Traditional charter company thrives despite changing business landscape

 - December 18, 2007, 4:53 AM

To survive in a business as highly competitive as air charter, you must constantly change and reinvent yourself. So goes the conventional wisdom and, indeed, many of the oldest charter companies in the U.S. now tout products that didn’t even exist when they began operation. Some sell so-called “jet cards.” Others have merged or been swallowed by bigger firms.

But then there’s The Air Group, whose 25-year corporate history seems as notable for what hasn’t changed as for what has. The company still touts the same services it offered when Jimmy Carter lived in the White House: traditional charter; help with buying, leasing, selling and trading aircraft; and aircraft management for owners. It has opted not to dabble with jet cards, fractional deals, block charter or online booking. And it continues as an independent operation, run by the same man who co-founded it, chairman and CEO Jon Winthrop. (Robert Christy, the other founder, is officially retired but remains a consultant and shareholder.)

“Our management has never changed,” Winthrop said. “Most of our department heads have been here 10 years or more, and we’ve had many of our clients for more than 15 years. Our core concept hasn’t changed, either. We were founded on the idea that we were going to manage airplanes and provide service to the owners. That’s still our goal.”

Added The Air Group vice president Steve Barlage, “The news about our company is that there is no news.”

Well, not exactly. Launched in late 1980 with just a few employees and one aircraft–a Cessna Citation 500 that the company paid Christy $25 an hour to fly–The Air Group now ranks among the country’s five largest charter and aircraft management firms. The Van Nuys, Calif.-based company boasts a staff of 190, about 110 of them pilots, and manages 43 aircraft, including most models of Bombardier Global Express and Challenger, Cessna Citation, Gulfstream, Hawker, Learjet and Westwind. It has nine branch offices throughout the U.S., from New York to Honolulu.

As a privately held company, The Air Group does not publish financial results. But, said Barlage, “This year, we’ve seen a 30-percent increase in charter sales compared with last year. And we’re probably on target to add a few airplanes by the end of the year.” Winthrop offered a little more detail, saying, “Our goal was to be a $65 million company in terms of revenues this year, and we’ll meet that goal.”

Looking East

While the firm has shied away from alternatives to charter, it has not hesitated to seek new opportunities to build its core businesses. Most notable in that regard has been its move into Japan, which is home to only about 25 business aircraft and has no such thing as an FBO. The Air Group took over management of a Gulfstream V at Tokyo’s Haneda Airport late last year and added a second Gulfstream V there in April. Both aircraft are available for Part 91 and Part 135 charter flights. The company is managing the jets on behalf of Japanese clients in conjunction with Marubeni Aerospace and IASS of Japan and Houston-based Universal Weather and Aviation.

According to The Air Group, the deal represents the first time American and Japanese companies have come together to base and operate charter aircraft in Japan. The year-old partnership has already resulted in “quite a few charters and a lot of inquiries from Europe, Asia and the U.S.,” said senior vice president Joanne Fothergill.

“These jets in Japan aren’t flying locally,” Barlage noted. “They’re going to Australia, to London–very expensive trips. So it’s a lucrative business. If you can get just a couple of charters a month, you’re doing OK.” The company says it plans to move into other Asian markets–starting with mainland China, Hong Kong and Singapore–but won’t comment on specifics.

Cutting Costs
The Air Group’s flight hasn’t always been smooth. Like the industry overall, for example, the company took a big hit in the wake of 9/11.

“It was an extremely difficult time that probably cut our revenues in half over three years,” admitted Barlage, who manages the firm’s Teterboro, N.J. office. But he added, “Senior management got smarter, improved their processes and weathered the storm.”

Another challenge for The Air Group has been the industry’s inability to raise prices. “You’d think prices would rise 3 or 4 percent a year to keep pace with inflation,” Barlage said. “But if you look at the number of airplanes available for charter in the marketplace, it’s more than doubled in 10 years. There are all these people providing the supply and it’s drowning the demand. So prices have not risen in years.”

How has the company met this challenge? “If you can’t drive revenues up, you have to drive costs down,” Barlage said. “You learn to manage better. And the bigger you get, the more you can get volume discounts–on fuel and training, for example.”

Fothergill added that the firm tries to stay lean. “We don’t put a lot of people in a lot of offices,” she said. “We have one person in one satellite office, one person in another. One thing that helps is that we have a solid computerized system that keeps everybody connected 24/7. We’re able to electronically schedule the airplanes, the pilots, the accounting functions. It’s incredibly efficient.” Fothergill said that “all the files are in Van Nuys but everybody has real-time access to them. And everyone from dispatchers to maintenance to charter to customer service has a duplicate of their office [computer data] in their home.”

