Well, it has happened again dear air charter enthusiast. I am up at 0330am trying to figure out how to properly handle the many Wall Street Journal visitors who will meander their way here or to www.fractionalforum.com this morning as they sip their coffee and ponder burning $109K+ on 25 hours of light jet time. The question any human being (or aviation entreprenneur) wants answered is why a light jet, according to the fine marketing wizards at Marquis Jet costs this much to rent time in? Or better yet, why do us air charter veterans sit on the sidelines while the marketeers prove themselves to be liars.

The fact is that any good salesperson is a liar, since there is simply no time to tell the truth, especially when you are trying to sell that jet card prospect in between squash games and cocktail parties with that diplomat from that country you'd rather not discuss. Yes, stories, make for faster sales cycles.

Soapbox aside, this morning's Wall Street Journal article by Avery Johnson ("Private-Jet Travel Loses Some of Its Luster" 5.24.05 page D-1), just scratches the surface of the problems that lurk at not just at NetJets, but arguably industry wide - in fractional as well as the air charter business.

The successes and now likely failures of the fractionals (as viable stand alone business models) tell us something very revealing about our unique culture of business.

When we say scandalous things like, it is just a hobby on steroids what we are really saying is that Richard Santulli may have applied some Ray Kroc Wizardry by making the jet cost the same everywhere (and have the consistent level of 'ho-hum' quality). But what Richard failed to see, was what his predecessors at Southwest recognized almost 15 years before NetJets was launched in 1986. If you don't fly enough revenue hours you don't have a business. While he pioneered the theoretical 800 hour block (figuring this was the maximum amount of use a private aircraft could be flown for hire), he may have missed the fact that you have to charge a lot if you are going to fly that little. (Airlines like to talk in terms of hundreds of hours per month, not year.)

So, when you operate those precious few hours, you certainly need to charge enough to cover your behemoth overhead of support staff, meteorologists, concierge complaint lackeys, etc. While a bird of a different feather, Southwest took a different approach: Minimize all costs (without compromising safety) and deliver the competitive rates back to the client. Oh yeah, and don't stay at the gate for more than 30 minutes during the work day.

In other words, with his deep mathematical Goldman Sachs leasing genius he may have failed to see the obvious, which is that our business culture is not only broken, but doesn't even fit the definition of business.

I have not been to business school (barely escaped college with a degree in Geology) but successful businesses usually have some qualities that the fractionals, so far, lack:

Profitability - It is no surprise we all bleed red in our financials, airplanes have a nasty habit of doing that to the income statement. Since the Garden of Eden the industry is "net negative" - no surprise here. The fractionals just increased the blood flow, at the expense of their aircraft owners and investors. (Very few exceptions to this proclamation by the way.)

Scalability - How can you scale a business that is built on the tenet that concierge style worship via the telephone, $75 hamburgers, and of setting client expectation so high that you are bound to let them down? (oh..by the way, our pilots are Teamsters and they are having little scuffle with management.)

Transparency - When everything is a mystery, including the actual costs of all the nuts and bolts that hold the whole critter together, you can bet your bottom dollar the industry will remain stunted indefinitely. (The best example of this dichotomy is an earlier post of the actual cost of a windshield for a Boeing 737 vs. Lear 60. The Lear 60 windshield is almost 10 times more expensive. Why? Because numbskull is happy to pay it!)

It is no surprise, however, that the fractionals were born under a bad sign. When you consider that the landscape consists of 80% managed aircraft for owners and managers who could not give a rat's tuchus whether they actually "make money" as investments. Remember, they bought it for themselves, and hired that Part 135 Management Co. for a lot of money for some pretty good baby sitting. Time permitting, they look up to the stars and pray that he / she has the brains to help them offset some of their cost of ownership so that it costs them less than renting it from some other poor schlock who also thought owning was the way to go.

Now, some of you veterans of the Part 135 Circus may see this as an overly harsh criticism, but like the FAA, I am here to help. (Ok, bad joke.) You see, when you are an alcoholic the first step is recognizing you have a problem. "Ah, Houston, ....we've got a problem."

The problem is you can't build a business with equipment that is not able to work to its maximum potential. The landscape of "everyone else" (i.e. other fractionals & 135 firms) that NetJets competes in is so fragmented and in such disarray (from an efficiency, marketing and aggregation perspective) that it is no wonder that us air charter stalwarts witnessed the birth of an entirely new industry (Fractional) that now equals the on demand air charter business in size. While fractional may be broken.. let's remember, it is well financed - and those types of operations have a nasty legacy of hanging around like the giant albatross that is silently roosting in the corner (plagiarized from Richard Aboulafia.) In other words, because we Part 135 lackeys are at the mercy of several key factors we can't compete with NetJets' B.N.Y.M. (Big New York Money) until we do our own twelve step program. Let's keep today's meeting short and stick with three key points / steps:

Step One - Owner expectation - be honest with them. You want to make money with their asset (for your mutual benefit) and that means telling them how you will dictate the use of their asset. Since when does your "operational control" mean that you need to seek "owner permission for that flight." Focus on owners who want to help you build your business. You can't build a business if the airplane is yanked at the last minute because Mr. / Mrs. Owner can't plan their schedule with a modicum of respect for your client base. Finding good owners is not easy, but it is mainly our own fault for letting them have their way with us.

Step Two - Client Expectation - stop giving more ground than you need to. We are in perhaps the highest demand period ever for air charter / air taxi use. Give a quote, confirm it or hang up. The concept of "holding" an aircraft for someone who does not pay you is insane. Whether it is the wealthiest individual in your town or the biggest baddest charter broker you do business with, be realistic about our industry. Hotels don't hold rooms without credit cards, and nor should you hold your aircraft without one and some very clear terms on what "releasing" that hold will cost your client prospect. Do you drive a limo that goes in the sky? Or are you a butler that loves running around willy nilly to have your margin destroyed because you just couldn't say no?

Step Three - Use Math - it has been around a while and it is really handy. Take the time to know what ALL of your costs are and price your aircraft accordingly. Doing a one way? Calculate the likelihood of reselling the empty leg and apply that as a percentage discount to the empty for all of your one ways - not just the ones for the client that grinds into the ground for the best quote, while ignoring it for the client that is willing to pay more. Which brings me to.... Pricing Integrity the hallmark of a business. Until we are willing to develop consistent pricing methodologies, our industry will remain a hobby on steriods, which is fine if you like pandering to crazy people with too much money.

This post was made by Adam Webster who is normally not able to make such long posts. But the Wall Street Journal got him excited and he is getting fired up for the bi-annual conference where he expects his air charter co. clients to put their big boy pants on.