Plane Conversations

The Next Economic Paradigm is a very simple idea yet the overwhelming majority of people have absolutely no idea what we’re talking about.  The strangest part of this work is the knowledge that eventually this will become completely obvious to everyone and the transformation, from beginning to end, will take a very short period of time.

My greatest curiosity is imagining when and how this moment will arrive.

I recently saw the latest Star Trek re-boot where an old Dr. Spock encountered the exiled young Space Propulsions Engineer named Montgomery Scott who had been convicted of attempting a mash-up between warp drive and atomic particle transporting with the commander’s pet schnauzer – where the term “mash-up” was implied to be quite literal.

Um,…the dog wags the tail.

The epiphany came when the older Spock suggested that Scotty’s approach was backward.  Instead of assuming that Space was stationary and the spacecraft was moving, Scotty should assume that the Space is moving and the spacecraft is stationary.

In one fell swoop, all the calculations finally made sense.  A good theory became practical.  All those nasty side effects – like bringing the schnauzer atoms back together – were no longer a problem.  Lo and behold, the Federation was saved.

Of course everyone knows what warp drive is and what transporters do, yet the science involved with their actual construction of these devices remains intensely complex.  The same can be said for our financial system. Everyone knows how to buy a can of tuna fish, but the actual formulation of that transaction is intensely complex.

We have developed a vast set of processes, techniques, and infrastructure around the basic idea that markets are dynamic.  Everyone knows that markets change and move and they behave in many strange ways in response to price inputs, scarcity, surplus, legislation and ideology.

Meanwhile, people are defined by what they consume – like red dots and blue dots on a political district chart, demographic data points, owner/renter, winner/loser, jobbed /not jobbed, young /old, first class/coach, etc.

And that is just the way it is … and the only way it can be.

Now suppose Dr. Spock was to beam down and suggest that markets are static and people are dynamic.  Imagine everyone staring at the can of tuna just sitting there, lonely, dusty and static, doing absolutely nothing except being a can of tuna on a stationary shelf, in an inanimate “market”.

The epiphany is that human knowledge assets are completely and irrevocably tangible in every way, shape, and form. Humans allocate and trade social capital, creative capital, and intellectual capital with each other in infinite ways, sometimes resulting in a can of tuna in a market.

All knowledge assets are tangible in the right exchange system.

I wonder what they will call it?

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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.

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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.

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