| The Part 135 Wet Lease Hooplah and The Air Taxi Manifesto |  |
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| Posted by Adam Webster | |
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The latest grumblings by the alphabet groups and generally non-conforming Part 135 air carriers are a big hint of what is to come. While we don't want to alienate anyone (for the purposes of debate, or.. Here's our take: If you don't have complete control of the aircraft and crew then you are not an air carrier. This debate is simply symptomatic of what our industry is, which is that it is not really an industry. The air charter industry, especially when talking about large turbine aircraft that none of us can afford to buy, is a rather sophisticated management business, or as we like to say "very good baby sitters." To ring in the new year, we are going to try and help the industry, the FAA and most importantly the carriers that fly by offering the Air Taxi Manifesto to our comrades that are ready for real change. Much of the fuss stems from this news. THE AIR TAXI MANIFESTO**************************** #1 The present Part 135 industry is not an industry, rather it is (in large part) a collection of well trained baby sitters. - The most successful big 135 (charter management) firms make their money on management, which includes: maintenance, fuel, hangar, crew, insurance aggregation etc... charter revenue is merely a component of the picture. This is particularily important to the FAA since they are beginning to ascertain that those who "rent their certficate out" will do just about anything to placate the owner, hence crossing the line with operational control issues. The eternal game is "do it my way, or you don't get the plane." If we were an industry that provided "Transportation On Demand For Hire" we'd buy our own planes since owners just foul up the picture. Most taxi drivers buy their own cars - or at least the cab company does. Some day, we'll buy our own planes, but not until their is a few more extinction level events. An even better example is this famous line, "Yes the quote is $22,000 plus plus plus and subject to owner permission." (Since when do cab owners approve each fare?) #2 Speaking generally, the Part 135 industry has ZERO pricing integrity - namely we don't have any rational method for calculating what we charge. - Think about what a fractional owner pays per hour, when ALL costs are considered. Or in the words of one of our advertising clients: "If we were a business we'd charge $4000 / hr. for our light jets.. since businesses need to make money, even if the aircraft only flies 700 hours / year." This problem is a complex one.. and it starts with the suppliers of aircraft and services. A Lear 60 window costs TEN times that of the same window on an Airbus or 737 and the fuel story at FBO's is similar (see http://www.jetfueltruth.com). Until Part 135 operators get their costs under control, we are doomed to be slaves to owners who will always force the weaker Part 135 carrier to flirt with the boundary of operational control. "See this nice Lear 60? You can have it.. but let's modify the contract a bit, ok? Oh.. and we have to approve each flight.. and you'll use my crew right?" #3 When the right player enters the landscape - they will kill the remaining Part 135 businesses that do not adapt. - In part NetJets et al have already proven this. First with themselves, then with the advent of their competitors. These guys have a lot of money, serious marketing skills and probably more than 50% of the on demand jet travel in the US, which btw is 70% of the world market. The air taxi start ups (coming soon to an FBO near you!) may fail or succeed..but either way.. that local King Air may get a little quiet. Think of it this way.. when an asteroid hits the earth it destroys itself on impact, but it also kills everything around it too, unless it's willing to grow a coat and move underground for a while.. #4 Fractional Ownership in its present form, will fail eventually. - Even though they are eating our lunch now (and have been steadily encroaching since the 90's) they are simply better baby sitters that charge more, do it with a smile, better brochures and in the case of some...even invite you to fancy dinners with famous and fancy people. Ultimately (as with time share in real estate) the owners will wake up and say "Wait a minute.. you've been earning INCOME with MY plane.. and why are there so many hours on it.. wtf kind of a relationship is this?" (see http://www.fractionalforum.com) Fractional ownership grew as a response to a fractured and "Mickey Mouse" 135 industry.. and it succeeded in gaining marketshare, but not necessarily profits. Now it is simply facing the fact that it is extremely hard to make money with airplanes, unless you can control costs like Southwest can.. which they can't do - not without treating their passengers like customers, instead of visiting dignitaries..... but again, I harken back to the windshield and fuel stories. Never mind most fractional companies are *very good concierges* more than they are businesses.. since the clientele (mostly) demand everything a la carte which is not scalable or what businesses do. (Compare Walmart to Neiman Marcus - which stock would you rather own?) #5 Brokers feed on this sick and broken industry. - Imagine if you accidentaly (or believed) you had to call a plumbing broker for a plumber? They'd quote you for the repair of the sink at $300, but later you found out that the plumber only got $100, since the plumber was on an empty leg..which you later found out, but the broker didn't tell you. $200 went to the broker because they provide a "value added" service. But.. wait.. there aren't any Plumber Brokers! Nor are there "taxi brokers." Any time you have industry with wealthy patrons and run away costs (with no way of controlling them) you will get a big mess with brokers in the middle. Do they add value? Perhaps, in specific cases, and trustworthy brokers.. Is it worth 30%? 20%? 15%? or.... 50% ? I am not sure..but I can tell you that the internet is putting the squeeze on the 6% realtors have come to grow accustomed to in the real estate world. Charter brokers will be forced to dramatically lower costs - and most will become extinct eventually, but only after Part 135 air carriers have true cost integrity and transparency. (There is actually a lag of time between industries like real estate and aviation, but the internet is changing the speed at which the effect of efficiency kills inefficient businesses.) #6 There is hope. - There are many players coming on the scene who are actively re-writing the rules of On Demand Part 135. While the hype about VLJ's causes some to roll their eyes (even we roll our eyes at a lot of it) the fact is that individuals such as Vern Raburn are starting to fix the most fundamental problem in the industry - COST. If you could operate a PC 12, Caravan or Eclipse 500 for a lease payment of $5000 / mo. you would not need an owner. And when you don't have owners (and Part 135 Wet Lease Issues) in the picture.... you can actually make money. Southwest is perhaps the best example of another industry - the Part 121 industry. They bought cheap planes, only one kind of plane, charged only what they needed (read that part again - only charged what "they needed" - after actually calculating that need) to make per hour...given their lofty utilization target, growth plans, profit, which they hit, time and time again. The rest is history. I know this may sound a bit daft to some, but we are bombarded daily with 135 news etc. and this issue has been a recurring one. The purpose of the manifesto is to foster debate, get carriers to share tales of owner woe, fractional woe and the good, bad and ugly that accompanies life under Part 135. |
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| Last Updated ( Wednesday, 04 January 2006 ) | |
