Jetsmarter (Part 3): Top 5 Reasons Why Private Jet-Sharing is a Failed Business Model
Venture capital still funding private jet-sharing startups?
The private jet-sharing business model does not work. As a matter of fact, there has never been a single example of a private jet-sharing company showing promise or being able to survive without frequent injections of investor capital. Yet, many examples of this ill-fated model exist. Names such as DayJet, BlackJet, Indigo, GreenJets, CoGoJets, POGO, ShareAJet Exchange, Jet-It-Together, Airpooler, Avion Private Jet Club, Gotham Air, Club Airways, Beacon, Perfect Jet Travel, Freshjets, JumpJet and SATSair are just some of the many failures witnessed by the business aviation industry. And now, some of the current players in this space, such as Jetsmarter and Surf Air, are also showing serious signs of weakness.
Currently, the most well-known private jet-sharing company is JetSmarter. Like many of its predecessors Jetsmarter has dubbed themselves as the new “Uber for Private Jets”. The company is led by CEO and Founder, Sergey Petrossov, a renowned entrepreneur and recipient of awards from Forbes for Top 30 Under 30 in Consumer Technology and South Florida’s Top Working Professional by the Sun-Sentinel. Petrossov has introduced mobile application technology to the private jet-sharing concept in the hopes of succeeding where so many others have failed.
So will it be different this time? Petrossov says yes, because now he has an app for it!
All of this begs the questions, why do investors continue to pour capital into a concept that has the worst track record imaginable? And why can’t the private jet charter by-the-seat business model be made viable?
The following are the five key reasons why the private jet-sharing concept is fundamentally flawed, keeps failing and will continue to fail.
1. Expectations vs Benefits
Flying on a corporate jet is the pinnacle of luxury and business travel. Benefits of private flights include increased efficiency, security, flexibility, comfort, convenience and, of course, privacy.
These benefits do not come cheaply. Therefore, when a private jet-sharing company offers all of these benefits for the price of a commercial airline ticket, one wonders how this could be possible. The simple answer is that it’s not!
The term “private jet” actually is used to describe the flight experience, not a specific type of jet or model. This is different from the term “business jet” or “corporate jet,” which refers to a specific class of aircraft. In other words, any jet can be a “private jet” as long as there are no other outside parties on board, regardless of whether it’s a tiny Cessna Mustang or a Boeing 757.
Great expectations usually lead to big disappointments.
Still, customers are expecting at least some semblance of a private jet–style experience and service. While it is obvious that many of the benefits will be negated with the private jet-sharing model, the personal service aspect is also problematic for providers.
Just imagine the workload that comes with offering thousands of members 24/7 concierge services and travel coordination. The workforce required to offer such a large group the high level of personal service traditional private jet charter companies provide cannot be understated. This is because a large workforce always comes with a huge overhead.
Often it is these factors combined with unrealistic expectations that results in consumer disappointment. This is the reason we never see private jet-sharing companies boasting about membership renewal rates; no doubt they are low.
2. Cabin Configurations
The cabin configuration of a business jet is not designed for economy; it is designed for comfort. Commercial aircraft, on the other hand, are configured to achieve maximum economic efficiency. The airlines and commercial aircraft manufacturers are experts in this area.
Some aircraft models, such as the Embraer 135, serve both markets. The business jet variant of the ERJ-135 is known as a Legacy 650 and is configured to seat 12 or 13 passengers. In its commercial configuration, it is known as the ERJ-135 Regional Jet, and it typically seats 30.
With this in mind, how can a jet-sharing company claim they can offer a private jet-style experience for the price of an airline seat, when the airlines are carrying three times as many passengers in the same plane?
Again, the numbers don’t make sense.
3. The Fallacy of Critical Mass
I suspect many investors are lured into this concept, and afterwards milked for additional investment capital through the argument that the business will ultimately achieve profitability by reaching critical mass.
Critical mass refers to the size a company needs to reach in order to efficiently and competitively participate in the market. This is also the size a company must attain in order to sustain growth and efficiency.
The biggest problem with this idea is that the price point where the per-seat membership model becomes viable is much higher than what the market will bear. In other words, if a jet-sharing company ever charged a membership fee or fares even close to what is necessary to be self-sustainable, the market for such service would dry up immediately. As a result, the private jet-sharing companies are forced to undercharge to maintain a healthy flow of new members.
Aside from price point, there are two other key problems with the jet-pooling concept that prevent the critical mass theory from bearing fruit in this particular market. These are below in reasons 4 and 5.
4. Dependency on New Routes
Growth rate is the key factor for any scheme to survive. For the private jet-sharing concept, growth is achieved through an increase in demand, and increased demand can only be achieved by an increase in memberships. However, demand is dependent on routes served, much like we see in commercial aviation. The importance of this dynamic cannot be understated, but it is never mentioned.
So how does a company like Jetsmarter gain exposure to new markets and attract new members? The simple answer to that question is: they need to keep adding new routes to gain exposure to new markets and attract new members.
For example, a person who lives in New York and travels frequently to Miami is likely to consider a membership because Jetsmarter has daily flights between New York and South Florida. On the other hand, someone who lives in New York but travels to Charlotte often would not consider a membership simply because the NY-Charlotte route is not served.
Higher traffic routes between major city pairs such as Miami-NY or LA-NY will naturally provide lots of demand. However, the problem for a company like Jetsmarter is that all of these major routes are already being served and consumer demand exhausted.
As a result, the company is forced to search for new members in smaller cities to maintain the growth rate needed. This is the reason we frequently see new city pairs being added, but as we know from Part 2, the more they fly, the more money they lose. Therefore, the new city pairs are often dropped not long after they are added.
5. Capacity Limitations
Ultimately, there just isn’t enough lift available to accommodate the level of growth necessary to keep these schemes afloat.
Some private jet-sharing companies have even gone as far as to state their goal is to make flying private something accessible to the masses. However, this is not something that can happen.
To put this into perspective, there are less than 30,000 total business jets in existence in the world and only around 5,000 of those are available for charter hire. This translates into just 1 jet for every 1.4 million people.
This is a problem no doubt overlooked when trying to duplicate the Uber model in private aviation. For Uber, growth is only limited to the number of people with a smartphone because anybody with a decent car can supply the market with lift, and can do so without significant barriers.
Private aviation, on the other hand, is a tiny market, with very limited capacity. Historically, the available lift has been reserved only for high-net-worth individuals (HNWIs) and corporations, a small group.
The market for private aircraft that are available for charter, in particular, is even smaller and highly regulated. In fact, the process of conformity (obtaining FAA authorization to offer an aircraft for charter hire) alone is a lengthy and costly one that usually takes months, or sometimes even years to complete.
In a nutshell, the supply of business aircraft, pilots, support personnel, and regulators is insufficient and inelastic to be able to accommodate the rate of growth a company like Jetsmarter needs in order to keep the scheme going.