With the launch of corporate shuttle operations by Express Jet (XJT), the increasing discomfort of travelers with traditional airline service, the advent of very-light-jet, per-seat, on-demand service and the displacement of legions of small communities from the national air transportation system, the industry may be facing a perfect storm as non- traditional air transportation is offered to beleaguered travelers.

While new forms of air transport may take time to mature, their business models will likely morph as they seek to attract more and more travelers. Even so, it is the advent of the corporate shuttle that may have the greatest impact, especially as the powerful economic arguments in their favor - savings of $53 million over a decade vs costs of $30 million over the same period - become known. Add aircraft management firms offering turnkey operations, and the balance is tilted heavily in favor of a more economic form of business transportation which promises employee productivity gains of nearly $4 million annually.

The question then becomes what a company can do with the money saved; about $2.2 million annually in travel-related costs alone, according to market studies done by both Bombardier (BBD) and Embraer (ERJ).

Executive travel operations are far from new, but today they have a new twist. Delta (DALQ) began offering its executive jet service, Delta AirElite, 22 years ago and the earliest reference to corporate shuttle operations dates back to 1970, according to a Bombardier report. In addition, what is now Midwest Air Group (MEH), began life as a corporate shuttle operation for Kimberly Clark.

In 1998, specially designated corporate shuttle aircraft did not exist, according to General Aviation Manufacturers Association (GAMA) Director of Operations Jens Hennig. Previous offerings were largely re-configured business aircraft. However, that year, first Boeing and then Airbus launched shuttle versions of their aircraft. Following closely on their heels were Bombardier and Embraer which use the Challenger and EMB 135, renamed the Legacy, as their corporate shuttle platforms, respectively. Embraer, however, has gone two steps further covering all bets. With the Phenom 100/300, it now offers VLJs, and, with the Lineage, it competes with the Boeing and Airbus products. What may be making the biggest difference, however, is the advent of aircraft management organizations. Hennig indicated that 80 percent of business jets are managed by such companies.

Both Bombardier and Embraer have done industry surveys.

Bombardier's study, done early this year by Van Allen Group, quantified the economics of all the factors that go into making a decision on whether to pursue corporate shuttles. The company says the time has finally come for what it has been advocating for years. It is little wonder that Express Jet decided to dabble in the market and why SkyWest (SKYW) and American (AMR) are beginning to study this segment. (RAN, November 6, p.1)

The driver in these new forms of transportation are the growing commercial airline hassles, which entrepreneurs see as reason enough to invest in new technology and new business models. In the pre-911 period corporate shuttles offered efficiency and quality of work life, according to Bombardier's survey. After 911, two important factors were added to the mix, security and safety. That is, it is safer to fly a business jet than get on an airliner that may be the target of a terrorist attack.

Passenger Frustration

One need only look at the latest Air Travel Consumer Report (ATCR) to see passenger frustration. In May, the U.S. airline customer satisfaction dropped rapidly, equaling 1998's rate. The Bureau of Transportation Statistics reported were up to one in five flights while the ACTR reported that lost or bags were up significantly in August. Of course, this can be dismissed as fallout from security restrictions imposed during that period, causing record checked-baggage rates. But it is those and other security measures that are at the heart of frustrations and make business jet/air taxi travel more attractive.

Combine all this with faltering or non-existent in-flight customer service and the necessity for more than one leg and an overnight stay during business trips, you have the ideal environment for companies to consider business jets, corporate shuttles or both. Indeed, Bombardier found that fares for flights in selected markets that involve a connection are 23 percent higher than fares between major cities that do not involve a connection.

Add in the critical loss of productivity travelers endure between getting to the airport early, connection times and the inability to work in flight because of smaller aircraft, crowded airplanes and the need for confidentiality, it becomes a no-brainer. Indeed, after squeezing increased productivity out of employees in the last two decades, air travel may be one of the few areas left where significant employee productivity gains can be had.

Consider the fact that Express Jet was unable to produce a market study for its proposed shuttle operation simply because the statistics covering this growing market did not exist. Indeed, it could do little to predict its own success in such a venture, except measure market reception which was so positive that it boosted its shuttle aircraft from 10 to 15.

New Air Transportation Models

Revolutionary concepts are always greeted with a mixture of concern and doubt until one remembers that the out-and-back-in-one-day business trip was what built the regional airline industry. It is that trip that is to be recaptured by business travelers and entrepreneurs alike as they go after the short-haul, under-600-mile traffic whether it is now in a car or on a regional air carrier.

