Plane Conversations

Few people take into account the social value of air transportation.  There are very few studies that can measure the impact on a community when they are immobilized due to lack of a service that had previously been available. There is no true economic category to describe such loss except as a tax on travel.

A regressive tax is taxation that takes a larger percentage from low-income people than from high-income people. A regressive tax is generally a tax that is applied uniformly. This means that it hits lower-income individuals harder. Social Flights can restore this value with a regionalized public jet charter system.

Now we can add “Travel” to the list

Sales taxes that apply to essentials are generally considered to be regressive as well because expenses for food, clothing and shelter tend to make up a higher percentage of a lower income consumer’s overall budget. In this case, even though the tax may be uniform (such as 7% sales tax), lower income consumers are more affected by it because they are less able to afford it.

<via American Eagle to park planes, reduce service – Dallas Business Journal>

The small city gets the regressive travel tax

American Eagle announced that they would reduce frequency in a few select markets, they would discontinued seasonal service from D/FW to Augusta, Ga. Eagle would also discontinued service from Chicago to Tri-Cities, Tenn as well as discontinued service between Miami and Savanna, Ga., and Miami and Fort Myers, Florida.  American Eagle would also hasten the cancellation of Los Angeles-Boise, Chicago-Calgary and D/FW-Fayetteville, N.C., service from Feb. 9 to Jan. 31.

So how many people would these reduction in service decisions impact? If we just add up the populations of the smaller metropolitan area in each city pair, we can estimate economic loss of opportunity under the assumption that the larger city would have alternate options. Fair enough?

Augusta, GA: 556,877

Tri Cities, TN:  500,538

Savanna, GA: 347,611

Ft Meyers, Fl: 618,754

Boise, Id: 616,500

Calgary: 1,230,248

Fayetteville, NC:  366,383

The Creeping Costs

The total is at least 4 million who will lose one more degree of economic freedom.  4 million people will pay a regressive tax denominated in time, money, and dignity in some form or another for the benefit of stockholders in American Eagle. 4 million people will lose the economic benefit of travelers from large cities.

On closer inspection, with the exception of Calgary and Boise, all of these cities are well within 1000 miles of each other.  Each of these cities is well within 1000 miles of cities just as large as those that American Eagle is diminishing service.

While a hub and spoke model may break down economically, a regionalization strategy may work quite well.  It has been proven that people are willing to pay a premium for direct service (otherwise the airlines would not be dropping less profitable indirect service).  It is also obvious that people place a premium on their time and hassle as demonstrated by trends in online shopping, communication, and social organization.

These ingredients simple add up to a regionalization air transportation route structure enabled by online social organization tools such as Social Flights where community airlines can form around community priorities.  Social Flights can restore this value with a regionalized public jet charter system.

National Public Radio recently aired 2 very interesting segments on the airline industry.  The first segment cited companies leaving small cities because of poor air transportation service. The second segment cited an interesting statistic; all of the airlines that existed before the deregulation act of 1978 have gone bankrupt.

But wait, wasn’t airline deregulation supposed to be good for the airlines?  Wasn’t it supposed to spawn innovation and drive economies of scale?  Wasn’t it supposed to increase choices for the airline passenger?

Well, at least one of these impacts is true; deregulation spawned innovation – although probably not the way it was predicted in 1978.  Today, new technologies are appearing everywhere from new forms of social organization to faster and smarter aircraft systems.   This article features a very interesting aircraft sector called the personal sport jet.  While I do not know enough about their actual business model, it would appear that they are aiming where the airlines and major manufacturers simply cannot reach.

With an operating cost of $400 per hour instead of $1200-$2000 per hour in this class, the excel sportjet can deliver a 2 hour jet flight performance in a “regionalization” market.  Social media trends show us that people are connected in shorter distances and far more diverse locations than the hub and spoke system can accomodate.

This aircraft is small, lightweight, and fast.  It uses a single jet engine and flies at a lower altitude reducing pressurization forces and associated cost. The Sport Jet II carries 4 people and employs extensive use of composites in addition to simplified pilot qualification requirements.

Clayton Christensen’s book “The Innovator’s Dilemma” cites numerous now classic examples of how industries are threatened by simple upstarts that deliver what the customer wants at a price they can afford without the complexity and “over-performance” burden that mainstream players evolve into.

While the aviation business is very complicated, it is truly a pleasure to witness new products and innovations that come to market under the radar of the big players.  We hope that they grow to have an impact on the industry.  After all, that is what Social Flights is all about.

Bravo Sport Jet II, Bravo. 

A business aircraft is a productivity tool. It is no different than any other tool we use in business to become more productive. It has a cost and it brings, or should bring, value. The value has to exceed the cost. If it does then we get a positive rate of return on the investment. If the value does not exceed cost then it is not a good investment.

All of the mainstream and social media conversations about the “extravagance” or “corporate excess” associated with the business jet play well with the anti big business crowds and populist politicians, but they lack substance. So far, these conversations have had nothing to do with the reality of what a business aircraft does to enhance the productivity of a company and its most valuable assets – its people.

The discussion about the value of business aircraft should be all about productivity. If using business aircraft increases the productivity of an organization, and the measured gain in productivity exceeds the cost, then it makes sense. Bottom line!

I just purchased an iPad. I can use this device to increase my productivity in internet research and communications or I can play games on it. How I choose to use it doesn’t make it inherently good or bad. How I use it does determine its value in my personal and business productivity.

In that way, a business jet is no different than an iPad.

Those of us in business aviation need to do a better job of first understanding, and then selling the value proposition of business aircraft as a tool to enhance productivity.

Billions of dollars have been spent in research and development of new high technology aircraft that will take us higher, faster and further on less fuel.  All the while, business aviation has invested very little in the technology to truly measure the enhancement of productivity gained by flying in a private aircraft. It is not just the time saved that we need to measure and quantify. What about the social and physiological experience of travel and its effects on human productivity and creativity?

Additionally, we should invest in the technology to learn how to better utilize the business aircraft to bring the costs down. How do we cut the inefficiencies of business aviation without reducing the experience?

An industry-wide increase in the efficient use of the business aircraft coupled with a measurable understanding of the value would do more than just silence the naysayers. More importantly, it would grow the industry that supports business aviation and bring an innovative increase in the productivity of our economy.

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