JetSuite uses low-cost airlines as a model for charter service

 - August 29, 2008, 1:09 PM

A new jet ownership and charter business called JetSuite is preparing to take delivery of its first Phenom 100 next April and has unveiled details about its business model.
JetSuite is actually the latest incarnation of what used to be MagnumJet, a business that in 2006 announced an order for 101 Adam Aircraft A700 very light jets. At the time, MagnumJet also ordered 100 Embraer Phenom 100s (50 firm and 50 options), and given the recent financial difficulties at Adam Aircraft, JetSuite will launch a year later than originally planned and with the Phenom 100 instead of the A700, according to president Alex Wilcox. JetSuite is backed by Proctor Capital Partners, a New York private-equity firm that helped start MagnumJet and transitioned that company into JetSuite.

The JetSuite management team has years of airline experience and members who hail from low-cost carrier JetBlue Airways and other airlines. Wilcox was a founding member of JetBlue and founding president and COO of India’s Kingfisher Airlines. Vice president of certification and safety Usto Schulz was JetBlue’s vice president of safety. And former United Airlines DC-10 fleet captain Ken Burnham is JetSuite’s vice president of flight operations.

JetSuite will sell whole positions in the Phenom 100, use owners’ airplanes for charter and pay each owner $25,000 per month, “which basically satisfies his debt service,” said Wilcox. The $3.5 million for a position is more than the standard Phenom 100 price but it includes added equipment such as weather radar.

Each owner will receive 25 “free” hours per year in a Phenom 100 and additional hours at a discount. No landing fees, fuel surcharges or other add-ons will be assessed during the 25 free hours, according to Wilcox. Any tax benefits will accrue to the Phenom 100 owners, too.

Maximize Profits by Limiting Operating Area

JetSuite will offer regional service because the Phenom 100’s 1,160-nm range is suited to shorter flights. “We are a regional short-haul carrier,” said Wilcox. “We’ve got a three-hour airplane.” With its headquarters in Long Beach, Calif., JetSuite will focus first on a triangle bounded by Seattle to the north, Cabo San Lucas to the South and Denver to the east. The Phenom’s short-haul capability is ideal for this area but will also help keep costs down for charter customers.

The real advantage, Wilcox explained, is that a short-haul business jet offers time and money savings that are more significant than those a more expensive jet flying longer distances can provide. Flying across the U.S. in a transcontinental business jet, for example, might  save the customer a couple of hours each way by eliminating the extra time needed to fly on the airlines. But two hours is not a huge percentage of the total trip time for a transcontinental flight.

For a 300-mile flight, however, saving a customer two hours is much more significant. “And not only that,” said Wilcox, “the relative cost goes way up as well. We can take you from Los Angeles to Las Vegas and back for $6,000 and save you four hours on the roundtrip. But if you were to take a Citation X or a Gulfstream across the country, that’s a $70,000 round trip. The time saving is a lot lower and the cost is a lot higher. We think the real sweet spot for private aviation is trips up to about 1,000 miles, in terms of the value proposition.”

JetSuite expects to fly its customers’ Phenoms about 1,000 hours a year, but the business model shows a breakeven return at 400 revenue hours per year. As the business grows, JetSuite plans to expand to other regional areas, with each new area overlapping part of the previous areas.

JetSuite’s first Phenom 100 is scheduled to arrive in April, and the company should receive 12 Phenoms next year, then two a month beginning in January 2010. Until the first Phenom arrives, JetSuite is pre-selling some positions and preparing the company infrastructure to begin operations. All flights, including owner flights, will be conducted under JetSuite’s Part 135 certificate so there will be no question of who has operational control.

Wilcox believes that general aviation can benefit from the JetSuite team’s low-cost airline experience. Corporate aviation, he said, “is the last bastion of really inefficient aviation. With the exception of the revolution of fractional shares, which is still a pretty high-cost way of doing things, [corporate aviation] hasn’t changed much since it was invented.” The typical corporate Gulfstream V flying a few hundred hours a year, he said, will not be able to compete with a smaller jet “that gets you from point A to point B with all the luxury and speed of a larger jet but at a fraction of the cost. That’s what we’re trying to do.”