The company also attributes its success to its high standards for safety and service. The Air Group holds top ratings from Wyvern and ARG/US and, claimed Barlage, “We have the highest pilot standards in the country for any charter operator.” Chief pilots on aircraft with at least nine seats must undergo FlightSafety or SimuFlite type training and must have 7,500 hours of total flying experience, including 500 hours in type and 4,000 as pilot-in-command. Flight attendants must have Part 135 training every 12 months.

Personalized client service is also a priority. “When we bring an aircraft owner into The Air Group, we’ll assign him to one person in customer service,” Fothergill said. “And that person will filter all his requests–whether it be for maintenance scheduling, accounting information or travel–so he has one point of contact.”

Barlage noted that the firm doesn’t accept every prospective aircraft-management client. “We need to make sure there’s a fit culturally with our company,” he said. “There are clients who don’t fit with what we’re trying to accomplish and clients who may not want to spend the extra dollar for maintenance or for pilots who are well trained, and we just part ways.

“What has set The Air Group apart is that we’re very concerned about how that airplane looks, how the pilots are dressed, how they represent themselves,” he continued. “Our client base includes the highest-profile people in the world and they’re spending a lot of money to charter airplanes. Every time they get on an Air Group airplane, they have to realize it’s an Air Group airplane.”

Diversifying Operations
The company also attributes its success to the fact that it hasn’t placed all its bets on one business. Winthrop noted that charter accounts for 50 to 58 percent of revenues while flight operations bring in 30 to 35 percent. “Everything else–including fuel sales, airplane sales, completions and deliveries–makes up the balance,” he said.

The firm’s clients are diversified as well. “The majority of our client base is the entertainment industry and the large financial firms,” Fothergill explained. “And it’s somewhat seasonal: West Coast activity is highest in the spring and mid-summer, because that’s when the production companies film the movies that come out during the holiday season. In the fall and winter, there’s more activity with the financial companies on the East Coast.”

Barlage said that “we probably have 300 customers who will fly with us in the course of a year, and when you break that out it’s a really nice balance. If Hollywood fell into the ocean, would our company go to pieces? No, because we have the banks and the Fortune 100 companies and [wealthy] individuals.”

If diversity is a plus, why not diversify into jet cards and fractional sales? “We’re not afraid to look at other things,” Barlage said. “They just have to be the right things. We’re a conservative company. You get too big, you can lose touch with your customers. We don’t want to lose sight of what got us where we are. We’re not trying to be all things to all people. We’re trying to be a few good things to a few people.”

The firm hasn’t even tried selling its traditional charter product online. “Do you like talking to a machine?” Barlage asked. “It’s nice to talk to a person, because there’s a lot of intimacy that goes on when you’re at this level of transaction. There’s a lot of stuff that you need to understand and do to take care of people.”

Fothergill agreed. “I was a big advocate of not offering online booking,” she said. “Once you let people start booking their flights online, it takes away from building the relationship with the customer and being able to provide them information that they wouldn’t otherwise think about. The savvy charter client does not use online booking. He wants to call and say, ‘I’m with four of my family members…should I go cross-country in a Hawker or a Challenger?’ He wants you to help him make decisions.”

Surprisingly, perhaps, Barlage doesn’t think firms that offer alternatives to traditional charter cut into The Air Group’s business. On the contrary, he believes they help it. “There’s a place for fractionals, for jet cards, for charter and for actual ownership of airplanes,” he said. “I think the fractional guys and the card programs are raising awareness about private jet charter among people who wouldn’t normally try it or be the target market for it. These companies are doing a lot of advertising and talking to people. And I think a rising tide lifts all boats.”

Fothergill said the company’s experience bears that out. “We get quite a few clients who have been introduced [to private-jet travel] through the card programs,” she noted. “We offer just about all the same services without the gimmick. We also get people from the fractionals whose contracts have run out. Many times we’re able to win them over just by the fact that they come into a very caring, hand-holding environment.”

Maintaining that environment is a top priority. “We want to be able to continue doing what we’re doing, which is why we don’t want to have 200 airplanes,” Winthrop said. “Because I don’t want to get to a point where I walk out on the ramp and don’t recognize the customer or know his name.”