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Is XOJet killing your business?

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rice said:
Uh, neither EJM or Jet Aviation own the aircraft they utilize for charter revenue. The planes are owned by other entities. Therefore your argument about losing $200k per plane are moot. Very few charter companies actually own/lease (in the traditional sense) the aircraft they fly in revenue service. It has been proven time and again that charter demand does not produce enough revenue on an annual basis to support the debt load on a typical business aircraft. Just thought I'd point that out.
Click to expand...

Excellent point. Noted.

However, whether EJM/Jet Aviation, or their owners are loosing that money, someone is. Allowing a 20+ million dollar asset to sit idle costs someone big time. I have no fight with either of those companies. I was just using the example and data OCR provided to prove a point. No harm intended.

X
 
Rice – your point is right on. EJM and Jet Aviation manage other people’s airplanes, so they do not incur the capital costs associated with owning them. This is the biggest difference between their business model and XOJet. As you stated, charter revenue has never provided enough profit to cover the cost of aircraft ownership, which is why the XO business model is not solid. The numbers looked better before the economy turned, but still not good enough to justify the business model.

X-Rated, I think I might consider the analysis of my numbers slightly differently. The $83K per month capital cost is fixed regardless of whether they fly the planes or ground them, so unless they sell the airplanes or default on the loans, the $83K is a sunk cost. The decision to keep flying or ground the airplanes (temporarily, at least) is based on whether the variable costs required to keep the planes flying are less than the profits obtained by flying. So, let’s look at what costs would not be incurred if they temporarily stopped flying the planes:

1) Pilots – you don’t need pilots if your planes don’t fly. From what I can gather from various postings, your planes average about 4 pilots per plane. I’m not sure exactly how many pilots are paid PIC salaries versus SIC, so I’ll make an assumption that the average salary is about $90K. Add 30% to cover payroll taxes, health benefits, vacation and sick time, plus $20K for recurrent Citation X training, and this equates to $137,000 per pilot, or $548,000 for four pilots.
2) Crew overnights – if the planes are not flying, pilots are not incurring expenses on hotels, meals, etc.
3) Mechanics – hard to quantify, but clearly planes that do not fly need far fewer mechanics.
4) Dispatchers, charter sales reps – Another expense that would not be required if the planes were temporarily grounded.

As you can see, the biggest expense associated with keeping the planes flying is the pilots.

Now, regarding revenues. You state that the average flight is five hours, so at $2,000 per hour in DOC, that leaves $9,000 to cover expenses. Not quite. First of all, I’m estimating conservatively that each flight averages at least one hour in reposition. That would be conservative, since that means only 30 minutes of repositioning on each side of a live leg. Let's even make the assumption that this hour of reposition cost is enough to cover the occasional mechanical where you have to move another plane to recover. So, deduct $2,000 for reposition costs. Deduct another $1,000 to cover ground transportation at both ends, flight phone charges, and standard catering, all included at the $19K price. Then deduct an average of $1,000 per night in crew expenses, and the net amount is $5,000 per trans-con leg. Now, you say you are doing close to 100 hours per month, so that is about 18 legs per month after deducting reposition time. 18 legs at $5,000 per leg is $90,000/month in gross profit.

So if we start with $90,000/month in gross profit, and subtract $46,000 per month for pilot salaries, and $21,000 for crew overnights (30 nights at $700/night), and you are left with $23,000 to cover all remaining expenses associated with mechanics, dispatchers, and charter sales. If the capital costs are $83K/month, we are $60,000 negative before we even begin to cover any of these additional costs. And, we still have not factored in company overhead, management expense, sales and marketing, property taxes, insurance, and other overhead expenses. Also not factored in is the depreciation per hour that these planes are incurring as a result of flying these hours, which will ultimately catch up with the company when they attempt to resell them.

Any way we look at this, it is perfectly clear to anyone who is familiar with aviation expenses that this business model is a disaster. Sorry to be so negative, but better to be realistic than to bury our heads in the sand and hope that things all work out. Doing so will just put us in the same situation that the pilots who work for JetDirect are facing – working for free since their paychecks have been bouncing for the past two pay periods.

XOJet will only survive for as long as the investors want to keep pouring in millions of dollars in cash to keep things running. Again, as learned from JetDirect, all investors reach a point where they simply say enough is enough, and they decide to cut their losses before it depletes their entire net worth.

For those of you who are working there and are satisfied with your jobs, by all means keep hanging on and cross your fingers and hope that something works out. Just always have a backup plan, so you are not surprised if it comes to an abrupt end.
 
OCR said:
XOJet will only survive for as long as the investors want to keep pouring in millions of dollars in cash to keep things running. Again, as learned from JetDirect, all investors reach a point where they simply say enough is enough, and they decide to cut their losses before it depletes their entire net worth.

For those of you who are working there and are satisfied with your jobs, by all means keep hanging on and cross your fingers and hope that something works out. Just always have a backup plan, so you are not surprised if it comes to an abrupt end.
Click to expand...

