Joining the Club Membership: the New Access Paradigm

JOINING THE CLUB MEMBERSHIP: THE NEW ACCESS PARADIGM

by James Wynbrandt n not even five years since their inception, membership programs have created a new class of business aviation access while changing charter industry practices and perceptions of cus- Itomer habits (for example, travelers’ willingness to share the cabin of a business jet with strang- ers). These programs often have little in common besides providing access to a closed fleet, and range from relatively low-cost subscription access “private” airlines to traditional operators of ultra-long-range jet fleets. The companies highlighted here are at the forefront of defining and expanding these new access paradigms. www.ainonline.com Surf Air from Rise added to its rolls, Surf Air now has Commencing scheduled service in 2013 with a 3,850 members. fleet of PC-12/12NGs, California’s Surf Air was The Rise acquisition is intended to fuel rapid the first subscription membership “private air- expansion of Surf Air’s dozen legacy routes and line” and the model for subsequent monthly, fee- a doubling of flights on former Rise routes, a based, “all-you-can-fly” providers. In June Surf company spokesperson said. Coming soon are Air purchased Rise, its Texas-based clone, and Monday-through-Friday flights linking Califor- concurrently launched service at subsidiary Surf nia and Texas. An in-development premium pro- Air Europe, the two moves seen as validating gram will add weekend service to Cabo San Lucas,

AVIATION INTERNATIONAL NEWS • SEPTEMBER 2017 Surf Air

More immediately Bentonville, Ark. (home of quickly and experimented with a few different Walmart); Midland, Texas; and Oklahoma City strategies to see what profitably builds the mem- are joining the Texas route network. Additional bership.” The cutback, or “rationalization,” membership programs providing various levels of was in response to recognition “that our mem- access to the network will be created. Eventually bers wanted schedule depth in a few key markets the Rise fleet of King Air 350s will be replaced [rather than] schedule breadth across more mar- by a dozen PC-12/12NGs. Surf Air currently has kets,” the company said. firm orders for three PC-12NGs and options for Surf Air has since reallocated seat capacity to 50 more. focus on the Los Angeles to San Francisco mar- Basic membership ($1,950 per month) pro- kets during the week, while catering to leisure trav- vides access to the basic route network, two res- elers on weekends with flights to Napa, Monterrey, ervations at a time. Preferred ($2,450 per month) Truckee and Palm Springs, and adding service to provides access to the preferred network, four res- Las Vegas from Hawthorne, San Carlos and Santa

ervations at a time. Premium ($2,950 per month) Barbara. Since last October the schedule has grown www.ainonline.com provides up to six reservations at a time on the in core markets and restored about 600 monthly premium network, which will include yet-to-be- hours of flying, according to the company, and in launched routes. mid-August it introduced San Diego to the Bay ser- Planned expansion notwithstanding, flights and vice via Montgomery Field. flight hours on Surf Air’s legacy routes declined CEO Jeff Potter, former CEO of Frontier Air- almost 25 percent year over year from July last lines, left Surf Air at the end of May in what he says year through this past June, according to Argus was a planned move, after engineering transfer of International. Surf Air told AIN it reduced fly- operational control of Surf Air’s fleet to Encom- ing in October last year “by about 25 percent,” pass Aviation. Potter told AIN, “I remain Surf Air’s

AVIATION INTERNATIONAL NEWS • SEPTEMBER 2017 Wheels Up

taken on the role of CEO. Rise founder and CEO Wheels Up Nick Kennedy is now Surf Air’s president of the Founded in 2013, Wheels Up has experienced Texas and Southeast region. rapid growth, owning 63 King Air 350i twin tur- Meanwhile, Surf Air Europe has taken posses- boprops and 15 refurbished Citation XLS/XLS- sion of its first Phenom 300 (operated by UK- plus light jets (operated by UK-based Gama based FlairJet) and is flying between London Aviation), providing access to members who pay Luton Airport and Ibiza, Spain; and Cannes. a one-time initiation fee and annual dues in fol- Plans call for inaugurating service to Zurich, lowing years. Fixed hourly costs for the King Air Munich, Geneva and Milan from London, and 350i are $4,295 and $7,495 per hour for the Cita- adding four Phenom 300s to the fleet by year- tion XLS. end. Several membership plans are available, In this year’s first half Wheels Up saw 75-per- priced relative to the extent of the service net- cent year-over-year growth, founder and CEO work they access, ranging from monthly Select Kenny Dichter said, and “will exit 2017 with 4,000 subscriptions at £1,750 (about $2,285), Prime active Wheels Up members” and “$300 million- at £3,150 (about $4,110), and £3,650 (about plus in revenue.” The company, founded in 2013,

