should we require McDonalds to tell you how much they are charging for the special sauce when you buy the Big Mac? Or can we be content that we either think the Big Mac is worth it at the price, or we don’t buy it.

Every time the airlines irritate the consumer with their pricing schemes or bad schedules or whatever the irritant of the day is, the government tries to legislate some way to make them behave.

Most of the airlines you fly on have their flight attendants thank you for choosing them.  It goes something like this: “Thanks for flying with us today; we know you have a choice and we are glad you chose us”.

Our friend Dan Robles who posts frequently on Plane Conversations writes the following about the airlines pricing schemes in a recent post on his site:

Steven Frishling (www.flyingwithfish.com) predicts that there will be a schism in the industry, some airlines will take on the race to the bottom with ancillary fees and others will realize that every angry customer is an opportunity to migrate to a superior travel experience.

Charging is obnoxious – every hit hurts. In fact, Expedia makes the majority of their fees off everything except airlines, why can’t airlines?

Steven suggests that the opposite of bundling – integrating hotels, taxis, sponsors, etc even using frequent flyer miles – is a the best way to improve the experience of flying.  Airlines should provide targeted portals, build sponsored content, attract sponsor revenue, supply hotlinks, etc. All of these are clever ways to derive revenue without alienating passengers.

All this “cost-saving” of ancillary pricing can quickly become a huge liability as competitors come along with comparable prices and superior service. Social media is proving to be an excellent tool for reaching out to passengers and understanding the needs. This allows them to package features smartly, unbundle fees in a way that adds value to the experience, not by squandering trust and respect at every opportunity.

Ultimately, the market will take care of this anti-social behavior of the airlines.  Maybe some airlines will succeed by attracting that “infinite demand for very low fares,” but I have to believe that most of us do not want the confusion, inconvenience and trickery of it all.  

We do have a choice as to who we fly with. We even have a choice to not fly at all. What about the choice to fly in a private aircraft?  Can we offer these consumers a better choice at a price they can live with?

If the airlines aren’t going to do what Steve Frishling suggests, then why don’t we?

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Part 3 in a series

So, what is needed to fix the broken model and is it even possible?

So far in this series of posts I have been on the negative side, even though those who know me know that I am an eternal optimist.  I look for the sunshine; so, where is it in this business? Where are the solutions?  A good friend tells me that he sees the light at the end of the tunnel and that it doesn’t look like a train. I hope he’s right! Maybe, just maybe, it is the sunshine of innovation!  

I am a believer in a free market; however, I do know that regulation must exist to keep a level playing field. This is true more so in our industry than many other industries  because safety in aviation is paramount.  It is not reasonable to expect the consumer to know the difference in safety between operators since their knowledge of the inner workings of aviation is limited, at best. We need the FAA, but more importantly, we need the FAA to be effective in their task of keeping the industry safe and the playing field level.

We cannot operate in an unregulated free market, at least not at this point in the game. Left to our own devices, some of us will continue to do things at the best level and others will allow greed to take over and cut corners.   

If we are to have a level playing field, the government needs to get better at their job of regulating the industry by either forcing the bad actors out or forcing them to behave.

Knowledge is power and knowledge in the hands of the consumer goes a long way in leveling the playing field. It rewards those who do things right and punishes those who don’t. If you don’t believe this, then you haven’t been online to buy lately. Take a look at the eBay rating system and you realize that the market has changed. Those who do it right are rewarded. Those who don’t? They get thrown off the playing field by the consumer. When the Web 2.0 arrives to private aviation, the consumer will be more informed and will be able to make decisions based on more than just price.  

Maybe one of the answers to fixing this broken industry is knowledge in the right hands. What kind of knowledge?

How about this for starters:

• Knowledge of the safety practices and records of operators. Transparent and open for all to see.
• Knowledge about the people behind the company web site and slick brochures.
• Knowledge that would allow consumers to find the best solutions to travel outside of the supply-side controlled silos of present marketing methods of our industry.
• Knowledge that really educates the market about the solutions that our industry offers in contrast to other methods of travel.
• Knowledge that would allow travelers to place a value on their time and even place a value on their experience so when they compare travel solutions it is not just about the ticket price. Tools to value time and the experience of travel.

Knowledge! How do we get knowledge in the hands of the market so that they can decide to use our services or not? I can tell you that today, most people do not know that an air mass-transit alternative exists that they believe they can afford because we are an industry fragmented in our efforts to communicate our value!

