Plane Conversations

If you do then something is wrong with the airline system or your employees.

I will vote for a broken airline system.

Thinking about a recent NY Times article by Lisa Galst entitled “Rewarded for Flying Coach” makes me smile as I write this.

What is the world coming to when you have to pay your employees extra for the misery of riding in the back of the aircraft in the cheap seats as opposed to booking the more comfy seats up front? Sounds like hazardous duty pay to me.

I have never heard any of our clients having to incentivize their employees to take a flight on a private aircraft. In fact it is sometimes the other way around. Last week when talking to one of our good clients he was telling me that he uses the flights he books to see his clients as a morale booster for his employees. Those who travel with him are excited about the experience and when they get back to the office everyone else hears about how cool it was.

With all that is happening in the airline industry:

• reduced capacity resulting in high load factors which equals crowded airplanes
• oversold flights and increases in denied boarding
• cancellations due to the new tarmac rules
• a la carte fees for everything the ticket no longer buys you

Is it any surprise that people just don’t want to do this anymore?

And the federal government has the idea that they can step in and solve the problem with legislation to make it against the law to provide bad service.

Private aviation and business aviation are sitting on a gold mine of opportunity.

What if these companies took the money they are spending to incentivize their employees to fly coach and used it to fly more in private aircraft?  They would get happier employees and gain a lot of productivity by not sending them through a hub that is cheaper to save a buck. Besides, with business aviation there is no such thing as routing through a hub. Its all point to point.

Thanks to Forbes.com and Managing Editor Carl Lavin for giving business and private aviation a voice on their site.

Two weeks ago, Forbes.com started a new blog site called Wheels Up  to give a forum for conversations to those of us in the business of business aviation and to private aviators as well.

I was fortunate to be asked to contribute posts along with others including Plane Conversations and CFMCharter friends Clint White , Susan Friedenberg and new friends Jeffrey Reich,  and Jeremy R.C. Cox.

Other contributors so far include passionate private aviators Pierre de Fermor, Michelle C. Torres-Grant, and Carl Lavin weighing in from Forbes.com perspective.

This is great for our industry to get the opportunity to share our stories and engage in conversations with the Forbes readers about the value proposition of business and private aviation. Maybe we will no longer be the best kept secret?

The social media conscious people in our industry need to support Forbes efforts by promoting this new site with Tweets, Facebook and Linked In sharing of the posts, and most importantly, by engaging in the conversation through comments on the site. As we generate traffic and interest, and bring the conversation to the traveling public, we will all benefit.

From looking at the site daily it appears that we are getting some good traction and this is just the beginning.

Happy Fathers Day to all of you who are Dads. Being a father is the most important job we have! 

Have a great rest of the weekend.

Over the past 28 years I have been a student of business aviation. Continually gaining new knowledge and applying that knowledge to better our business is not optional: it is necessary.  Born out of my frustration with Business Aviation’s inability to get its message and value proposition to the market more effectively, I became a student of Social Media a year ago.

Those of us in Business Aviation have not done a good job of telling our story to the business traveler.  Mainstream media has not done a good job at telling our story, either. The biased filters of media seldom get the quotes right or capture the essence of the true value proposition of Business Aviation. It is much easier to overlook the real purpose and to talk about the glitz and glamour of a private jet. The efficiency and productivity message doesn’t get the ratings like glitz, glamour and controversy.     

Business and Private Aviation is supported by and made up of a handful of big businesses and thousands of small businesses across this country. Those businesses operate out of the 5500 public airports in the US, most of which are small airports providing a vital link to their communities.

Small businesses and small airports have never been able to tell their stories because they did not have the advertising and PR budgets of their big business / big airport counterparts.

In the age of social media, those small businesses in private and business aviation services can now speak up and be heard. They can communicate their value to the market without filters. More importantly, they can hear from the market of frustrated travelers out there blogging and tweeting their travel misery every day.

Those who listen to that frustration and develop an understanding of the broken system can possibly even meet the market of travelers with a much more efficient solution – a solution that even makes travel a pleasant experience.   

All of that opportunity has come to our doorstep because of the advent of Social Media.

Over the past year I have seen private and business aviation wake up to the power to communicate with the market through Social Media.

It is now up to us to take what we are learning and properly apply that knowledge for the benefit of the traveler and our industry. When we do that, everyone wins!

What about travel by private aircraft?

AAA says that over 32 million of us in the US are on the road or in the air this weekend, which is the beginning of the summer vacation season. That is an increase of 5.4% over last year. That’s good news for the travel and tourism industry.  

Even in a shaky economy that is struggling to recover, we still spend money to get out of town and go to the beach, or see something new, or go see friends or family in another city. 