$4,765). In a nod to the shared charter flights will turn Ebitda positive by year-end, and in June www.ainonline.com appearing to gain traction in the U.S., the Euro- received a $90 million forward credit facility from pean branch offers an Anywhere membership, private equity firm KKR for purchase of 17 more which allows crowd sourcing of ad hoc char- King Air 350is, Dichter said. ter flights for round trips, starting at £2,600 per Seeing a powerful, user-friendly digital plat- person. A potential customer sets the time and form as critical to growth, Dichter aims to keep deposits the funds, and Surf Air Europe markets Wheels Up “at the leading edge of technology” the flight. Once six passengers have committed, as it “endeavors to be the world’s best social and the flight is scheduled; if fewer sign on, the ini- aviation company.” Shared shuttle flights are one tiating customer can pay the difference or can- means of strengthening that social component

AVIATION INTERNATIONAL NEWS • SEPTEMBER 2017 50,000

40,000 2015-2016

2016-2017

30,000

20,000

10,000

0 XOJet Surf Air JetSuite Wheels Up

50,000 60,000 Membership Flights Membership Hours

50,000 40,000 2015-2016 2015-2016

2016-2017 2016-2017 40,000 30,000

30,000

20,000 20,000

10,000 10,000

0 0 XOJet Surf Air JetSuite Wheels Up XOJet Surf Air JetSuite Wheels Up Source: Argus

60,000 Florida; New York-Nantucket; Boston-Nantucket; “waiting to see how Brexit” affects business avia- and50,000 in the winter, San Francisco-Truckee, Calif. tion on the Continent. Executive v-p and found- During football season, Saturday2015-2016 shuttles to col- ing partner John Colucci is based in Europe, and 2016-2017 lege40,000 games are popular, as were shuttles between with fleet operator Gama Aviation headquartered California and Reno during the Burning Man fes- in Farnborough, UK, whenever conditions war- tival,30,000 Dichter said. rant “we have a plug and play” offering ready to Meanwhile, Wheels Down, the on-the-ground go, Dichter said. 20,000 events program, is key to driving more socializa- Individual memberships carry a $17,500 ini- tion10,000 and asset utilization. Wheels Down’s “tent tiation fee for the first year and $8,500 per year pole events” are the Super Bowl, Masters Golf thereafter. Corporate memberships cost $29,500

Tournament0 XOJet and ArtSurf Basel, Air duringJetSuite whichWheels theUp for the first year and $14,500 per year thereaf- company hosts parties, meetings with celebrities ter. The entry-level “8760” program costs a flat and other insider opportunities for members, fur- $6,950 per year. ther driving fleet utilization and creating a sense of community. Wheels Up offers free empty legs. XOJet One indication of the intent to mainstream its XOJet introduced a new charter model in 2009, offering: Wheels Up memberships are sold in offering low (then starting around $20,000), one- Costco, and during “key time periods” at other way transcontinental rates aboard its owned and warehouse stores. operated fleet of Citation Xs and Challenger 300s. Corporate sales are the next growth frontier. In the years since, XOJet has de-emphasized ad

Wheels Up has 200 corporate accounts and hoc charter in favor of membership programs, and www.ainonline.com is “committed to a big push” to “double that is now going all in on the new paradigm: “We’re over the next 18 to 24 months,” Dichter said. changing to a subscription model,” said XOJet Current accounts use Wheels Up primarily to CEO Brad Stewart. “That’s worth carefully explain- supplement corporate flight departments, sec- ing.” To whit: The platform XOJet developed and ondarily as an alternative to airlines, or lastly provides exclusively for program members “costs among small to medium-sized businesses for all money, so we say to the client, ‘If you’re a mem- corporate lift. ber, we need you to pay for the platform,’” Stew- Expansion into Europe, initially targeted to art said. Most customers have accepted the change launch this year, is on hold. The company is without complaint. “People are more and more

