Orlando, Fla. – Although air taxis are benefiting by strong demand they are stuggling with financing, and a hostile operating environment, according to a panel assembled at the recent National Business Aviation Association meeting.
SATSair CEO Steve Hanvey joined Linear Air CEO Bill Herp, Virginia Department of Aviation Director of Aviation Randall Burdett, Open Air President Michael Klein, and Air Taxi Association President Joe Leader in briefing about 100 NBAA attendees in a packed meeting room on the air taxi business and its largest problems. But it was Hanvey who stated the industry’s greatest problem. “No one understands what we are doing,” he said.
Not surprisingly, those problems closely echo those experienced by regional airlines in the immediate post deregulation period. For regionals, the financing problem was solved by the advent of new aircraft and manufacturer urgency at getting them into operation that solved one of the regional’s most pressing early problems. Often, manufacturers financed the planes at more than book value in order to provide airlines the operating capital needed to upgrade. With Beech one of the first manufacturers to do such deals in order to place its C99, these manufacturers ultimately found that, for the most part, their customers proved lucrative investments growing to such giants as American Eagle and Mesa Air Group. By the time the new generation regional airliners – the Saab 340, the ATR 42 and the Embraer Brasilia – were ready for market it had become standard operating procedure and small orders for one or two aircraft were replaced by orders of 20 or more by the end of the 1980s. It was this unorthodox participation in the regional airline industry that went a long way in building the regional airline industry to the powerhouse it is today.
Unfortunately, the manufacturers in today’s air taxi industry are themselves new and untried and have the same problem with financing as do their customers, making a repeat of the manufacturer generosity and the ultimate success of these aircraft a tougher sell. It is unknown whether Cessna has adopted the practice but Embraer was a huge participant as far back as the early 1980s which ultimately led to a Beech/Fairchild complaint against the then fledgling company before the International Trade Commission.
But the air taxi industry didn’t lack for investors at the conference. One of the first questions was a man who declared he wanted to invest in such a business but wanted to know the direct operating costs versus the hourly rate charged. Hanvey indicated that his per hour charge was $695 per hour with discounts depending on the number of block ours purchased. Adding his DOCs were about $200, he also said that per hour charge has shown good upward mobility compared to 2005 when the charge was $318 per hour.
Beyond financing, one of the most challenging aspects is the hostile operating environment in which air taxis operate. Here again the industry echoes the past when regionals also served airports with few navaids with the natural impact on their accident rates. Like their predecessors, air taxi reliability is at stake when airports are weathered in. Hanvey indicated that many small, uncontrolled airports do not have weather reporting or accurate operating statistics making their inclusion in the next generation air traffic control upgrades that much harder. Again, echoing the regional airlines, the three operators indicated that the priority given air carriers in the air traffic control system was felt much more keenly by their passengers than airline passengers who paid a fixed price.
But unlike their predecessors, the air taxi/charter business has a better accident rate according to the National Air Transportation Association. Even so, number one on the panelist’s wish list is widespread deployment of WAAS-enabled approaches but Hanvey noted the tough battle the air taxi industry faces since the air traffic control system is geared toward air carriers. “Our customers pay directly out of their own pockets for delays,” he said. “At $500 per hour, even a short delay adds $50 to $100 to the bill. Weather delays have a big impact on the door-to-door time. Still there are 4,000 airports opened up where no major changes are needed except, perhaps, upgrades in the terminal.”
Hanvey complained with all the emphasis on very light jets, the work done by turboprop and piston aircraft has gone unnoticed, including his company’s Cirrus SR 22s which he called a value proposition with his model of charging the passenger only when he is in the aircraft. “In 2007 we serviced 564 airports in the southeastern seven states with most trips at about one and a half hours,” he said, adding his company has gone from one to 12 aircraft in a year. “The SR 22 has done what fractional ownership did for the business aircraft. It has opened up a whole new market. We just don’t have the capacity to meet the demand.”
Herp, however, said that his aircraft brokers report that turbine equipment is important to customers, as is twin-engine operations and, in some cases, two pilots. Hanvey, however, said the Cirrus’ CAPs parachute system overcame some of the apprehension about single-engine operations. He called the second pilot “just baggage no one is paying for. Whether we operate as single pilot or not depends on the mission, the training and how capable the pilot is. It depends on the region and the complexity of the mission. The axiom that two pilots are inherently safer is not necessarily true.”
Klein agreed saying that as the economy weakens “our market has a huge potential for growth especially with the light jets, king airs and other turboprops as people look for other means of travel.” He noted the price point for the SR 22 is well below that of commercial and larger business jet operators. “Internationally, there is a huge opportunity that remains untapped and, once the concept is grasped by the public, it will be a huge leap forward.”
Hanvey indicated that he puts 80 hours per month on his aircraft, much more than people had originally anticipated for the SR 22. Leader reported that some Mustangs in European air taxi operations were being used 11 hours a day, unheard of in business aviation but mirroring U.S. regional airlines operations.
“Air taxis equal more affordable air travel,” he said. “This is about market education and at the Barcelona meeting of the European Air Taxi Association operators resolved to focus on aircraft, and passenger awareness. There is a surplus of demand and when you have that it will correct itself with capital investment.”
Virginia’s Burdett indicated that a recent study of Virginia found 99.4 percent of the population was within 30 minute’s drive to an airport and within 45 minutes to an hour to a commercial airport. For that reason, and the capacity cuts made by commercial carriers, the department created a new air taxi reservations system that helps residents identify the nearest airport to a passenger’s home/office and the nearest one to their destination. Related Story www.aviationtoday.com/vlj/categories/bga/26755.html He expects it to yield $10 billion in economic activity for Virginia and such activity to increase by two thirds. Leader hailed the new reservation system, which can be reached through his web site as an important move.
He said the on-demand charter business suffered from a huge amount of gray area that is becoming clearer with the advent of very light jets as more companies use them to provide point-to-point service. “It is a whole new world of economic opportunities,” he said. “Those who invest their capital with the right entrepreneur will be richly rewarded.”
Herp divided the issues up into three categories – demand side, supply side and financing to match demand and supply. “The demand side is good for us,” he said, adding the supply side was more difficult since the current financial markets made expanding fleets more difficult. “The VLJs and better turboprops are also good for us. There are a lot of people seeking alternatives to commercial transportation now that capacity has been cut back. The financing side will take some time. I’m old enough to have seen this cycle before and I expect it will take at least 12 months time to resolve.”
Hanvey reported that the renewals of existing block hour customers was higher than expected, although new business has dropped off recently. “We do a lot of viral marketing,” he said. “Once they are experienced the retention rate is unbelievable at 80 percent. The key is us getting the word out. It’s not about the airplane. They all have a place in the personal transportation system. The question is how to take these disparate models – Linear Air, DayJet and SATSair – and make them work across a network. A customer recently said to me SATSair has changed his life in the way he travels and we’re getting more and more inquiries about international service.”