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Is XOJet killing your business?
- Thread starter OCR
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It is not my intent for any of these comments to be of a personal nature, nor to in any way suggest that the fine people who work hard at XO are in any way doing something wrong. I'm glad to see that they are employing as many pilots as they are. The last thing we need are any more pink slips in this industry.
Our industry is going through some difficult times. XO is certainly not the only nor the main reason for this. Our industry has been hard hit by many issues, including bad press from Washington, a really tough economy, and a perception that our service is unnecessarily luxurious at a time when people are scaling back and spending less.
Our industry is reacting by lowering prices - a very natural thing to expect to happen as demand softens. The problem is when the prices drop so low that they are being offered at below their true, fully burdened cost, which forces other operators to operate at a loss to compete, or to drastically reduce their flying. While this may serve as a short term strategy, I believe in the long term it hurts all of us.
I was not a big fan of JetDirect either. The concept of one company gobbling up so many management contracts seemed to be generally bad for the industry, and for the many regional operators that work hard to do a good job servicing local clients. As we watch JetDirect crater, we should all learn a lesson on what happens when a lot of money is thrown at a business plan that is not sound.
I just hope that the economy turns around before it gets to the point where the industry sustains so much damage that it can not fully recover.
Our industry is going through some difficult times. XO is certainly not the only nor the main reason for this. Our industry has been hard hit by many issues, including bad press from Washington, a really tough economy, and a perception that our service is unnecessarily luxurious at a time when people are scaling back and spending less.
Our industry is reacting by lowering prices - a very natural thing to expect to happen as demand softens. The problem is when the prices drop so low that they are being offered at below their true, fully burdened cost, which forces other operators to operate at a loss to compete, or to drastically reduce their flying. While this may serve as a short term strategy, I believe in the long term it hurts all of us.
I was not a big fan of JetDirect either. The concept of one company gobbling up so many management contracts seemed to be generally bad for the industry, and for the many regional operators that work hard to do a good job servicing local clients. As we watch JetDirect crater, we should all learn a lesson on what happens when a lot of money is thrown at a business plan that is not sound.
I just hope that the economy turns around before it gets to the point where the industry sustains so much damage that it can not fully recover.
X-rated
Well-known member
- Joined
- Dec 29, 2005
- Posts
- 498
OCR,
I don't understand your "logic." How in the world is it "smarter" to keep the airplanes in the hangar and loose money by the truckload?
I'll use your numbers from your earlier post to illustrate a point since I have no idea what the real numbers are. You say an average transcon in the X is about 5 hours, and the DOC is about $2000 per hour. So according to your numbers, the direct cost to fly the airplane is about 10,000 dollars for a typical transcon. That leaves $9000 per leg to offset other fixed costs including that 83,000 dollar aircraft payment you mentioned. If we do 10 roundtrips (which is realistic since we will average very near 100 hours per crewed aircraft this month) at this bargain "loss leader" fare, we will have not only covered direct operating cost, but also generated an additional $180,000 to cover fixed costs. Your numbers say those are about $200K. Since this is our very lowest fare, according to your numbers, we have a legitimate shot of breaking even or making a small profit in a terrible economy.
You say EJM and Jet Aviation is smarter to leave their aircraft sitting in the hangar, but they have the same fixed costs we do. So, if we're breaking even or almost breaking even, and they're loosing two hundred thousand dollars per month per airplane, I think I would prefer to remain as dumb as rock in your estimation.
Again back to the above example, who has the better profit margin if XO is breaking even, and EJM and Jet Aviation loosing 200K per month per airplane?
You're right, XOJET is not responsible for the recession, or the current state of business aviation. We're just doing better than some at surviving it. Again, our pilots are among the best paid in the industry, so stop putting that falling salary crap on us. It has nothing to do with us! The industry is in free fall and we are holding our own. I hope your company can do the same.
X.
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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.
X-rated
Well-known member
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- Posts
- 498
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.
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.
bailey3083
I'm Not Hiding
- Joined
- Aug 30, 2006
- Posts
- 489
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.
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.
cherry20's
Registered FI Abuser
- Joined
- Feb 2, 2005
- Posts
- 714
cherry20's
Registered FI Abuser
- Joined
- Feb 2, 2005
- Posts
- 714
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