We live in an economy where the availability of information is increasing at an exponential rate; however, information is not knowledge. So, if we want to fix this industry and make it profitable can we take all of this information we now have at the click of the mouse and turn it into market knowledge that will help the operators, the regulators and the consumers of our service to make better decisions and, ultimately, drive more value? 

These thoughts I present are obviously not the only solutions. I have not even scratched the surface of solving the problem. There is no way one person or company can fix this broken model.  

What solutions do you have?

Let’s fix this broken model together and we all win!

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Part 2 in a series

Something has to change!

All along the aviation supply chain, suppliers make money or try to make money with no direct connection to the profitability of those at the end of the chain. The aircraft manufacturers, fuel suppliers and ground services providers (FBO), insurance companies and their agents, financial institutions that capitalize the industry, maintenance facilities,  parts manufacturers and suppliers, and so on….. It is a big chain!

By the time you get to the end of the chain, where the rubber meets the road, where the market of travelers meets the end product , there seems to be no profit for the operator of the jet with pilots up front and passengers in the back.

Sometimes, I think that the problem in our industry is much the same as the problem in the airline industry - over-capacity and irrational pricing! Why does that happen? Here are a few of my ideas based on my experience.  

Problem 1: Inexperience.  For some reason, otherwise smart and successful business people, who did not make their fortunes in aviation, see and experience private aviation, and want to jump into the business, thinking they can do it better.  As a case in point, consider Vince Neil of Motley Crue.  Maybe it is the glamour, or the fringe benefits of owning an aviation business, where you can get a free ride if you own the company.

I have seen all the reasons. I have competed against the irrationality of companies owned by someone who thinks that they are going to run everyone out of business by selling the service at below cost, or by not paying their people or by saving on maintenance or whatever the rationale du jour.

Problem 2: The level (or not so level) playing field. The consumer goes for the lowest price, assuming that our government (FAA) is making sure that all operators are safe and meet the standards to the same required level.  The customer never suspects that this does not happen. Our own government does not trust itself to keep the playing field level; so, they have independent auditing groups for their own departments because they don’t trust the FAA to do their job.  

Those operators who choose to do it the right way see their ability to make a profit disappear until such time as the irrational competitor goes out of business. Then the cycle starts over, as it is right now, coming out of a tough recession when the weak have been weeded out, or at least severely wounded. 

Problem 3: Supply and Demand – too much supply not enough demand.  As long as there is more supply of private aviation than the market demands, we are potentially doomed to undercutting each other for that ever elusive customer. We are all going after the same shrinking market.  

I have mentioned three problems. How many more problems are there that doom our industry to the “no profit zone? “

Are we stuck in a never-ending cycle of repeated ups and downs - make a dollar, lose two and then make one back?

If we keep doing the same thing over and over again then most likely yes.  

As an industry on the macro level and as an individual operator on the micro level, something has to change. We have to do things differently in the future.  

More tomorrow on possible solutions to the broken model.

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Part 1 in a series

“If you had to do it all over again, knowing what you know today, would you pursue the same path?”  It’s a question most people ask themselves at some point and one that I was asked in a recent meeting with two customers, both of whom have been very successful in their respective business careers. My answer was: knowing what I know today, I could have pursued a different path and, most likely, made more money for the hours of time that I have put into the business.

However, I would never had met the people I have met or worked with the people I have been privileged to work with in this business. And for those reasons, I am glad to have done what I have done, even if it meant less money.  

I’ve had the privilege of meeting and getting to know many successful business people, as well as working alongside great people. Our industry offers transportation services, plain and simple. Due to the current costs of what we offer, you can assume that those who use private aircraft have been financially successful, or they would not be able to afford to buy what we sell. Meeting successful people has given me a unique perspective on how people have succeeded and how they have dealt with their success.

The economic environment of the past 24 months has severely wounded our industry and the casualty count has been high.  One of the revelations that has come to me during this period is that we are working with a broken business model. In some ways from a financial (not service) perspective, it looks like the airline industry.

I have written about the supply chain of aviation in a previous post and posited that everyone in that chain must be a part of the solution. If a part the chain is broken then the whole chain cannot be sustainable over the long haul.  

What has become apparent is that the end of the private aviation supply chain – the companies that operate aircraft and deliver air transportation services to the consumer are, for the most part, unprofitable. From NetJets, who lost $700 million last year and has lost over $150 million in aggregate since Warren Buffett bought them 12 years ago, to the small businesses like the one I run, many more people have lost money in aviation than have made it.

If you ask me to name operators who have consistently made a profit over any time period, I can’t do it. The failure rate of air charter companies / fractional operators is a very high percentage. Many never make a profit and many more maintain the basic status quo, winning in some years and losing in others.  

