DayJet: Why Falling Down is Part of Learning
Posted by adam on May 21, 2008 under Air Taxi, DayJet, Eclipse Aviation, Ed Iacobucci, Private Jets
The problem with hype is that it can really get away from you. Salespeople often require lots of fantastic premises and a careful architecture of quasi logic and emotional zingers to keep the potential customers slack jawed and credulous. Dayjet (of all air taxi schemes) was actually the one that had the best hope of “working.” Nonetheless, Dayjet’s most recent big news has reminded us of one critical thing: True “Air Taxi” is a tough sell - not so much to future passengers, but the darn investors you need to fuel up the venture in the first place.
As Ed explains, you need to put gas in the tank to start a venture. But when the promised gas isn’t delivered on time, or in promised / assumed / expected quantity, “painful” decisions need to be made.
I don’t know how or when air taxi fever started, but it became hard not to notice at the NBAA show in 2003 where I briefly breezed by Vern Raburn to slip into the cabin of the Eclipse 500 that was on the floor. There were ‘yammerings’ of how this would change (revolutionize! disruptive technology!) general aviation forever. Not only for the average affluent pilot that could pony up $1MM but also for the air taxi industry, which until now had been a cottage industry due to the lack of nifty little jets. (Note to self: Lack of nifty little jets has nothing to do with the air taxi industry’s problems.)
At the time, I was jazzed for the little jet. I was not yet affluent, however… I was busy laying the foundation for affluence. And a lustful affair with a little jet was a great way to start. Anything, anyone, or even an embellished bit of hype that brought attention to the cottage industry of air charter was a good thing in my book. Then the analysis began:
#1 Why do air taxi businesses manage jets for high net worth folks, as opposed to operating their own?
#2 Why does private / corporate aviation average 1/10th of the hours the commercial carriers do?
#3 What will the rate be for an air taxi that makes it so affordable? (Linear Air offered me a shocking lesson on this subject.)
It was strike one, two, and three and by 2004 I was firmly convinced that there was no way the existing industry, Eclipse, or Dayjet would put a dent in the problem.
I had high hopes for Dayjet, if only because of Ed. Ed is into science, logic, and analysis. He is also into modeling (”ant farming” to the geekier among us) and that is a cool thing to play with, since it allows you to ultimately peek into a “theoretical future business” running on assumptions in your business plan. For this reason, I thought he *might* make it.
Then I realized that Ed had spent too much time around Vern and he’d fallen for the “with this airplane we’ll take over the world” mantra, which we’ve seen on more than one occasion with more than one client. The airplane should be the last piece of the puzzle, since there are many many waiting to work that rigorous schedule all entrepreneurs propose when their business plan is new and fresh.
What happened with Dayjet is actually a mystery to me. There was modeling. There was money (lots of money despite there not being enough for his plan.) There was even a good logo.
Then it got quiet. Real quiet, and the thinking (mine) was that if it is quiet, it is hard to grow and raise more money. In theory, if you got busy and could scale your rate of growth back to let’s say 10% per year, then you might be able to do? something they did in the old days, called “growth through earnings,” which is painfully slow for some investors, but a safe bet if those at the helm are sane. But that is not what investors want. They want to put $1 into something highly speculative and possibly never see that money again, or hopefully, get $2 or $10 back in a few years. But in Dayjet’s case - evidently - they saw too much risk. It was beyond highly speculative.
In the airplane business, you can enter a “safe” business and still never see the money again. Sobriety tests are required at many checkpoints in the process, if only due to the amount of carnage in the landscape of failed start ups, be they jet manufacturers or air taxi dreamers.
When you put “Casey at bat,” you start to lose focus on the things that matter. The first one that popped into my mind was: How many airplanes are really needed? Is the NetJets induced “critical mass” talk true math talk or a way to raise more money than you need? Why couldn’t this have been tested with fewer aircraft? If Ed can do it with dozens, can he do with it with a dozen? My sense is yes, with the caveat that the Eclipse is probably a separate nightmare for him to manage.
Secondly, while the airplane type can be tinkered with based on current offerings, one strategic blunder (it could be argued) was using a new airplane that had yet to fly with a company that has yet to deliver anything within the expectation framework of its customers. (I say this a lot, but not as thoroughly as these guys.)