Of the 32 million travelers, most of us travel by automobile in this country. The love affair with the auto that began early in the last century remains today – the freedom to go where you want to when you want to in a personal vehicle. Maybe 10% of us travel by air. Of that 10% maybe 5% of them travel by private aircraft – aviation’s version of the “ go when you want to where you want to” automobile.

If my assumptions are anywhere close that means that ½ % of people who travel use private aviation.

That leaves those of us in the business of private aviation (business aviation, air charter, flight schools, personal and business aviation manufacturers and all of the businesses that support private aviation) a big opportunity for growth. If we move just ½ a percent of the market of travelers to use private aviation, we double the size of the industry  

Based on what we all hear in the market of conversations, people only travel by airline because it is just too far to drive, not because they enjoy the experience. If we can make it in the car in a reasonable time frame we drive to eliminate the hassle of air travel. In many cases a 400 mile trip can be done as quickly in a car as traveling by airline.

I grew up flying everywhere in small single engine aircraft, and I can tell you that it is more fun and less hassle than driving or flying the airlines. Over the years of travel on busy holiday weekends, I remember many times looking down at the interstate I would have been driving on and seeing the traffic jams, all the while cruising along at 200 mph on the way to Alabama to see family. I don’t ever remember being stuck in a traffic jam on the busiest travel weekends when I was flying a small aircraft.  With the rare exceptions of waiting out bad weather I can not remember traveling in a small aircraft ever being a hassle.

If we in our industry can come up with solutions to make travel in private aircraft more affordable, is there any doubt we will grow by leaps and bounds?

In a recent meeting of shareholders, Berkshire-Hathaway executives reported that NetJets has returned to profitability after big losses in 2009. The company reports that NetJets had a pretax profit of $ 57 million (US) in the first quarter of this year which is compared to a $ 96 million (US) loss last year.

Warren Buffett attributes the turn around to putting David Sokol in charge. David Sokol also runs the company’s energy – utility business, MidAmerican, and is a candidate to take over Berkshire Hathaway’s operating businesses as a successor to Buffett.  

We have posted a couple articles on NetJets over the past few months regarding the viability of their business model built on fractional jet operations. NetJets is a key leader in our industry and how they fare will make a big difference in the future of private jet travel.  

The key will be if the company can sustain profitability over the long haul. If they can, then it proves they have a working business model. One quarter of profit or even one year of profit does not make a business. You can cut overhead and get most any business profitable if there is some present sustainable revenue stream, but can you grow it in the new economy? Will more people line up to buy fractions of business jets as they did in the last 15 years?

A lot of new business jet orders were canceled in the downturn of the economy. Will NetJets start ordering new aircraft again? Will they operate under a similar business model as they have in the past or will they have to come up with a new way of structuring their fractional business to make it work in the future?

It costs a lot of money to own and operate a business jet and there are fewer companies today than there were two years ago who are willing to spend the money, whether it is a whole aircraft or a fraction. NetJets may get new business from companies who overreacted by shutting down their flight departments last year; but, that will be limited.

Unless business jet travel innovates to the point where the occupied seat cost is brought down significantly, the NetJets client will remain the high end business user and elite traveler. That market is small in comparison to the rest of the travel market.

So where does the new client for flying on a business jet come from?

I don’t make $3 million a year.  I’m nowhere close.  In fact, the very idea of it makes me feel faint and has me seeing visions of Nordstrom’s.  Regardless, we often fly passengers who do make that kind of money.  As an individual, I cannot negatively judge the expedience of using private aviation based on my own personal income and monetary touchstones.  Neither can anyone else outside that economic peer group.

I recently spoke with a client who, until the media hung a target on general aviation, was the scheduler for a corporate flight department.  The company let go of their pilots, sold their aircraft at a huge loss and now has their executives traveling on scheduled airlines.  Those travelers are recording about a 25% cancellation in their flights.  Twenty. Five. Percent.  And the flights aren’t cancelling before the business man leaves his home airport where he can just return to the office to put in a productive day.  They are cancelling when the executive is already on the road.  He’s sitting in Denver or Albuquerque or Kelowna, cooling his heels at a terminal, being as productive as he can be with a Bluetooth and a laptop.  Thankfully, those technologies have continued to advance at an amazing pace.  Otherwise, the guy would be balancing his briefcase on his knees, taking notes while on a call at a phone bank!

Reading the number of articles written about the Great Evil of Private Aviation that I do, I can’t help but see the writers metaphorically lining the jet-bridge clapping and jeering at the executives boarding air mass-transit, the writers gleefully claiming a victory for the proletariat.  This media witch hunt has the markings of an aviation version of the 1793 Reign of Terror.  Certainly we don’t see people dragged through the streets to Madame Guillotine, but we do see flight departments sacrificed on the altar of mob mentality.

