“Don’t play games that you don’t understand, even if you see lots of other people making money from them. ”
Think small, save big
[Editor's note: On September 19, 2008, DayJet Services, LLC, discontinued its jet services and canceled all future flights, the result, the company said, of its "inability to arrange critical financing in the midst of the current global financial crisis." DayJet also said it was unable to honor customer reservations or issue refunds.]
With charter, jet cards, fractional shares and full ownership already in play, charging by the seat offers yet another way to market the private jet experience. It seems to make great sense. Why force customers to charter an entire business jet if they need only a seat or two? Especially in today's database-crazy world, it ought to be feasible to find enough would-be private jet passengers going in the same direction to develop a viable business plan.
The truth, however, is that the regulations regarding the operation of business jets on a per-seat basis are far from simple and the economics are tough. As a result, many companies that have attempted such operations have failed. Starting in February 2000, for example, an outfit named Indigo ran a per-seat service between Chicago Midway Airport and Teterboro Airport in New Jersey, using four 10-passenger Falcon 20s and, for three months, two 18-passenger Embraer Legacys, but it succumbed to a lack of funding in May 2003. A small charter operator in New Jersey called TAFT Air once proposed regular charter service to select destinations in Pennsylvania using Mitsubishi MU-2 turboprops but was stymied by the regulations it would face.
The move by on-demand charter providers into the per-seat business explains how regional airlines, once called "commuters," got started. As the commuter airline industry grew and matured, the FAA and DOT determined that additional "airline-type" regulation was necessary to protect the flying public. According to regulators, a customer who charters an airplane is assumed to recognize a higher level of responsibility and due diligence than the person who books a single seat. Enjoying the marketing benefits of selling single seats and the relative freedom of being a charter operator has required providers to maintain a delicate balance.
And new companies keep trying to strike that balance in a variety of ways.
One such operation is Avion Private Jet Club, which works on a membership basis, with a one-time initiation fee of $20,000 for one passenger, $30,000 for two, $40,000 for a family or group of four, $75,000 for a corporate group of six specified individuals or $125,000 for 10 people. After that, annual dues equal half the current initiation fee, so if that fee rises, your dues do, too.
Avion books passengers on flights between New York and Los Angeles, using charter operators Avjet and XOJet as partners, flying Gulfstream and Challenger business jets. A round-trip seat costs about $15,000, "which compares well with $60,000 to $65,000 to charter a Gulfstream," according to Avion founder and CEO Gary Mansour.
Of course, when you charter the entire aircraft, you can take along as many friends as you want, travel to any airport you choose and even make an unscheduled stop along the way. But for single travelers and small groups, Mansour said, his program winds up costing significantly less than fractional or charter.
"Unless you need privacy, this is an attractive alternative," he commented. "And in three years we have never had to seat two strangers together. If a flight gets crowded, we'll roll out another airplane. We've done that even when the first jet wasn't completely full, just to preserve the comfort people expect from our service."
Avion has approximately 100 members, mostly people who have businesses or homes on both sides of the country. Mansour said two thirds of his clients have fractional jet shares as well, but use them only when they need the whole airplane. "A number of our customers are retired [movie] studio executives who used to have access to company aircraft but are now in other businesses or doing charity work," Mansour added. "For them, especially, Avion makes sense."
For the time being, however, he has pushed back his plan to expand Avion's service into Florida, which was originally scheduled for the beginning of this year.
Regional Game Plan
While Avion touts coast-to-coast service, DayJet focuses its per-seat operation on the Southeast-from Florida, west to New Orleans, and as far north as Asheville, N.C.-with its Eclipse 500 jets. (DayJet will also charter whole airplanes to more distant destinations.) Linear Air, based at Hanscom Field outside Boston, is focusing on the Northeast corridor, meanwhile. It offers limited per-seat travel in Cessna Caravan turboprop airplanes and whole-airplane charter in Eclipse 500s DayJet, founded by software magnate Ed Iacobucci, has a much lower up-front registration fee ($250) than Avion. Moreover, it employs a sliding price scale based on the passenger's flexibility. Open your departure and return time window, and you save substantially. That flexibility allows DayJet to add other passengers on the trip-even sometimes picking up one or two along the way-and increases the company's profit potential. The plan is for most seats to end up costing more than an airline ticket, but less than you'd pay to make the trip in a chartered turboprop.
For example, a seat on a round trip from central Florida to Key West would cost about $2,200 with a four-hour window for morning departure and a three-hour window for return that evening. Expanding the time frame to six hours for departure would drop the price to $1,400 for the round trip. Open the window wider and you can save even more. (Note that a six-hour window, for example, doesn't mean you might have to sit at the airport that long; you simply say you can fly within the time period, and the carrier will notify you of a specific departure time that falls within that period.)