The Good News
The reality is that we all fail and we all make mistakes. In fact, one of the key distinguishing factors of successful entrepreneurs is how they fail. Falling down, getting back up.. and approaching the problem in a new or novel way is one of the key qualities of businesses that make it.
If Ed is as good as we think he is, this moment is dire indeed, but he has the resources, smarts, and ability to ditch the airplane, tune the model, and start moving serious volumes of people at a profit. And if he does, he’ll escape the curse of the lemmings.
Popularity: 87%
Yes a little jet is the wrong plane for 200 mile trips around Florida. And the per seat model takes away some of the advantages of flying in a plane that you control. But air taxi is not dead! As the large carriers make travel less convenient and more stressful, business travelers will move to internet based meetings when possible. When not, they will take an air taxi that understands that you need the right plane for the right job. As the priciple investor for Imagine Air, I am committed to continued growth. We will be buying some jets but alot of much less expensive planes like those produced by Cirrus.
I have been around air charter all my life, and I believe the business model was seriously flawed from day 1. I dont know how they managed to attract that kind of VC to get as far as they did. Anyone who understands the charter business and the charter customer could see it would not work.
Not to mention that by then end of 2008 only Southwest won’t be bankrupt. The whole transport sector is being trashed by oil prices.
If you got to fly, an expensive air taxi may be all thats left.
I enjoyed your article. You touched on many facets of aviation that are revelant to our times and the Aviation Industry as a whole.
As smart a guy as Ed Iacobucci is, and as much money as he had to run this grand experiment, I doubt that he or anyone else could have imagined that oil would go to $130.00/barrel. The success of a new or old business is dependent upon many factors. Usually businesses can withstand pressures from several directions at a time, but I believe the cost of fuel in this country has reached a point where food stamps won’t feed poor families any longer to mega compaines being put to their knees over transportation costs. The airlines as we know them may not exist in a year or two. We will have to wonder how Ed’s concept would have been received in better economic times.
I also believe that VLJ hype will turn out to be just that. They are all certified under FAR Pt 23 which makes no more strutural or performance guarantees that you get with a Baron or 310. With all engines running at full power you have to clear a 50″ obstacle at the end of the runway. When you lose 50% of power you lose more than 100% of performance. The VLJ marketing people have been very skillful at avoiding the ABC’s of safe flight while keeping jet pilot wantabes intoxicated over the though of being a jet pilot.
Having been a charter pilot all my life, (Beech 18s to GIVs) I never believed that you would get people who didn’t know each other to sit in such close proximity with with their luggage on there laps. I personally was intrigued with Dayjets route sturcture. I will wonder in my mind if people would have been more receptive to the concept if they could walk out to a King Air 200 or something like a King Air with more interior room and more ramp appeal.
My last comment is that no matter how clever you are with computers, the day comes when you have to be an expert at “Operations”. This means dealing with pilots, weather, maintenance, training, FAA, customer service, etc, etc. etc. I think this area may have been more than Dayjet bargined for, and I don’t mean that in a degrading way. Operations, is the day of reckoning for any aviation company.
Again, I enjoyed your article and I don’t want to come off sounding like a Monday morning quarterback. We are all living in interesting and trying times and I admire the doer of deeds sucessful or not.
Adam,
Good article. You well know I played with the same concept way back when (as early as 2000), I never could raise the capital that Ed did, good for him for trying. After 27 years struggling to make money in the charter business, the words of my first instructor continue to resonate in my brain “If you want to make a million in this business, start with two”. It is very difficult to make money in the charter business (or Air Taxi) particularly with the note on a $1.5 Mil airplane and $5 to $6 a gallon for JetA. As far as the Eclipse, I was at that same NBAA convention and in the same line as all us aviation nuts who wanted to be the first to get into an Eclipse, as a matter of fact I was right behind you. Once my turn came up, I realized that I forgot my shoe horn at home, and as expected had a bit of difficulty manuevering into the aircraft. Regardless, the air taxi concept is great, and will work for some, but I think more for the XO Jets of the business, who invested in real airplanes and go long distances with very little repositioning (or deadheading) as we like to call it. I applaud all the Air Taxi startups of this business and wish them luck and success, because it is their entrepeneural spirit that makes this business what it is.
