Per-seat scheduled service piques industry interest

 - September 25, 2006, 12:08 PM

Every time it seems that the business aviation industry has nearly exhausted all the market possibilities, something new appears. The latest twist is per-seat scheduled service using business aircraft in executive or shuttle configuration.

Individual efforts have been referred to by a variety of terms–per-seat on-demand charter, shared charter and corporate airline–to list a few. One insider described it as “an inventory and utilization strategy,” with the goal of providing access to business aviation at a price comparable to that of a nonrefundable airline ticket.

Hans Schwab, founder of Club Airways, a Swiss variant of the concept, said the idea was “to offer an alternative to traditional air travel positioned in a niche between commercial airline and private aviation service.”

Both descriptions are accurate, but neither seems quite adequate.

The practical result of the concept has been mixed. One per-seat service using business aircraft has failed. Three are apparently successful. And at least three more are preparing a serious venture into the market.

When Indigo in February 2000 launched its service between Chicago Midway Airport and Teterboro Airport in New Jersey using four Falcon 20s, it described the flights as “regular and frequent,” in compliance with Department of Transportation (DOT) Part 380 regulations governing an “indirect” air carrier.

The descriptors “regular and frequent,” as opposed to “scheduled,” said Indigo founder Matt Andersson, “merely reflect a legal rule requiring that such flights be distinguished from traditional airline flights to comply with consumer-protection provisions of civil air law.

“This includes the necessity of affirmatively disclosing on every point of consumer contact that ‘all such flights are public charter flights’ conducted by a direct and an indirect air carrier in compliance with Department of Transportation rules and includes the necessity of executing an operator/participant agreement with every passenger,” he explained.

The DOT Part 380 authorization allowed Indigo to deal with the public and sell seats, while wholly owned sister company AirServ held the FAA Part 135 certificate that permitted AirServ to “physically and directly” operate the aircraft on Indigo’s behalf. Stated another way, indirect carrier Indigo was selling seats under its name on aircraft it chartered from direct carrier AirServ.

Indigo subsequently received DOT approval to present itself to the public as a “scheduled” service by meeting the agency’s determination that it was “fit, willing and able” to provide scheduled passenger service as a commuter air carrier. This DOT approval also allowed Indigo to increase the number of flights per week.

In late 2002, Indigo ceased operations briefly and re-launched the service in March 2003 using two new 16-passenger Embraer Legacy Shuttles. Operationally, the venture was a success, according to Andersson. “But we needed time to reach financial stability,” he added.

The company would find neither the time nor the additional funding it needed as the country entered a recession and venture capital virtually disappeared. Indigo closed its doors in May 2003.

On the other hand, there are variations on any business model, and Linear Air is apparently successful with a per-seat scheduled service started last August.

The Lexington, Mass. company calls its program Shared Charter and operates its own aircraft–eight-passenger Grand Caravans–under its own Part 135 certificate. It is in essence a “scheduled charter” that complies with the Part 135 requirements by limiting operations to four scheduled round trips a week on any given route.

Linear Air president Bill Herp describes it as a private aircraft charter service priced within the means of the general public.

A per-seat, one-way trip between Hanscom Field in Bedford, Mass., and Teterboro Airport is $219, approximately the same price as a full-fare seat on one of the scheduled airlines. The Linear schedule also includes four flights weekly between Bedford and Westchester County Airport in White Plains, N.Y.

The company currently has three Grand Caravans in its Shared Charter program and might expand the service to take advantage of the seasonal travel market in the Caribbean.

“On trips of a couple of hundred miles, the Caravan–even though it’s relatively slow– doesn’t really give up a lot to a jet in terms of time,” said Herp.

At the NBAA Convention in November, Linear signed a contract with Eclipse Aviation to buy 30 Eclipse 500 very light jets–a firm order for 15 and options for another 15. But Herp said he does not foresee the Eclipse 500 as part of the Shared Charter program.

Andersson, on the other hand, believes that the availability of the right aircraft type is the key to a viable per-seat service. “The industry has yet to offer the right airplane to fit this market,” said Andersson. Such an airplane should be reasonably priced, have low maintenance and operation costs and the high dispatch rate of an airliner. “The Eclipse 500 fits that profile,” he said. “And it appears Embraer’s Phenom 100 and the Spectrum 33 might also fit the profile.”

What the market needs, he said, is “a mini-airliner.”

Avion Features ‘Exclusivity’

Avion Private Jet Club more closely follows the Indigo business plan, with Avion the indirect carrier under DOT 380 and aircraft charter and management specialist AvJet providing aircraft–Gulfstreams and Challengers–operated under its Part 135 certificate. Avion, which launched its service in mid-March last year, has also received DOT approval as a commuter operator, allowing it to run up to eight flights a week.