I agree that the Big Three CEOs were thoughtless in their use of private aircraft to carry them and their begging bowls to Washington to request bailout funds; however, I think that for politicians who use government Gulfstreams for travel between the capitol and their constituencies to reprimand and condemn the CEOs is tantamount to a Maybach owner telling a BMW driver that he spends too much money on his car.   The major difference that I see is that the government can continue to operate with a trillion dollar deficit while the private sector cannot.

I don’t advocate that private aviation is a “one size fits all” travel solution; however, I realize that each trip must be analyzed to determine its value.  Over the years, I’ve had the opportunity to help manage aircraft for several companies.  Typically, those companies do just that: they examine the cost of each trip to determine the best use of their most expensive assets – their employees’ time.  Private aircraft, like any other asset, is a tool to be used to further the interests and maximize the profits of a company.

Aircraft ownership and flight departments did not put the automakers into bankruptcy.  Likewise, the forced closure of those departments did not allow General Motors to pay back the bailout funds five years early.  Smarter overall business decisions did that.

So, rather than attacking Private Aviation, branding it the root of all evil, how about journalists educate themselves on the topic before they jump on the bandwagon?  Perhaps they might start looking at overall business practices instead.

When we started our flight school, Wings of Eagles, ten years ago, we were looking for a new trainer that would be efficient, safe and fun to fly. We wanted to do something different and reach a different market of people interested in learning to fly by offering new aircraft with the latest technology.

At that time, most flight schools were using 20-year-old Cessna 152s and 172s as their primary trainers. I learned to fly in those aircraft and there’s nothing wrong with learning to fly in a 20 year old trainer; but, it is not the most inspiring sight.  When you are thinking about learning to fly, you’re not looking for an aircraft that has a worn down paint job, a ratty interior, and radios from a different era of electronics.  You’re looking for an aircraft that looks like the future, which is why we chose the Da-20 Katana because it represented just that – the future. When the Da-40 Diamond Star came out we were in line and bought one of the first ones made – serial number 42.

Through the last ten years, these aircraft have proven to be great trainers: so, we have kept Diamond Da-20s and Da-40s in the mix, even  as we have upgraded the fleet.

Like all general aviation aircraft manufacturers, Diamond has had a rough ride in the past two years, but they have hung in there, and now it looks like they are on the verge of some new, innovative aircraft that will keep them in the future game of private and general aviation. 

A post on Flight Global this past week written by Flight International’s Kate Sarsfield of Flight International says that Diamond Aircraft has secured an investor to help them complete the certification of the D-jet.

This is great news for the industry. There is room between the high performance piston aircraft (Cirrus) and the new light jets (Embraer Phenom and Cessna Mustang) for a single engine jet primarily focused at the market of owner-flown aircraft buyers.  

At a price of 1.9 million, which is roughly half of the Phenom 100, and nearly 1 million less than the TBM850, this aircraft would be positioned well in the market to sell.

Kate Sarsfield also mentions other innovations and product offerings that Diamond is working on:

Dries (CEO of Diamond) admitted at the show that Diamond has been forced to diversify its product line and widen its target market to “survive the economic downturn.” A number of projects are in the works, including: 

• Designing wing spar boxes for the Russian MC-21 airliner, which is set for service entry in 2017.
• Building a Mercedes-based V-6 turbo diesel engine for the DA50 DiamondStar piston single
• Designing and building a “future small aircraft” powered by twin turbo diesels. The six-seat variant will have twin 270hp (200kW) engines, while the eight-seat model will have two 400hp engines. Both aircraft will have fly-by-wire controls, an automatic landing system for use in case of pilot incapacitation and be available in pressurised and unpressurised versions.

• Developing two new V-8 turbo diesels – one with 350hp and the other with 550hp.
• Developing a light aircraft driven by a hybrid combination of a 55hp Wankel rotary engine and a 40-50kW electrical motor. Dries said an aircraft will make its debut at next year’s show.

Meanwhile, Diamond has European approval for its 170hp AE300 Austro engine powered DA40 piston single – now called the DA40NG.

Much of what is mentioned has to do with diesel engine technology for aviation. The diesel technology will eventually catch on in a big way for two reasons:

1. The supply of aviation gasoline is limited in most parts of the world and will probably not get better, but here is always an available supply of jet fuel and eventually a bio jet fuel will be on the market.
2. The diesel engine is more economical and eventually will be more reliable.

 So, hats off to Diamond for being forward-thinking and innovative.

 I look forward to seeing the D-jet and diesel variants of the Da-40 and Da-42 Twin star flying here in the US.