First-year results for DayJet are mixed. It announced in May that it had postponed its expansion plans and laid off 100 of its 260 employees, but soon after that it increased the number of airports it serves-DayStops, in the company's parlance. (There are also DayPorts, from which the crew and aircraft's duty day must originate and end.) Iacobucci acknowledged that his business concept is "a lesson in complexity science" and said that one of DayJet's most important challenges is to educate its airline-addicted market.
Meanwhile, Boston-based Linear Air, operating under a little-known clause in FAR Part 119.3, offers per-seat sales on up to four scheduled flights a week aboard its Caravans, using the service primarily to acquaint customers with its charter operations; 95 percent of its business is whole-airplane charter in the Caravans and Eclipse 500s. The operator's main focus is connecting New York and Boston with Nantucket, Martha's Vineyard, Maine and Vermont. Linear Air started its service with the Caravans, and is expanding its range now that it has taken delivery of its first Eclipse VLJs.
Industry veterans remain skeptical of per-seat charter operations. Gil Wolin, senior vice president of marketing and communications for JetDirect Aviation, Inc., a charter and management company based in Berwyn, Pa., has seen one per-seat idea after another end in failure. "When you're pitching to the bargain hunters," he said, "you start off with what is often the most challenging clientele. And the business plans usually come from someone outside the industry who has been successful elsewhere and thinks he is going to show us how to make things work in aviation. I know I'd think twice before proposing to revolutionize the field of microbiology."
Wolin has reason to be doubtful. A few of the per-seat players that showed promise over the past few years have stalled rather than soared. A Florida-based outfit called Earthjet has an impressive Web site that touts per-seat private jet travel, but an answering service takes calls and the company did not return ours. L.A.-based Pacific Star Fleet also has a lofty Web site, but an answering machine picks up its calls and the firm confirmed to us that its per-seat program has yet to launch, though it will "in the very near future."
Maybe Avion and DayJet have located a sweet spot for success with per-seat private aircraft operations. At least, both companies have allied themselves with experienced professionals. DayJet hired former NASA strategist Bruce Holmes, patron of the Small Air Transportation System, to develop its operational protocols. And Mansour approaches Avion with the perspective of a travel agent who is well versed in the needs of high-net-worth clients.
Still, it seems far too soon to predict whether the per-seat concept will fly or fizzle. Nevertheless, Avion, DayJet and Linear Air (with its minor use of per-seat operations) all appear to have at least a shot at long-term success-as long as the current financial and production problems as Eclipse Aviation do not stymie the plans at DayJet and Linear Air.
What the FAA Allows
Federal Aviation Regulation Part 119 Certification: Air Carriers and Commercial Operators permits "scheduled-passenger carrying operations of less than five round trips per week on at least one route between two or more points, according to the published flight schedules" in "airplanes, other than turbojet-powered airplanes, having a maximum passenger-seat capacity of nine seats," and "a maximum payload capacity of 7,500 pounds" and in "rotorcraft."
In an interview with Linear Air founder Bill Herp (Industry Insider, August/September 2007), BJT asked him to explain how this FAR allows Linear Air to fly four scheduled flights a week."In Part 119.3," he replied, "'on demand' is defined as a specifically negotiated trip between a customer and a carrier as to the departure, destination, date and time. But it also includes a carve-out that allows an on-demand operator to perform scheduled service with a frequency of fewer than five round trips per week. And the Department of Transportation and the FAA have taken the position that publishing a flight schedule can include simply telling someone when they call on the phone that you've got a flight going at a certain time. That allows us to use the Caravan to provide scheduled service. It's restricted to a small aircraft that is not turbojet powered."
When "Private" Jets Aren't Private
In some cases, selling private jet travel by the seat is actually illegal.
Gary Mansour of Avion Private Jet Club received an interesting mandate from the Department of Transportation when he filed a prospectus to create his program as an offshoot of his Beverly Hills travel agency. "They told me I couldn't use the words 'private jet' in my marketing, even though it's in the name of the program. They told me I was filing to operate as a 'public' charter operator-same as the Hawaiian tour groups-and the DOT has strict rules on how you 'hold yourself out'
as a service provider."
Mansour said that, to his knowledge, no other coast-to-coast, per-seat operator has filed a prospectus with the DOT. He added that customers who patronize operators that don't have the agency's blessing could be putting themselves at financial risk. He said that, under DOT rules, Avion customers' payments for each flight are placed in escrow and released to the flights' operators only after the trips are completed. Such is not necessarily the case with other companies that market per-seat bookings on chartered "private" jets.
Mansour said he understands that a fine line exists between offering empty seats or deadhead legs to known clients at a discount and advertising to sell seats on the open market. "The term 'holding out' a service to the public is where the DOT places the fine line," Mansour said. "I've learned that there is a lot of legal weight behind that phrase."