AVIATION INTERNATIONAL NEWS • SEPTEMBER 2017 XOJet

NetJets and Flexjet have been subscription models discount for fleet aircraft use. Initiation is $3,000 for decades; second homes have HOA dues. They and monthly fee is $500. get it,” Stewart said. Select Access, a new $50,000 entry-level program The deposit-based membership programs—now for fliers needing 15 to 25 hours per year, provides Elite, Preferred and Select Access—have been mod- a 2-percent discount for fleet aircraft use. Monthly ified and are bundled under an Access Solutions fee is $250. umbrella. The top-tier Elite Access membership, Overall, Access Solutions saw 30-percent year- representing a $200,000 refundable deposit, gets over-year growth in program sales in this year’s the biggest upgrade: guaranteed hourly rates, pre- first half. Most new customers are coming from www.ainonline.com viously available only for super-midsize jets ($8,500 former fractional owners, other card programs per hour), have been extended to light ($5,500) and and “regionalized mom-and-pop service plat- midsize ($6,750) categories, in place of the demand- forms,” Stewart said. based pricing previously applied. Monthly fee is While emphasizing memberships, XOJet’s ad hoc $1,000, $1,500 or $2,000, for access to one, two or charter and charter brokerage businesses are also three categories of jets at guaranteed pricing. Initi- growing, and the California-based company has ation fee is $3,000. a concept for a “fourth component”: a ride-shar- For a $100,000 deposit, Preferred Access, which ing offering that “can extend the addressable mar- Stewart described as a “combination of ease of ket for our products down market a little, in an

AVIATION INTERNATIONAL NEWS • SEPTEMBER 2017 JetSuite

offering would be developed in conjunction with control and using the aircraft for revenue service JetSmarter, XOJet’s exclusive digital marketing when the owner makes it available. RedStripe, aimed partner, which has the technology chops to cre- at owners who want to outsource all fixed opera- ate the app. All online booking of XOJet ad hoc tions and management costs, makes the airplane charter is done via the JetSmarter app, while XOJet available to them as scheduled for planned trips, sells all its empty legs to JetSmarter, which offers while giving JetSuite primary access for revenue ser- them along with other empty legs it purchases to vice. JetSuite pays crew salaries, training, insurance, JetSmarter members. maintenance and all other operational costs. GreyStripe is tailored to owner/operators and JetSuite small corporate flight departments seeking rev- California’s JetSuite owns and operates a fleet of enue for aircraft when dormant. JetSuite han- Phenom 100s and Citation CJ3s, offering both ad dles maintenance and compliance with Part 135 hoc charter and SuiteKey memberships, the latter requirements and operates the aircraft when providing reduced hourly flight rates on deposits of $50,000; $100,000; $200,000; or $400,000. Serv- available with its own crews, returning it to the ing SuiteKey members “is the single largest part owner at the end of the time block, who contin- of our business,” said Cameron Gowans, v-p of ues to operate and crew the aircraft. All manage- sales and marketing, accounting for “in excess of 80 ment clients have access to JetSuite’s fleet. percent” of flight activity. Growing SuiteKey sales JetSuite signed its first management contract, a RedStripe agreement for a Legacy 600, and was and member demand for lift led JetSuite in May www.ainonline.com to offer an aircraft management program aimed at about to add it to the charter certificate as this adding inventory—specifically Phenom 100s and issue went to press, the first large-cabin jet in the 300s and Legacy 600s and 650s—to the fleet. “We fleet. Meanwhile, the CJ3s are undergoing cabin need to add more supply to meet growing demand,” refreshments, as the Phenom 100s did last year. Gowans said. In homage to the bright swaths of JetSuite has a charter shuttle airline, JetSuiteX, paint bisecting the airframes of its fleet, the three- connecting California, Montana and Nevada tiered management offerings are named RedStripe, with executive configured ERJ135s, but there is GreyStripe and WhiteStripe. no membership requirement or program for the WhiteStripe is a traditional charter management service; SuiteKey members get a 10-percent dis-

AVIATION INTERNATIONAL NEWS • SEPTEMBER 2017 JetSmarter

JetSmarter two and one respectively) vary accordingly. A lim- JetSmarter is a charter brokerage/technology ited number of the shuttle flight seats are free to company providing discount rates to members Smart members; if all are spoken for, members who pay an initiation fee and annual dues for can start another shuttle flight on that route and access to services, and has gained wide atten- pay a per-seat rate—for example, $2,900 on a light tion with the shared shuttles it also offers on jet from New York to South Florida—that’s guar- 50 popular routes in the U.S., Europe and the anteed to make the trip even if no other passen- Middle East. gers sign on. Though per-seat shared flights (distinct from But shuttles ply only the most popular routes.

