“You’re only an entrepreneur if you almost didn’t make payroll. ”
Delta AirElite's Michael Green
WHAT HAPPENS WHEN A BIG AIRLINE tries running a business jet charter and management subsidiary? In the case of Delta AirElite, what might at first seem like a prescription for disaster turns out to be a near-perfect elixir of airline value blended with the exceptional service and efficiency of private jet travel.
Much of the credit for Delta AirElite's success belongs to Michael Green, a former regional airline and corporate pilot, who oversees the operation as executive chairman from the company's base at Cincinnati/Northern Kentucky International Airport in Boone County, Ky. The business started out in 1984 as a small charter outfit with a local customer base and a single Learjet. Green came on board in 1988, shortly after regional airline Comair bought the company and added a second Learjet. The service operated as Comair Jet Express until 2000, when Delta Air Lines scooped up the fast-growing regional carrier and rebranded the business jet subsidiary under its own banner.
In the decade since, Green has overseen a steady expansion into business jet management services and jet cards. Today Delta AirElite boasts 43 airplanes and helicopters on its charter operating certificate and has access to hundreds more through an affiliate network of approved charter operators. Through its Fleet Membership card program, customers can buy flight time in increments of 10 or 25 hours, while receiving Medallion benefits through Delta's Sky Miles program.
Many of our readers became involved in business aviation because of their frustration flying on the airlines. In your mind, what are the advantages to being part of an airline?
Delta is the largest, most respected airline in the world. When we start talking to a customer, we quickly get past all the questions they might have when evaluating other providers. They know we're going to be here next year and that we pay attention to safety.
What makes Delta AirElite different from other charter and fractional providers that also have exceptional safety records and offer top service?
I don't really view us as competing against the fractionals because it's a different product. As far as aircraft go, the fractionals are type specific and we're not. We're size specific. One thing we do have in common is that the customer pays for occupied flight time. Charter providers have a much larger pool of aircraft to draw on than the fractional providers. That means our cost is lower and we can afford to charge customers less.
We are probably the largest charter operator, or close to it, in terms of customer base in the U.S. We have charter operators who we do business with who we've grown familiar with over the years. We know they'll treat our customers well, and that gives us tremendous flexibility.
What are your thoughts about the state of the fractional market?
There is always going to be a place for the fractional providers. There is a group of customers who want that product and are willing to pay for it. Whether all of the current fractional providers can survive, I don't know.
To drill down into the essence of this, you need to look at how the customer thinks about private aviation. When I started my career, if a customer wanted to become seriously involved in business aviation he had to buy an airplane. It wasn't too long afterward that the fractionals started. It opened up a whole new customer base-people who didn't want a whole airplane but certainly could use a quarter of an airplane.
It wasn't too many years after this that the share sizes started to decrease. The psychology of the customer was, "I want the benefits of business aviation but I want less of a commitment." So it went from 100 percent to 25 percent ownership, then to a sixteenth share.
What about jet cards?
There, the customer makes no commitment. You just buy hours. You don't take residual-value risk.
We started [in the card business] in 2003 with the 25-hour Fleet Membership card. In 2005 we introduced the Perfect 10 card, which gave you 10 hours. Each time you step down the level of commitment, more customers can afford it. The Perfect 10 card was meant to be an introductory product. What we found was there was this whole other subset of the population who didn't fly privately all that often who thought a 10-hour commitment was pretty good. Others bought it to supplement a fractional share or an airplane they owned.
We also found there were a fair amount of people who were willing to buy that card as insurance. When you look at a $45,000 card and consider that in a savings account you can get 2 percent, that's $900 a year [that you're sacrificing by tying up money with the card]. We had people deciding they could spend $900 to get that sort of insurance.
In my mind, the next thing you're going to see is the ability to tap into a fleet like ours on a trip-by-trip basis. We're already there. On our Web site you can book a trip with guaranteed availability without buying any hours. Again, you keep lowering the commitment and increasing the number of customers you can reach.
How has the economic downturn affected your business?
Our renewal rate has remained the same, but it's taking people longer to burn through their cards. That has been extended out, in some cases, by 40 percent. Interestingly enough, we've seen over the past few months a big increase in international travel. I attribute that partly to some parts of the economy starting to see a glimmer of hope, but I also think there has been a fundamental change in the way we view our international business. We are willing to take more risk right now to book an international trip. That means we're able to furnish one-way pricing on international trips, which is not something we would have done two years ago.
We're also seeing a large increase in inquiries from people who want us to manage their aircraft. Those numbers are higher than I've seen them in 20 years. Because of the downturn in the economy, companies are trying to reduce their expenses. I think most of these companies are deciding that it would be more cost effective to put the airplane on a charter certificate with a management company to generate revenue when they're not flying. Also, by being part of a larger fleet, you can reduce your operating expenses.
But adding more airplanes to charter certificates at a time when flying hours are down means less revenue for the aircraft owners, correct?
Yes, but we are very careful about which airplanes we bring on the certificate. And as we bring more airplanes in house, we reduce the number of hours we rely on to be flown by other operators. It's not that we have to go find more business to put on these airplanes. It's just that we're redirecting current business.
But we have to be very careful. We never want to make a commitment to a customer and not live up to it. If the customer's expectation is to put 600 revenue hours a year on an airplane, there's a whole series of questions that go with that. How often are they going to fly? How much flexibility do they have in scheduling? And then is it the right type of airplane [to attract charter revenue]? Large-cabin flying, except for international, has been down. Conversely, if you take a new Hawker or Learjet 60 in a major metropolitan market we can easily find charter customers.
So being careful about aircraft type means you will turn customers away?
We turn down more opportunities than we accept. But we think it's the right thing to do for the customer.
Why do you sell flight time on your Fleet Member card by the hour rather than sell a card with a dollar value?
We talked about this at great length. The answer in my mind always comes back to transparency to the customer.
Think about price increases. If we sell 100 hours and the customer doesn't use the card at all and we have a 2 percent price increase the next year, we actually have to debit two hours off of the card. There's no way that a customer cannot be aware of that.
I look at that transparency as the basis for a long-term relationship with a customer. We tell you what we're going to charge and that's it.
Résumé: Michael Green
POSITION: Executive chairman, Delta AirElite Business Jets
PREVIOUS POSITIONS: Pilot, Comair Airlines, and director of operations for Comair Jet Express
EDUCATION: University of Cincinnati
PERSONAL: Age 53, married with three children