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Is XOJet killing your business?

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OCR

Member
Joined
Mar 3, 2006
Posts
23
Is anyone else being asked to quote one way pricing on jets at ridiculously low prices to compete with XOJet? Their new one way pricing, which covers many coast to coast city pairs, is being advertised at $19K, inclusive of ground transportation, basic catering, and flight phone charges.

Doing the math, if the average coast to coast flight is five hours, and they have to reposition for an average of 30 minutes, that is 5.5 hours of flying. Subtract $1,000 for catering/ground/flight phone, and subtract another $1500 to cover overnight fees while they await their next leg, and they are likely netting about $16,500 for 5.5 hours of flying, which comes out to $3,000 per hour for a Citation X or Challenger 300.

Considering that they just bought these planes, and they own many of them outright, how can they possibly cover the cost of capital, property taxes, crew expenses, overhead, and marketing, and work for such a low hourly rate? Just the variable DOCs have got to be close to $2,000 per hour. This margin doesn't even cover the cost of pilots.

It seems like this is a desperation move that is the end result of a bad business plan that got even worse as the economy turned. Unfortunately, our charter clients now expect us to match these prices. Is anyone else dealing with this? If so, what are you doing to respond?
 
Well, they do claim on the fractional board that they are very busy and are seeing no slow down. I suppose for them that doing this, flying at a loss, is better than doing no flying at all. Many small businesses start this way by giving their product away and hoping people will return, but instead paying much more for the same product.
With the tremendous amount of debt with the aircraft orders and few new "fractional" owners in this economy, they have to show the investors that they are staying busy. They can then release to the press that they are "increasing marketshare" by adding to their "1,500 clients and growing" spin. I wonder what the true fractional owners that they do have think about these hourly rates.
 
Those rates "start at" $19,000. I don't believe that a west bound transcon can be had for that price...but I haven't seen any of our quotes. Please provide specific city pairs that have been quoted at that price.
 
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Like T-Bone said, Those rates are for very restrictive city pairs, and the 19k is the lowest of all city pairs and those pairs probably often do not require reposition legs. Like VNY-TEB; In this market, It's likely we can cover that trip with no reposition.

As pilots, we certainly don't want to see anyones business "killed." However, don't kid yourself. This type of promotion is designed to gain market share. We feel confident that customers will appreciate our brand of service, and will continue to request us after this promotion ends.

Also, we are certainly NOT desperate. We are doing very well at maintaing cash flow in this difficult economy. I'm certainly not saying we are loosing money, but even if we are, loosing a little money in this economy is not what kills companies. Shutting off cash flow is.
 
XO's website shows all city pairs at a flat $19K, in either direction. It includes the lesser traveled destinations, like San Diego, Boston, and Phoenix. Whether they are really honoring these prices on every request is another question. At face value though, it appears their web site would indicate they are.

If these airplanes cost approximately $20M, just the interest at 5% is $1M/year, or $83K per month. Add the cost of pilots, dispatchers, mechanics, and property taxes, and the fixed overhead per plane is easily approaching $200K per month.

If the gross margin per hour is even $1300 (and that is being generous), they would have to fly each airplane more than 150 hours per month just to break even. Keep in mind that I haven't even mentioned the cost of office space, utilities, management salaries, marketing, insurance, and other overhead.

There is a reason that companies like Sentient, Marquis, Flexjet, and Citation Shares all charge between $8,000-$10,000 per hour in their card programs for a super-mid size jet like the Citation X or Challenger 300. Even at those prices, companies were not making substantial profits. Now imagine what happens to profits when hourly rates drop down to the $3500 range per hour. It's downright disastrous.

Why should we all worry about this? Here's one good reason. Pilot salaries have always in part been based on how much gross profit these fractionals and charter companies can earn from our services. As the margins diminish, the amount they are willing to pay us diminishes with it. Add to that the fact that there are so many furloughed pilots looking for work, and you can see where this is going to lead to.

So I maintain that while XO may have found a way to fly their planes in the short run, the damage they are doing to the industry, and to the pilots, will continue long past the days of these "introductory prices".
 
probly what happens is by going really cheap and operating at aloss means that you have X amount of money to operate for fixed period of time. Similar to what places like Independence Air did. Operate the same thing as the competition hoping they will fold, then you get their market and bump your prices back up.

The gamble is what happens when your competition DONT fold. Then you have a little plane selling party and try again.

Did the furloughed XO guys get called back yet T-Bone?
 
Airfare wars are nothing new in the flying world, so why should it be new in the Fractional business? It is all about grabbing market share from the other guy and if it works for XO jet then so be it.

The danger in all of this is the "race to the bottom" of the price scale. I doubt that XO Jet would be operating these routes at a loss, but nothing is ever certain in flying. If it keeps them busy an grabs market share from the "weaker" competetors, then it works for them.

FYI...I have had an application with them for over a year, but havent heard anything yet, but I keep updating.
 
I don't know that XO, or anyone needs to grab market share at this time, but rather, survive. If there are fewer operators at the other side of the recession, it means greater market share for those who remain.

Too many operators are selling trips for less than cost, for the cash flow. That may aid to survival, but it also educates clientelle. Look at the airlines. Who expects to pay more than $200 to go anywhere domestic?

This is a scary time to be in the charter business. The phone doesn't ring, then any quotes get beat up to where nothing is profittable. It all has to turn soon, or I'll be living under a bridge, and I live in a cold climate.
 
I understand, I wasnt disparaging the charter business or anyone else. You are right, its about survival.

Ive NEVER seen it this bad...and I feel for you with how slow business has been. I wish for the success of all parts of aviation: fractional, charter, cargo, etc.

You might have alot of company underneath that bridge if things dont get better..including me!
 

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