NetJets, Wheels Up Make Program Changes

Earlier this week, NetJets and Wheels Up, two of the largest private jet flight providers made what could be significant program changes. Back in August of 2021, I wrote a piece headlined, “Comparing NetJets And Wheels Up’s Divergent Growth Plans As Demand For Private Jets Soars.” For this report, I would only need to have switched out the word soars for falls.

The news is straight forward. NetJets cut the number blackout days on its 25-hour leases, an entry-level program, to 10 from 45. On blackout dates, clients in that program cannot book flights. Trimming the blackouts makes the leases much more attractive since a primary reason people fly privately is to be able to go when they want. Earlier this month, it also restarted selling jet cards to new customers, although they still carry the 45 blackout days. Broadening the sales net comes after adding around 150 new private jets since Summer 2021 and accumulating backlog of non-refundable deposits from fractional ownership customers for future deliveries that goes as far out as October 2024 for its popular Embraer Phenom 300 light jets. Fractional customers commit to at least 50 hours of flights per year with contracts that last five years.

On the other hand, Wheels Up launched a new program on its King Air fleet cutting capped hourly rates 15-to-17%, depending on which level you join at. However, there’s a catch. It only guarantees availability and pricing on 250 or 275 days per year, compared to 365 days for some of its pricier membership options, so you have to be flexible. On the other days there are no availability guarantees and pricing will be based on market rates. What’s more, the low rates are also only available east of the Mississippi and exclude Louisiana, Michigan, Minnesota and Wisconsin, among other restrictions. It follows its Q4 earnings call where CFO Todd Smith said the company plans to focus on areas where it has both fleet and customer density.

In many ways it’s a reverse of 2021. Back then, NetJets turned off sales of new jet cards – which at the time made up about 20% of its flying (fractional ownership and leases make up the rest); it also stopped renewals and bridge leases that covered the period between when share customers put down their deposits and their airplanes are delivered. For NetJets, which sells programs based on flying customers on a fleet of fractional aircraft it operates, it was constrained by the size of its fleet. While it arranges flights for customers on other operators when it cannot do so on its own fleet, that’s now what folks sign up for. Wheels Up, on the other hand is a hybrid, with a fleet it owns and leases, aircraft it manages for aircraft owners, and then a network of third-party operators it uses to fulfill flights when it either doesn’t have capacity on its own fleet, or it makes more economic sense to do so. So, while NetJets was shutting sales down, a newly public Wheels Up continued to sell, riding the wave of record demand to power its growth story, part of its vision to create a marketplace for private aviation flights.

If you are considering private jet options, both latest moves are good news. They mean more options, and in some cases better pricing. The King Air accesses airports jets can’t and is a cost-effective solution for shorter hops. While NetJets has never been a price leader, it doesn’t have a surcharge for international flights and the way its program is structured, its Phenom 300s are inexpensive for hops like Denver to Aspen or Naples to Key West. Beyond that, the unit of Berkshire Hathaway, the largest operator in the world, is a preferred destination for many flyers.

The bottom line is as NetJets looks to broaden its sales pipeline, Wheels Up is getting more focused. For the latter, it is part of its plan to be Adjusted EBITDA profitable in 2024. It had an Adjusted EBITDA loss of $186 million last year and is guiding a $110-$130 million loss this year, while expecting revenues to be flat. Last year, it had sales of $1.58 billion, a 32% increase from 2021. In other words, Wheels Up expects to cut its losses on revenues equal to last year.

How does cutting prices increase profits? Wheels Up, like NetJets and many others, provides customers fixed or capped contracted hourly rates and guarantees an airplane so long as they book a specified number of hours or days before departure. Customers are only charged for what is termed “occupied hours,” which means from takeoff to landing. They both add 12 minutes per segment to cover taxi time, but customers don’t pay for the repositioning, before or after their flights.

For Wheels Up, by focusing their King Air operations east of the Mississippi, they should be able to decrease the number and length of empty legs. The daily minimums on its King Airs are 66 to 72 minutes, including taxi time, so when a member from North Dakota calls with as little as 48 hours’ notice and wants to take a 50-minute flight, they still only pay the daily minimums, even though Wheels Up may have had to fly the airplane empty several hours to pick up the customer and then again, after dropping them off, referred to as empty legs.

Back when I wrote about NetJets and Wheels Up taking different approaches in August 2021, a number of companies followed NetJets in turning off the sales spigot, while others charged forward like Wheels Up, some new entrants and others that were launching programs, so they had enough capacity to handle demand.

Looking forward, we could see a bit of both. With demand slackening, look for decreases in lead time to book flights, peak days, and daily minimums, as well as bonus hours and other sales promotions. At the same time, many providers learned that you could lose a lot of money with customers who make largely unprofitable flights. In other words, we could see providers cut the areas where they offer rate guarantees. In fact, Wheels Up trimmed its international service area to just a few airports in Canada and the Bahamas last December.

While many folks just want to join a program, send their money, and start flying, now more than ever, the devil is in the details.