Hugo
Adam,
I think we will see poor old Dayjet struggle until it perhaps is forced to change concepts, or closed down. I was hoping their idea would work (selfishly), because once they got it up and running, and made it popular, I felt a number of their passengers would begin to want more than a “toy jet” and would gravitate to other operators with bigger, more capable equipment, and that would benefit all of us.
Nevertheless, I feel sad for Dayjet and for their people, as all of us have at one time or another been with a “sinking ship”, and it’s no fun at all. What’s amazing is how much money they spent in flashy magazine ads, which are still being printed even as we speak, yet the company has been forced to lay off 1/3 of their people and ground about 1/3 to a 1/2 of their fleet. This reminds me of my airline days when the marketing dept. would decide to open a new city (or cities), then inform Ops about it, and we would struggle to fill the planes with crews, then after 3-6 months, the airline would pull out of same cities, while the glossy ads were still running announcing the “new service”.
Sadly I feel that the reality of too fast a growth, too much overhead, too much spending, etc, is catching up with our brothers at Dayjet. I for one, am sad to see their luck turn bad.
Reminds one of the advice of “never spend more than you can afford to loose”.
See ya around the aerodrome!
thanks Hugo.. indeed I remember your concept well.. the most important part you got (that Ed skipped) was the importance of low capital expenditures at the outset.. since your volume risk is unknown.. there is no point in nailing your own coffin with high fixed costs right out of the gate - this is counter intuitive to non-airplane folks since they don’t understand that 5 or 10 year old aircraft are actually pretty good.. and in Dayjet’s case.. well they would have been better.. and the marketing wizards can always figure out how to cajole “the new flyer” into the King Air 350, Pilatus, etc.
Paul,
Your comment is valid, however, one thing is key for the small guys. Until you command the type of attention that Mr. Buffet commands, you need to be very aware of just how much investment and fine tuning goes into your lead generation, whether it is charter or managed aircraft.
This link is the best way we could come up with anything to explain how you can avoid “not growing” / stalling / failing. It is risky, not for the “faint of wallet” but tried and true: http://www.rsvpair.com/static/landscape.jpg
Take from http://adamwebster.com/2007/02/26/whyyouarenotnetjets/
Steve C.,
Your response is a tad over simplistic imho. They saw an big gap .. and went for it. Yes, the airplane was wrong. That’s easy. But what Ed did in terms of investment on market research followed the key principle outlined by many experts, which is simple - they minimized risk by running simulations based on known factors. The mistake was the darn airplane.. which is so easy for anyone in the biz to see.
And, I’ll agree with your assessment of a “flawed plan” if 70 aircraft were seen as a “must” when 5 would have been plenty to tune the model.
More of my snide commentary on the difficulty of this space here: http://iagblog.podomatic.com/entry/2008-05-22T10_13_50-07_00
Roger,
Your comment is spot on. The only caveat I’d chuck in is that fuel is not something that is ever a reason to lay people off. If customers could see fuel as a pure pass through, a separate line item on their quote / invoice, they would just pay it. It is critical to remember that in this space, people are not terribly price sensitive. Pricing must (at all times) reflect cost. Southwest gets that. Few others do.
Regarding operations, yeah… you nailed it, I don’t know what is happening, but that is simply “where the rubber meets the road.”
–Adam
Harold,
Two brilliant things you’ve said:
a) never spend more than you can afford to lose is, while conservative, a very appropriate way to look at risk managed launches
b) re: the sadness.. don’t despair.. DayJet may yet dump the airplane, salvage the “ant farming” and move forward.. they’ll be a different animal, but even though the ship may sink.. at least the loss at sea will leave to improved safety, that’s the theory right?
Like you, we started our business with our own resources, and investors recognize that mentality. When you really worry about where each nickel goes (like Southwest does) but also balance that with the wisdom of marketing as a necessity, you can make real inroads.
The problem with success and “the hockey stick” that every “VC type / private equity” investor looks for in the slope of a graph, is that the steeper the growth curve, the higher the risk… it is that simple.
In my opinion.. a couple of planes.. and a few hundred customers would have been the way to go… but that is a hard sell to people who only want to give you $50MM or more.
[…] marketing department or your worst nightmare. In the case of Dayjet, we doubted the airplane, the viability of the model, etc., even though they appeared to be the strongest player amongst the air taxi […]
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