Thinking about Empty Legs.
The effectiveness of selling empty legs versus the reality.
Recently I have seen articles and posts about charter "empty legs", often highlighting the incredible savings a traveler can realize compared to buying private charter. If you have seen them, you may be excited about buying a flight on a private jet for "hundreds of dollars, not thousands!"
Empty legs are when business aircraft need to reposition to perform the next flight. This is common in both charter and fractional ownership companies.
This article provides perspective on the effectiveness of selling empty legs, and the potential pitfalls for customers who buy them. Much of this is based on our involvement with JetSuite in the mid-2000s time frame.
Background:
Common knowledge in the charter industry is 40% of total flight time is for repositioning flights; an operator flying an aircraft 100 hours a month has 60 hours occupied by clients and 40% are "empty legs". We did analysis of several years of charter data, about 25,000 flights, from an operator with similar flight profiles to WingTips, and the empty leg flight time was almost exactly 40% of total flight time.
The economics of empty legs is they are paid for by the client that books the originating charter flight. When a charter operator sells an empty leg, it is incremental revenue for them. But the empty leg customer is secondary to the primary charter flight, so if the original flight changes, it imposes the changes on the empty leg buyer.
Even the jet card programs that advertise paying for only actual flight time cover the 40% empty leg cost by increasing their hourly rate. So, when you see low hourly rates for an aircraft, you will see the empty legs added to your quote. And if you are paying for only occupied flight time, the hourly rate will be 50-60% higher. Either way, charter customers pay for the empty legs.
WingTips Experience Selling Empty Legs:
JetSuite operated a fleet of Embraer Phenom 100 light jets in the Western US. We contracted with them to license our website system for a shared charter service called SuiteShare. When JetSuite launched the SuiteDeal service in 2010, it was a manual process for the JetSuite customer service team. SuiteDeals were empty legs priced at $500 each, which was eye-popping cheap! We designed and built a completely digital system to automate the sale of SuiteDeals, taking the burden off the customer service team - WingTips was first in the industry to do this. The application was highly successful, selling almost 2,000 flights over four years, generating about $1M in incremental revenue for JetSuite.
Why is there no similar service today?
The answer is JetSuite had a unique situation that allowed this. A combination of operating practices and flight schedule optimization software allowed the sale of SuiteDeals. Operationally, JetSuite used a "floating fleet" model, which meant aircraft did not return to a base location at the end of the day, instead they remained at the last airport where they landed. The optimization software ran each day in the afternoon to produce the next day's schedule. The schedule fulfilled all the flights for the next day, theoretically with the least number of aircraft and least number of reposition legs, hence operating more optimized. The schedule assigned aircraft and crews, and produced a list of reposition segments that we would import and post as SuiteDeals. Another operating item that allowed SuiteDeals to work is that JetSuite set contractual constraints on its charter clients, specifically once a flight was confirmed, trip details could not change without the trip being re-quoted. This was critical to SuiteDeal sales success, since aircraft were flying multiple trips and multiple clients in a day, one client could not change their departure time in an ad-hoc way without rippling disruptions through the entire day and impacting other clients, and disrupting the SuiteDeal flights. JetSuite set time limits for departure, and when that time arrived, the aircraft took off with, or without, the client. Other charter operators do not impose this limitation, instead allowing substantial leeway for the charter client to alter the schedule, even on the day of travel.
We responded to SuiteDeal customer questions and complaints, and SuiteDeals were viewed favorably. The need to be a spontaneous traveler, flying within hours of purchase, limited the number of interested people, but popular routes consistently sold out. The low cost of $500 made it available to more people, but SuiteDeals were non-refundable. The few bad situations were when JetSuite altered the schedule after the sale of a SuiteDeal, causing an already sold SuiteDeal to disappear. One instance that stood out was a sale where the customer bought a SuiteDeal and then booked an expensive hotel room, prepaid and non-refundable. When the SuiteDeal cancelled about two hours later, the customer's funds for the SuiteDeal were returned to the customer, but the almost $1,000 hotel room charge was lost.
All things considered, JetSuite had an effective method for selling empty legs consistently.
“The chance for a trip unraveling is very high, and quite honestly destroys the value proposition of private charter.”
— Mike Azzarello, CEO and Founder of WingTips
Empty Legs today:
When I see companies saying they have "unlocked" empty legs by using AI, I can typically scan the website to see that it will not succeed. Start with pricing, operators that offer empty legs charge a lot more than $500 per flight. SuiteDeals consistent and low pricing was a reason for people to sign up and search for them. Second, the non-cancel, non-refundable terms are standard in the industry, so if your plans change, the entire empty leg cost is lost. But you are not risking $500 on a SuiteDeal, you are likely risking thousands of dollars today. Most operators will accept trip changes from the originating client, so your empty leg purchase is more likely to experience change or cancellation than SuiteDeals.
If you could search empty legs easily, each operator would send their own specific contract terms, adding complexity to the transaction. I heard one app claim it would find you a round-trip on empty legs from multiple operators. This will be a nightmare, fraught with financial landmines. Pretend you book two empty legs from two different operators for a round trip. Scenario one, outbound operator calls and cancels the empty leg, refunding you the fees for their segment, but the return operator says, "oh well, non-refundable", you are out the cost and have no trip. Or you make the outbound trip just fine, but the return operator cancels the return, you are stuck without travel arrangements. The chance for a trip unraveling is very high, and quite honestly destroys the value proposition of private charter. Part of the reason SuiteDeals worked is because at $500, a lot of people could purchase a flight for spontaneous fun. If you have a specific purpose for travel, the unpredictable nature of empty legs makes them unattractive.
What is the best way to sell empty legs:
From a “first principal” look at this, the best way to sell empty legs is to not have them in the first place. While zero empty legs is not reality, you can mitigate them substantially. For example, you can offer different levels of charter service that allow implementation of different practices, some of which are more amenable to empty leg sales. The highest level/highest cost service allows the client to have day-of-travel flexibility to alter the trip. This would have a single aircraft blocked out for that client for extended periods of time, making it less useful for optimization and not a good candidate for sale of empty legs. One level lower in pricing would put limitations on flight changes, like JetSuite did with setting departure time limits. This provides a discount in exchange for less flexibility by the client. This flight is "fixed", and can be part of the optimization pool, and its empty legs are good candidates for sale. For this to work, charter operators need to change their perspective on empty leg customers. In case it is not obvious, empty leg buyers are considered the lowest rung of the ladder by operators, so regardless of what you pay for your empty leg, you are behind all the other clients when it comes to priority.
Final thoughts, the charter industry does not need to "solve" the sale of empty legs because they are paid for. This is one reason that many operators don't offer them for sale to the public. JetSuite was innovative in offering them to the public through the WingTips designed app, but a unique set of circumstances allowed that to occur.
For our part, WingTips roadmap incorporates innovations in charter operations models, with a goal of providing our per-seat/on-demand service, but also improving efficiency of operations through lower empty-leg flight time when measured against total flight time.
The private charter space is restricted to high priced charters with flexibility only offered for those who spend the most. WingTips is changing that dynamic with offering tiered options to meet your travel needs and budget.
For our part, WingTips roadmap incorporates innovations in charter operations models, with a goal of providing our per-seat/on-demand service, but also improving efficiency of operations through lower empty-leg flight time when measured against total flight time.
— Mike Azzarello, CEO and Founder of WingTips
WingTips is onto something big.
And you can be a part of it. Contact Mike to learn more about WingTips’ investment opportunities, or click here.