Never Mind. We'll see how things turn out. In the mean time, I wish your company the best of luck.

X
 
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I do know twice we have had XOJet under bid our LR 60 using a X instead. But the one who is killing us is Seagrave who has underbid our LR 60 and 55 with their Hawker 1000 many many times.
From what I hear Seagrave has just stopped paying for their planes which are starting to get repo now.
So yes it is bad but I am hopeful that we are at the bottom of this recession and thinks will start moving upward.
 
Great comments from everyone! Bottom line: any business can operate at a loss in the short term. But someday--the short term will end!
 
Do you honestly expect anyone from XO to agree with you? They're not calling the shots, just being good worker bees like the rest of us.
 
Just FYI, XOJET isn't operating at a loss, or so I hear.
 
Its both, couldn't give you a breakdown of numbers though
 
You wouldn't know him if I told you his name anyway. Don't shoot the messenger... Why do care anyway? Don't you work for Netjets?
 
Good point OCR

You hit the nail on the head with your analysis of XO.. Although I do wish them the best, there business model will be tough to uphold with the Charter market in the toilet. I will say that they have been "underbidding" EJM flights just to "get the trips". EJM doesnt have to underbid because,
1. They dont own the aircraft.
2. They recieve a management fee regardless of flying Charters or not.
3. Have the support of Berkshire Hathaway.
 
cherry20's said:
You wouldn't know him if I told you his name anyway. Don't shoot the messenger... Why do care anyway? Don't you work for Netjets?
Click to expand...

Lighten up Francis, it was sarcasm. To many folks on the street as it is. Hope you are operating at a profit.

:beer:
 
:beer: Roger that, don't need anyone else on the street...
 
XOJet has marketed their airplanes as being available for fractional ownership (1/2 share, 1/4 share), and from what I can see they did successfully sell some shares. Based on the perceived demand and continued growth in the market place two years ago, they made a commitment to purchase a large block of Challenger 300's. By purchasing a block, the OEM was able to give them a discount off a single purchase price, although even Netjets receives less than a 10% discount off MSRP for their purchases, so the actual value of the discounts was small.

At the time this commitment was made, aircraft positions that were near their delivery date were selling for a premium, sometimes as much as $4M over their contract price, since the lead times on airplanes was three years. So if they were able to buy the plane for $22M (MSRP was $24M), and then mark it up above MSRP to reflect the fact that they were immediately available, it could have been a great business model.

The problem now is, aircraft have fallen in value so much that there is basically no demand for new aircraft, unless they are being sold at fire sale prices. A two year old Challenger 300 just sold for $12M last month. Given this, nobody will pay anything close to $11M for a half share on a new Challenger 300. To make matters worse, cancelling an order with an OEM has a huge cancellation fee, typically around $2.5M for a plane of this value. So the decision one has to make is whether to take a loss on each contract of approximately $2.5M, or take the airplanes and try to do something with them until the market turns around, and then presumably try to sell fractional interests in them again. How long this may take is anybody's guess though, and until it happens, the losses associated with carrying this much capital cost on these aircraft is tremendous.

As far as someone saying XO is profitable, I suppose it all depends on how they define profit. If they want to refer to an "operating profit", this would not factor in capital costs. Even still, I can't imagine how they could be profitable under the current arrangement. In any case, that is their business, and not ours. The purpose of my original post was simply to try and understand if other charter companies have been impacted by falling prices, and if so, if they thought that XO's latest marketing initiative of the $19K one ways had anything to do with it.

I wish XO well, and certainly hope they can find a model that works. When any company in our industry fails, it has potentially negative effects on all of us, and I certainly would not want to see anyone fail.
 
OCR,

My God Dude, let it go. You've written paragraph after paragraph getting into minutia about why we will never be profitable. The problem is you really have no idea what you're talking about. You have simply jumped on a tiny part of our business because it makes it harder for your company to compete. Every argument you put forth is filled with speculation, estimation, and flat out inaccuracy. Would you actually have us believe you know more about our finances than the expert analysts at TPG one of the most respected and successful global capital management companies? That would be a good trick considering you've never even seen the books, or been made aware of the business plan.

I've sincerely wished you and your company well, and all you do is talk smack about mine. Many pilots are out of work right now, and the hard truth is probably many more will follow. Some companies will go out of business and some will get stronger due to the current economy. Ultimately it comes down to this: I've bet my career and livelihood on XOJET, you've bet yours on someone else. I feel very good about my bet, and sleep like a baby at night. I hope you do as well. However, It's in very poor taste to go on a public website these days and tell people their company will fail because of a flawed business model especially since you don't even know what that is. What the hell is wrong with you? Good peoples ability to put food on the table is at stake.

I've tried to be civil with you, but some people just don't take hints well. So, do us all a favor. Grow up, have some respect, and keep your mouth shut about things you don't understand. You're an embarrassment!
 
Is XOJet killing your business?

answer: No

Hope this helps. :beer:
 

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