The company, however, is more of a “boutique” operation offering per-seat travel on business jets only to its members and their guests.

The program has four levels–individual, couple, family and corporate–and begins with a one-time initiation fee of $12,000 and subsequent annual dues of $6,250. The per-seat cost–at this point between New York and Los Angeles–is $5,500 one way and $11,000 round trip. Members are allowed to bring guests at “a premium” over the standard per-seat rate.

According to Avion COO Diane Fisher, the business model is focused on “exclusivity.” Amenities include cuisine by renowned chef Wolfgang Puck and round-trip ground transportation.

Fisher said Beverly Hills, Calif.-based Avion is currently operating two round trips weekly, using Van Nuys and Bob Hope Airports in California and Teterboro Airport in New Jersey, just 30 minutes from the New York City business district. Most of the flights are full, she added, “and we’re hoping to add a third round trip later this year on the same route.”

Perfect Jet with a Perfect Solution?

The most recent arrival to begin per-seat scheduled service with a business jet is Perfect Jet Travel. The Dallas-based company launched its “by-the-seat luxury business jet travel” in November.

Perfect Jet is the indirect carrier and Part 135 operator Jet Solutions of Richardson, Texas, is the preferred vendor/direct carrier, providing Challenger 604s, Embraer Legacys and Gulfstream IVs from its fleet of managed aircraft.

Perfect Jet president Dennis Keith claims its members can save up to 80 percent over the cost of chartering an entire aircraft. For example, the per-seat cost for a round trip from Dallas to Aspen on Perfect Jet is $3,500, compared with the $30,000 or so it would cost to charter an entire airplane.

Perfect Jet started its service on November 18, flying from Westchester County Airport to Aspen, Colo. Already considering expansion, the company has an ambitious list of proposed links to Aspen: Burbank, Calif.; Chicago; Dallas; Las Vegas; and West Palm Beach, Fla. Also under consideration is a West Palm Beach-Dallas route and a Westchester County-West Palm Beach run.

Perfect Jet is currently following the formula of limiting the flights on any single route to four a week. But Keith said the company is waiting to see if the FAA will amend its Part 135 rules and lift the limitation on the frequency of scheduled flights. If it does, Part 135 operators might be allowed to act as both the direct and indirect carrier and present to the public a list of scheduled flights.

The FAA is currently debating what new form Part 135 will take, and, barring an urgent need to address specific issues, no final ruling is likely before late 2008.

Current statutory law, said Aaron Goerlich, a D.C.-based aviation regulatory attorney, “defines a regularly scheduled charter air transportation as a charter that is held out to the public and includes a minimum identification of time and place of departure and destination.

“With this incorporated into FAA Part 135 regulations,” said Goerlich, “I wouldn’t be so worried about using the word ‘scheduled’ when promoting a per-seat charter service.”

Increased frequency of flights, said Keith, will demonstrate the value of the Embraer Legacys operated on behalf of Perfect Jet by Bombardier Jet Solutions. The Legacy is a variant of the ERJ-135 regional jet and more suited to the rapid cycle rate expected by an airline, and to the pace of operations expected by Private Jet.

The dispatch reliability of a purpose-built business jet, if measured by airline standards, is only about 85 percent, explained Keith. “If an airplane has anything less than 98.5-percent dispatch reliability, an airline doesn’t want anything to do with it.”

EJM Plans Its OwnPer-seat Operation

Executive Jet Management (a NetJets company) remains in the blocks with regard to its plans for a per-seat operation. Last year, the business aircraft charter and management company filed with the DOT for authority to “conduct scheduled passenger operations as a commuter air carrier.”

According to the application, EJM expects to select an outside company to serve as the “public charter operator” or indirect carrier. EJM would act as the direct carrier, providing aircraft, crews and maintenance under its Part 135 certificate.

While EJM did not reveal a launch date to begin service, an income statement as part of the application suggested a start-up date of last November. At press time, however, the company had neither launched operations nor announced a date at which it might do so. EJM has declined to elaborate beyond what is contained in the application with the DOT.

Also still on the horizon is DayJet, a Delray Beach, Fla.-based company planning what it calls a “per-seat, on-demand” service using the new four-passenger (plus two pilots) Eclipse 500 very light jet. The twinjet was scheduled for certification in the first quarter of this year, but “vendor problems” have delayed that date and certification is most likely this June, with deliveries to begin immediately thereafter.

