Broker Virgin Charter shuts down operations

 - November 23, 2009, 6:30 AM

Virgin Charter, the online charter brokerage launched with great fanfare in mid-2007, ceased operations on October 23. “With the severe decline in corporate travel, Virgin Charter was unable to generate sufficient sales to underpin its business plan,” according to a company statement, “and has taken the difficult decision to close its doors.”

Virgin Charter was part of Sir Richard Branson’s Virgin USA division, but the company was launched earlier by Scott Duffy as Smart Charter, supported by investors that included Funk Ventures Acceleration Partners. Duffy had previously worked for charter broker Blue Star Jets. In December 2006 Virgin became the sole investor, according to Jody Sherman, who had joined Duffy at Smart Charter.

Virgin Charter’s differentiating feature was that it allowed customers to make all arrangements on the company’s Web site, and charter operators would make their capacity available on Virgin Charter. Of course, the Virgin Brand name and star power of Virgin founder Sir Richard helped, too. Revenue was to come from a 5-percent fee of the total price for each charter trip. All operators had to meet Virgin guidelines for third-party safety ratings, insurance and quality.

The operators would provide wholesale pricing to Virgin, and buyers would pay an additional 5 percent, but the retail price was supposed to be lower than competitors’ prices because of the systems Virgin Charter put in place to reduce the amount of customer hand-holding that is typical in charter sales.

“Scott saw, while working as the head of an office of Blue Star Jets, that there might be a better way to help facilitate a charter transaction between a buyer and a seller,” Sherman explained. “I joined as I believed this was an opportunity to streamline the process and enhance the overall buying and selling experience.”

By the time Virgin Charter launched in March 2008, there were 150 charter operators signed up, according to Sherman. About 65 people worked at Virgin Charter at the time, according to Sherman and John Celms, who was hired as COO. Celms was terminated just after the big announcement at NBAA ’07. Sherman was let go days after the March 2008 launch.

According to Celms, at its peak, Virgin Charter was spending $700,000 to $750,000 a month with little revenue coming in. He told AIN that Virgin Charter spent $25 to $30 million on the effort. “I’m a seasoned veteran,” Celms said, “a gray-haired guy in my early 60s. They hired me to keep an eye on the shop.”

Unfortunately, he explained, “nobody watched the till. That’s what happens when you let kids get hold of $30 million.”

Software Hinders Business Model
The real problem with the company, he added, was that the software that was supposed to manage the charter capacity and buyer transactions never worked properly. “It was a high-overhead operation,” he said. “I loved the idea; I thought the business model was terrific.” But ultimately it was difficult to get retail buyers to use the system. “The people who use these airplanes, they like to call a broker and say, ‘Get me an airplane.’ The Tom Cruises of this world are not going to go online to get a good deal. Clearly the economy put the nail in the coffin. But I still think the model could have been done right.”

Before Celms left the company, he told Duffy that the company had better start generating revenue and that it was already so committed to the marketplace that it was too late to cut back on the massive burn rate. He said the launch was delayed three times due to problems with the underlying software. “The revenue optimism was insanity,” he said. “They [believed they] were going to capture the market. I told Scott that’s not the way to model the business. You have to model it at breakeven and conserve cash.”

Sherman believes that the company could have adapted to the declining economy by switching business models from retail charter to inviting brokers to participate. “The opportunity in charter is still pretty big,” he said. He suggested bringing some experienced brokers into Virgin Charter, paying them a salary and letting them build a critical mass of business that would have helped the company survive. “Once you get to critical mass, the system starts to feed itself,” he said. “I was advocating for that heavily.”

Sherman still believes that Virgin Charter was a missed opportunity. “There is no reason why a brand as strong as Virgin shouldn’t have been able to get significant traction in the charter world. The company was given a huge opportunity; it never capitalized on the brand and it didn’t adapt to the opportunity as the market changed to bring people in to fill the top of the funnel with buyers.”

Both Celms and Sherman say they don’t know why they were terminated from their jobs at Virgin Charter, and both are now involved in startup companies outside aviation. “I poured my heart into [that] company,” Sherman said. “I left a company that was doing very well to do this.” Sherman did have an opportunity to talk to Virgin officials about what he thought went wrong. “I think they were disappointed as well,” he said. “It was unfortunate that we didn’t have the conversation sooner.” Ultimately, for Virgin Charter to work, Sherman said, it would have had to employ salespeople who were intimately familiar with the charter business and who spent all their time working closely with customers.

 “If anyone could have made online private jet charter successful, Virgin’s reputation and brand-name recognition should have made it successful,” said Andrew Richmond, president of charter operator TWC Aviation. “That it was not successful only confirms that when people look to charter private jets, they want a much higher level of personal communication than an online system would allow.”
Duffy left Virgin Charter in July. He declined to speak on the record with AIN about what happened.