Mind the gaps!

Like those between private jets and fractional ownership or between fractional ownership and Imperial Class.

One of the strengths of the free enterprise system is that if somebody imagines a gap, or even the possibility of creating one, and if that someone can get funding, then said someone will give it a try. That’s what we’re seeing now in the commercial aviation business.

The old model is broken. The four legacy majors — American, Delta, United, and Southwest — are moving upmarket as fast as they can, with the logical conclusion that in the near future, they’ll ditch coach entirely. So instead of coach, business, and first, the new model will be business/first, and a new ultra premium class that I’ve called “Imperial.” At least two airlines are well along in this process. Watch the commercials for Dubai’s Emirates, https://www.youtube.com/watch?v=OFbryriZ3is and http://www.emirates.com/english/about/advertising/advertising.aspx. Abu Dhabi’s Etihad now goes them a little better, or should I say closer to Imperial Class, with “The Residence”: http://www.thedailybeast.com/cheats/2014/08/12/etihad-launches-planes-with-full-suites.html

This suggests new market opportunities beyond Imperial Class. First, new airlines will try to pick up the coach market. I’ve called these the Wal-Marts of the sky, and wrote about them a few weeks ago. The majors could start their own low-cost subsidiaries to compete in this market, but they’ve tried this before with notable lack of success.

Along with all-coach airlines, people continue to experiment with all-business-class, such as this new start-up in India: http://www.businessweek.com/articles/2014-08-13/vistara-is-indias-latest-airline-startup-doomed-to-fail

Moving more upscale, a market could develop between Imperial Class and owning a private jet.

The reason for this is that even the cheapest fractional ownership programs are expensive:

PlaneSense Inc., a Portsmouth, N.H., fractional program that also operates the Pilatus PC-12, charges its clients $324,000 for a 1/16th share of a plane, good for 50 or 70 hours of use per year, along with a monthly management fee of $4,869 and an hourly flight charge of $745.

In other words, after ponying up a third of a million dollars and paying nearly $5,000 a month, you get 50-70 hours a year, for which which you get to pay another $745 per actual flight hour, and for this, you get a single-engine turboprop with 8 seats and a lavatory that one airline describes as “best used only in emergencies.” If you want something to take you to China or the Middle East, multiply these numbers by about 10.

You might see something like private/fractional ownership for flights within the lower 48 and Imperial Class for the long hauls, as I suggested in my original press release.

Also in this space, there’s the idea of hybrid airlines, something between going online and buying a ticket on Delta and owning a piece of your own airplane.  For example, you could become a member of an airline, like Surf Air. For about $1750/month, you get unlimited travel on their all-business-class PC-12s between the cities they serve — currently Vegas (through a partner) and 5 in California.  This model could migrate to other market segments.

Interesting factoid: The amount of money that Surf borrowed to finance 15 new PC-12s is roughly equal to the price of one G650, which you can’t get until 2017, incidentally.

Way out at the top end, another gap may be opening above the G650. If you really want to show the world how well you’re doing, then you’ll need something like the Aerion AS2, a Mach 1.6 bizjet that will start taking orders later this year.  New materials, advancing engine technology, and economics may coming together to finally make this 50-year-old dream possible. Forbes estimates that the world now has 1,650 billionaires, and one has to expect that the more pedestrian G650 just isn’t going to meet all their expectations. In fact, there are rumors that Gulfstream may be close to announcing an airplane in this category.

Orientation is the Schwerpunkt

In maneuver warfare, there’s a concept called “multiple thrusts.” It both generates ambiguity and magnifies possibilities for deception. There is a temptation to try to apply this to business by analogy: Try lots of things and pump resources into the ones that succeed.  However business is not war, and the fundamental rationale for multiple thrusts in war — ambiguity and deception — have only limited application to business.

I’m not a huge fan of such “reconnaissance pull” techniques from the standpoint of an individual business. For one thing, they’re highly risky because most of these experiments are going to fail. And if you’re going to stand a reasonable chance, be prepared to pour in a lot of resources into each of them. It’s also worth considering that successful ventures often are more infrastructures than solo gadgets, and infrastructures take a long time to build and then to get right.

Because the skills needed to invent something differ greatly from the skills needed to run an enterprise, there’s usually plenty of potential for an opportunistic scavenger. Better to work on having the clearest orientation and then vigorously exploit the opportunities you spot or create.

There is a subtlety here: Boyd suggested that we keep orientation matched to reality mostly by trying things and learning from the results. Through this conceptual spiral, we shape our orientations and help shape those of our customers.  At some point, our Fingerspitzengefühl (also built through the conceptual spiral) will tell us when to pour resources into a particular opportunity. The focus is not on throwing out a bunch of things and seeing if something works. Rather, it’s on continually learning and being able to demonstrate that you’re learning better than any of your competitors (and avoiding hubris …)

If you look at Apple’s entry into the mobile market, you’ll find exactly this pattern: 10/2001 — 1st iPod; 7/2002 — second generation; 4/2003 — 3rd generation. Exploitation began nearly 2.5 years after introduction with the Mini in January 2004 followed by the Nano, Shuffle, and then the iPhone. The basic infrastructure, iTunes, had come out more than 8 months before the first iPod.

From the standpoint of the individual companies mentioned in this post, they believe they have Fingerspitzengefühl and that have found opportunities and they are going with them. I say good on them, although I know the odds. From the standpoint of society, it is as if multiple thrusts/ reconnaissance pull is underway, and the results, again from the viewpoint of society as a whole, is great. I don’t have a clue which, if any, of these new approaches to air travel will succeed. I would never had dreamed up a strategy like Surf Air’s in a million years, and I’m pretty confident that centralized planning of either the state or corporate variety would not have come up with it, either.

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