DayJet has signed an agreement with Eclipse that includes a firm order for 239 Eclipse 500s and options on another 70. It has said it plans to “comply with the strictest existing regulations and safety standards” and will maintain its own fleet of aircraft in accordance with existing FAR Part 135 on-demand regulations.

The company does not plan to publish schedules for its service. According to its plan, each seat aboard DayJet’s aircraft will be “individually negotiated and customized to the needs of each customer, with each customer selecting the origin and destination airports, the time they want to ‘depart no earlier than,’ and the time they want to ‘arrive no later than’ at their destination.”

DayJet hopes to launch service this summer. Founder, president and CEO Ed Iacobucci said the service will be tailored to the passenger’s individual schedule and “priced only slightly higher than full-fare coach airlines.”

The advent of the very light jets has brought other competitors into the arena. Pogo Jet is among these, though with a different marketing plan. “In our current business model, we will not sell individual seats,” said company president and founder Cameron Burr. Joining Burr at Pogo is  CFO David LeBlanc and former American Airlines CEO Robert Crandall, who is chairman and CEO of the air-taxi firm.

The Stratford, Conn. company has raised close to $15 million and, said Burr, “We’re now waiting for a fully certified airplane.”

According to manufacturer Adam Aircraft, Pogo signed a deposit agreement in 2004 for 75 of its A700 very light jets. A source at Adam Aircraft said the deposit is refundable up to the date of certification. Certification of the A700 is expected in the last quarter of this year.

Meanwhile, Pogo is also considering other very light jet choices, in particular Embraer’s Phenom 100, said Burr. “At this point, we’re looking at a launch date [for Pogo] sometime in early 2009.”

But even as DayJet and Pogo Jet move ahead with their own plans, other companies–possible competitors–are also considering the market, though perhaps with less enthusiasm. Some question whether there is actually a market for a per-seat, on-demand air-taxi service.

Including assets, general aviation, by various accounts, comprises a $5- or $6 billion a year market, while overall sales of commercial, nonrefundable Y-class airline tickets account for some $30 billion a year, explained Gavin Stener, president and founder of SJS Holdings. The Dallas-based company expects to enter the per-seat fray through a new spin-off entity.

A shift of just 5 percent of the commercial carrier market, he speculates, would increase the general aviation market by 25 percent and pressure industry players such as Gulfstream and Raytheon to change to support such growth by producing the airframes necessary to shift business aviation travelers away from a model that sells seat “inventory” to a per-seat, on-demand service.

While Stener believes there are sufficient numbers of aircraft available today to start that growth, one of the biggest changes must come from the industry itself, moving from selling airframes and services “on the basis of satisfying the egos of a select wealthy few to viewing their existing product as a justifiable means of transport.”

More remarkable, said Stener, is to see Embraer entering the market “while Honda and Toyota sit quietly on the sidelines.”

In an ideal world, the formula for success would combine the right airplane on the right route, at a price and marketing strategy that would lure customers from the back of the airliner or the driver seat of the automobile. That strategy would include making it an attractive product for the travel agent to sell.

Assuming the concept of per-seat, on-demand scheduled service meets the expectations of its proponents, the resulting increase in traffic may result in some unwanted response from airport controlling authorities.

The Westchester County board of legislators has been considering a bill that would require air-taxi flights to board and disembark their passengers at the main airport terminal if they provide seats for 10 or more passengers.

According to The Journal News of Rockland County, N.Y., Susan Tolchin, chief advisor to Westchester county executive Andrew Spano, said bluntly that the proposal is aimed at “preventing an expansion of the airport” by allowing new companies to offer ‘unintended service outside the [main] terminal.’”

Indigo’s Andersson, like some others, has reservations about overall business aviation growth potential, “at least until we can offer a per-seat price equivalent to that of the typical nonrefundable Y-class airline ticket.”

He pointed out, “While there may have been a relative ‘surge’ in tax-based aircraft sales booked by OEMs, the level of net new passenger acquisition is not terribly impressive and otherwise remains radically below that necessary to achieve an investment growth thesis in the business jet operating community.”

On the other hand, he added that the charter industry continues to cling to “a subscale ad-hoc utilization mode that by definition cannot obtain profitability.”

The difference between “flying a lot more charters” and flying a “schedule” is little more than semantics, said Andersson.  While his per-seat start-up Indigo did not survive, he concluded, “the concept remains alive and well.”

“At SJS Holdings,” said Stener, “we believe that per-seat on-demand will become a market in its own right, but the ‘software infrastructure’ must be built to [allow] the migration of the road warriors from the back of an American Airlines airliner to a Gulfstream operated by Jet Aviation.”