4 in a 4 part Series:

In the previous posts in this series, we discussed the gaps in Price and Time between Private Aviation and Air Mass Transit travel.  This time we are going to look at the gap in customer experience.

It is easy to measure price in terms of actual dollars and in terms of the value of our time, which we can use as an offset of the price gap. The more difficult gap to measure is the difference in the experience of the two forms of travel. To date, I am not sure if anyone has been able to accurately quantify the difference in the traveler’s experience. The ability to measure the traveler’s experience on either a private aircraft or an airline and compare that to the alternate experience, would give us a more meaningful comparison between the two.  That comparison could then be quantified and translated into a monetary measurement, which would go towards offsetting the price gap.  I believe that offset would be a valuable tool in selling private aviation services.

Here is what we know for sure!

Those who have experienced private aviation as a form of travel often justify the high price by speaking of the better experience as opposed to traveling by air mass-transit.  Call it the Hassle Factor of the airlines: the anti-social behavior of the passengers we share space with in an airliner, the rude treatment we sometimes receive, the lack of control over where we go and how we have to get there, the uncomfortable feeling of being compressed into a space that is measured in inches of seat pitch, the food served (or mostly not served) on the planes, the baggage abuse (bags don’t have feelings but I don’t like my stuff being abused) and on and on……

You get the point.

Stack that against the experience of private aviation.

Not one single person I have spoken to in 28 years of being in this business has ever said to me, “I can hardly wait to go back to traveling on the airline since I can’t afford to travel in a private aircraft anymore.” Not one. Every aircraft owner, charter customer or private pilot / aircraft owner pilot cites the better experience of flying by private aircraft as the number one reason to close the price gap. They don’t know how to quantify it but they know what they know. How good would it be for our industry to develop a tool that measures the experience, quantifies it and then translates it into dollars?

As consumers, we purchase experience with our hard earned money every single day. We pay more for an iPhone than for a Blackberry because we like the experience. We ride in a luxury car rather than in a compact car because of the experience. Both serve the same purpose since we arrive at the same time regardless of the type car, but what a different experience to ride in a nice driving, luxury car as opposed to a compact.

If we can ever measure and quantify the experience and then communicate that measurement to the market we might be able to come a long way in bridging the price gap that has prevented the many from experiencing the joy of travel by a mode that the few have become accustomed and maybe even addicted to!

A Saturday, February 27th article in the Columbus Dispatch, by  Marla Matzer Rose covers the story on NetJets and Warrens Buffett’s letter to the stockholders regarding the company’s performance.

I posted on November 17 about the announcement of NetJets pilot layoff. At that point, revenues were off 41% and new aircraft sales were off 79%. Since that post, more layoffs have happened and in this article, the following is stated by Warren Buffett about the financial situation at NetJets:

“In the eleven years that we have owned the company (NetJets), it has recorded an aggregate pre-tax loss of $157,” Buffett said in his letter. “Moreover, the company’s debt has soared from $102 million at the time of purchase to $1.9 billion in April of last year. Without Berkshire’s guarantee of this debt, Net Jets would have been out of business. It’s clear that I have failed you in letting NetJets descend into this condition.”

Buffett said he had been “bailed out” by David Sokol, whom he appointed CEO of NetJets in August after the abrupt resignation of longtime CEO Richard Santulli.

Buffett praised Santulli for instituting “top-of-the-line standards for safety and service” at the company that are being continued, but said that the leadership of Sokol, who is chairman of Berkshire-owned MidAmerican Energy, and considered one of Buffett’s likely successors has been “transforming: Debt has already been reduced to $1.4 billion, and, after suffering a staggering loss of $711 million in 2009, the company is now solidly profitable.”

Buffett echoed what Sokol has said about NetJets, that it is “likely to operate at a profit in 2010, assuming there is no further deterioration in the U.S. economy or negative actions directed at the ownership of private aircraft.” For 2009, NetJets posted a $711 million loss. The losses were largely due to write-downs on the value of aircraft, with a smaller amount attributable to the cost of laying off workers.

Much like the financial performance of the airline industry, NetJets has not made a profit in aggregate for the past 11 years.

Something is wrong with a business model that has an aggregate loss over the long haul and we are plagued with it in both the airline and private aviation industries. More money has been lost than has been made, and because the industry is glamorous, more money will pour into bad business models in the future.

According to Mr. Buffett, the company is now solidly profitable since all of the cuts in both pilots and overhead. So what has changed about the business model to fix it? Do they shrink their way to profitability?

What created the situation in the first place? Was the model broken to start with and just needed a deep recession to make it obvious? How do you lose more in one year that you can make in 10 years? 

On this site we talk about the airlines and their broken system but private aviation has its fair share of issues and financial problems. Something has to change if we are to sustain long term viability as an integral part of the national transportation system.

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.