The old adage of how to make a million dollars in aviation – start with 5 million – is sad, but true.

Our company has had its ups and downs over our 28 years in business; but, in the aggregate, we have made money. Maybe we haven’t made much, but we have always made the payroll. Is that something to be proud of? You tell me.  

If you count the hours we have put into this business and the sacrifices we have made, you might scratch your head and ask, “why do you do this?”  We would say, “What?! And get out of aviation?!”

Why have we made it and defied the odds? 

• We have a dedicated group of people who are loyal and give it their all. 
• We are diversified and not only operate aircraft, but also maintain, fuel and sell aircraft. Many times, one division of the company carried the company when the other one(s) were not doing well. Had we only been in the air charter business all of these years, we would not be here today. This diversity also allowed us to control costs since we were further up the supply chain with maintenance and fuel. Had we been forced to buy fuel or maintenance services at retail,  we would not be here today. In business school, they call that vertical integration.  In Smyrna, Tennessee, we call that hedging our bets.
• Finally, and perhaps most importantly, we have a degree of persistence (stubbornness, in some people’s dictionary) that basically says: we don’t quit. We don’t quit working hard, we don’t quit doing the right things even if it appears at the time that doing the right thing doesn’t pay, and we don’t quit. Oh, and did I mention that we don’t quit?  

More tomorrow on the question of the broken model.

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I don’t know about you, but I am glad to see 2009 come to an end – at least from a business perspective. I am just  glad to have survived it, to still be standing, both personally and as a business owner and CEO. A year ago many of us were wondering if the sky was falling. The stock market had fallen hard.  Aircraft sales came to a grinding halt.  Flying slowed down and kept getting slower. Fuel sales at airports fell off by as much as 30%.  I can remember many conversations back in the spring with peers in the business of aviation, as well as business people in general, that started with “do you think we have hit the bottom? And, if we haven’t, how much farther is it going to fall?”  Well, hopefully we have hit bottom as an industry and started back up!  From my vantage point it feels that way.

The aviation news all year has been mostly bad. Many charter and commercial operations ceased to fly and many more had to cut back severely, including the industry leader Netjets. It seems the aircraft manufacturers were hit the hardest as the backlog of orders for some manufacturers disappeared overnight. Many long-standing, well-run flight departments shut down due to corporate decisions that in some cases were purely political.   All year long we have continued to get news of layoffs in all segments of aviation. As I have searched the news intently over the past few months, as we started this blog site, most of what I have seen has been negative. Some of the repercussions of the last 18 months have yet to totally play out and we will most likely see some more negative news in 2010.  It is hard to keep seeing the negative and at the same time look for the positive.

So, amid all this doom and gloom where is the sunshine?

In the charter business we are starting to see  increased demand and are approaching activity levels of two years ago. Fuel sales are coming back up at our two locations. I hear the same from others who offer aviation services. Individuals and businesses are starting to buy aircraft, taking advantage of the deflated prices on good, late-model, used jets.    The traveler is coming back out of the office, getting back to their customers and vendors they need to actually see to make their businesses grow. Increased travel has to be a sign that growth will surely follow. Travel equates to new deals, new business relationships, buyers and sellers meeting face to face. When people get together things happen. When they stay locked up in their forts nothing happens, other than eventual starvation.

A lot of the people we do business with are back out doing what they do best – growing businesses. Getting deals done  may be more difficult today than it was two years ago, but people are  working smarter and  harder.

A good friend and mentor told me one day a couple months ago that one of the problems with business aviation is that we think in terms of scarcity, when we should be thinking in terms of abundance. Think scarce and you will most certainly not act in ways to create abundance. As one proverb says, “as a man thinks, so is he”.  We start the turn from scarcity to abundance by changing our thinking.

So my challenge for this next year  to the great people I work with,  as well as our peers and friends in business aviation is this: let’s view this market in abundant terms instead of scarce terms. Let’s think about how we do things differently to position ourselves better to grow instead of accepting a shrinking market.  Never before have we been presented such an opportunity to grow our industry.

How you say that in times like this?

If we collaborate, cooperate and innovate we can capture the traveler who has never been more frustrated with the wasted time and  negative experience of traveling by airlines (air mass transit).   Our industry of business and private aviation from one end of the supply chain to the other end must work together like never before to come up with the solution(s) the market is screaming for. As Jim Cramer from CNBC’s  Mad Money says “money talks and sometimes money shouts”. The market speaks with its money and it is shouting for solutions. Let’s figure it out and grow in 2010!

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