“airline” shuttles à la Surf Air and JetSuiteX) To expand the shared charter offering, in July www.ainonline.com have been marketed (and long derided by indus- JetSmarter introduced SharedCharter, which try traditionalists as unwanted by charter cus- enables a member to create a charter flight for any tomers) for some years, Florida-based JetSmarter route and have JetSmarter market unused seats, has popularized the access option, boosting its earning flight credits for seats sold for up to 100 profile and membership ranks in the process. All percent of the charter cost. (Simple members pay three JetSmarter memberships—Sophisticated a surcharge for using the service.) Members who ($50,000 per year), Smart ($15,000 per year) and buy a seat on the flight can save up to 90 percent Simple ($5,000 per year)—provide access to shut- on charter costs, according to JetSmarter. tle flights as well as ad hoc charter, though the As noted, JetSmarter also buys empty-leg inven-

AVIATION INTERNATIONAL NEWS • SEPTEMBER 2017 VistaJet

example—offering them gratis to members. Rela- the company reported. VistaJet’s flagship offer- tively few take advantage of empty legs, but CEO ing, Program, a three-year membership, provided Sergey Petrossov said members often check on the a record 63 percent of the company’s revenue in availability and flights, underscoring the interest the second quarter, up from 55 percent in the pre- members have in the benefit. vious three months. Aimed at users flying at least www.ainonline.com JetSmarter has invested heavily in the digital 50 hours, Program provides guaranteed availabil- platform that enables its shuttle flight sched- ity and hourly rates. The average program member uling, CharterSharing and other offerings, flies 100 hours per year, said Chris Moore, chief and tracks all customer interactions for big commercial officer. data application. Members make yearly or quarterly deposits. VistaJet One hundred hours per year on a Challenger 350 Malta-based VistaJet owns and operates a fleet of costs $12,000 per hour, or $1.2 million. Access to Globals and Challengers for both membership and the Globals is more customized, driven by factors ad hoc charter programs, with sales of the former such as call-out time, the amount of flying per

AVIATION INTERNATIONAL NEWS • SEPTEMBER 2017 seeking long legs and providing seven days’ notice, hours we sold demonstrate the trend toward prices for Globals typically range from $18,500 shared ownership.” to $19,000 per hour for a 100-hour membership, Moore also noted, “Corporations take longer to or $1.85 to $1.9 million per year. sell to but are generally a lot more loyal” than pri- The company sold 6,000 new hours through the vate customers, and their typical use of aircraft is first half of this year, compared with 10,000 new complementary to the schedules of wealthy indi- hours in all of last year. VistaJet also reported a vidual members. o 91-percent customer retention rate, and renewal hours more than tripled in the first half of the year. The company believes its recent abolition of positioning fees is further fueling demand. A MEMBERSHIP PIONEER VistaJet is scheduled to take delivery of one more Global 6000 this month, taking the fleet BIDS AVIATION ADIEU to 73 jets. “Then we’re finished with the invest- As Surf Air announced its acquisi- ment cycle,” said Moore. The company has no tion of Rise, the conquering company’s orders for the forthcoming Global 7000, nor co-founder, former CEO and inventor of interest at the moment, he added. Meanwhile, the all-you-can-fly subscription model, a shift in the VistaJet pitch is under way. “Our Wade Eyerly, quietly exited the aviation first ten years were focused on wealthy indi- industry. After leaving Surf Air in 2014, viduals,” said Moore. “In the last two to three Eyerly and partners founded Beacon, years our focus changed on what we can do for aiming to replicate the Surf Air model in corporations.” One selling point: “You know the New York-Boston corridor, sans Surf exactly what it’s going to cost you” to use the jet, Air’s ownership and operational respon- unlike fractional or whole ownership. “Unless sibilities. The venture failed, Eyerly said, you absolutely have to [access a jet] with a cou- because of poor execution of plans for ple of hours’ notice, ownership of an aircraft which he takes full responsibility but is getting to the point of being redundant,” declines to identify. Moore said. “There wasn’t a global offering in Eyerly was then hired under a one-year the past that gave access to a fleet like this. The contract as managing director of new ventures at Wheels Up, a company he calls “incredibly good.” His new endeavor, PART 380 CHARTER which he said he’s been thinking about for some time, involves providing insur- Part 135 rules preclude on-demand ance for college loans, to protect against charter operators from offering single www.ainonline.com the financial calamity caused by inability seats or scheduled flights. But shuttle to repay a student loan. Looking ahead flights like those organized by Wheels Up at the membership market, Eyerly said, and JetSmarter, and charter airlines like “I think you’ll continue to see the model Surf Air and JetSuiteX, operate under Part explored and extended,” ticking off coun- 380 rules. A Part 380 public charter oper- tries around the world he’s had inquiries ator is allowed to sell single seats aboard from about starting a similar service. aircraft with up to 30 passenger seats by “You’re going to see interest as more and DOT approval but cannot schedule flights more innovative models come up.”n for more than a one-year period. n © 2017 AIN Publications. All Rights Reserved. For Reprints go to

AVIATION INTERNATIONAL NEWS • SEPTEMBER 2017