Perhaps the most revealing statement about these new modes came from CRA International consultant Matt Andersson, who put VLJs into perspective when he told the Senate Aviation Subcommittee recently that, "Very Light Jets will do for the transportation industry what the PC has done for mainframe computing and cellular is doing to telephony - give customers more service, more flexibility, more control at less cost as well as generate new products and services." He also said VLJs, more importantly, will bring many aviation assets into fuller productivity, especially smaller airports and underused airspace. He added the boost to economic productivity alone will have a profound impact as millions of travel hours are saved every year and "reinvested" back into the economy. The impact for small communities, which GAMA Chair Jack Pelton called neglected markets, will be enormous. (RAN, October 9, p.1)

Bombardier's previous attempts to sell the shuttle concept were hampered by high regional jet production rates and the inability to gain delivery positions. After the launch of its Corporate Shuttle Solutions program nearly 18 months ago, the business aircraft division took over the CRJ200 production line, re-christened it the Challenger 850 line, and dedicated it completely to Shuttle Solutions. The program uses its regional jets as the platform, re-branding them as the Challenger 850 (27-50 seats), 870 (42-70 seats) and 890 (52-90 seats). Each is offered in three configurations; similar to regional airline service; a lower capacity, more comfortable version; and a lower capacity, two class configuration with both business and economy seats.

Embraer is expanding its platforms from the ERJ135 to its entire regional jet line including the ERJ 170, 175, 190 and 195 with configurations ranging from 16 to 66 passengers. It also forecast a need for 60 to 80 heavy jet aircraft shuttles through 2016.

Embraer and Bombardier customers benefit from their long experience in regional jet operations as well as dedicated sales and support staff. Just recently Bombardier upped the ante, partnering with ADI, the largest corporate shuttle operator in the U.S., to provide customers with a completely turnkey operation which not only eliminates the need for a flight department but provides revenue when the aircraft is not being used.

Economics of Corporate Shuttles

The two companies also developed data that has never been available before. The reports may not be enough to give airline presidents pause today, but as the corporate shuttle industry matures, along with the per-seat, on-demand market, passengers will have other, non-airline choices to go directly from point A to point B.

Bombardier/Van Allen defined a shuttle operation as any multiple day per week, regularly scheduled service between two or more company sites. Van Allen CEO Jeff Agur indicated that there are currently 50 to 80 companies with their own corporate shuttles including aircraft management firms that actually run them. Bombardier concluded today's corporate shuttle market numbers 100-plus turbofan aircraft in the U.S. alone, 30 percent of which are 30-plus seats with the balance being in the smaller aircraft categories. Agur, however, thinks that is probably low. Bombardier does not include a host of turboprop aircraft being used as corporate shuttles. Embraer, which commissioned Keiler and Company for its study, geared its survey to the heavy jet market, saying the trend is toward larger equipment. It put the market at 51 aircraft in the U.S. as of February 2005.

While Embraer thinks corporate shuttles are for companies making hundreds of millions of dollars, Agur indicated, with aircraft management companies and the availability of current business jets for shuttle service, there is no minimum threshold for creating such an operation. It all depends on the answers as to whether a company has numerous employees who need to go between plants and whether airline service is poor and/or expensive.

The economic assumptions for Bombardier's report were also very conservative with 15 passengers per flight or 30 percent load factor for the Challenger 850. Bombardier pegged the air fare at $368 dollars and assumed two roundtrips daily or 960 trips per year. The Bombardier study also assumes that only half of all travel assignments will eliminate the costs associated with an overnight stay. Such costs as hotel, parking and other fees were quantified to be worth $1.3 million annually. Bombardier noted that U.S. airline de-banking of hubs has increased travel time and productivity loss significantly.

Bombardier's estimate for total yearly financial benefit of such an operation comes out to $8 million including $3.7 million in increased productivity. Cash flow benefits alone amount to $4.2 million.

A Van Allen case study (90 percent load factor and 12,000 annual passengers) of an operation between St. Paul and Omaha assumed an air fare cost of $751 and offered up a per trip savings of $750 per passenger on a shuttle.

Embraer assumed $400 roundtrip air fare and $205 per day for hotel and other ground expenses. Embraer is experiencing annual flight hours between 1,000 and 1,200 and indicated its Legacy would save companies $2.6 million annually in trip costs and productivity gains. Vice President Market Intelligence Marco Tulio indicated that its current corporate shuttles, configured between 16 and 37 passengers, fly full.

Bombardier pegged the total annual cost of a shuttle operation at $3 million compared to commercial airline travel costs of $5.3 million. Consequently, corporate shuttle operations would save more than $2.2 million. Over 10 years, based on 14,400 annual employee legs, the savings would amount to $53 million compared to shuttle costs of $30.5 million over the same period

Today, a given shuttle operation flies 20,373 passenger legs annually and the average city-pair distance is 674 nautical miles. But Bombardier, which operates a Q200 shuttle between Montreal and Toronto, found that having the shuttle actually stimulated traffic as well as the more-productive, face-to-face business meeting. Passenger trips more than doubled between 1998 and 2003 after it introduced its shuttle in 2000.

Questions

Van Allen listed questions companies must ask as they consider launching a corporate shuttle.

• Do you have a need to move many people between specific destinations?
• Is airline service poor between these destinations?
• Is airline service expensive between these destinations?
• Are there airport options to serve your travelers even better than the airlines?
• Is security of personnel and information important?
• Does your organizational culture value taking care of its people, its customers and its vendors?