New digital platform like Airbnb attack the hotel industry, Uber and Lyft compete with classic taxi businesses. Will air travel also be revolutionized by digital platforms and new business models?
There are strong facts supporting this idea: about 24.400 commercial airlines compare to 20.500 business jets, globally. Typical flight distances for business jets are regional flights with 700 nm length, but larger business jets are able to cover flights of up to 6.000 nm. This is also the main spectrum of the majority of commercial airline travel.
Although there are new use cases for business jets via charter and fractional ownership (offers like NetJets): business jets are an expensive asset with large idle capacity and high fixed cost. Business jets have an average of only 46 flight minutes and complete 0,9 start-landing cycles per day. In comparison: regional commercial aircrafts reach an average of around 8 cycles per day. On the other hand, mid-sized business jets have high annual fixed cost of circa USD 500K plus significant loss of value or depreciation on a list price of circa 24 Mio. USD.
Not surprisingly, Owners and operators of business jets have an optimistic perspective on an Uber model that would allow to offer unused capacity and open new customer segments. Existing limited solutions like charter and listings pages for “unused return flights” or “spare seats” have little market impact. In a recent survey, 50% of owners/operators expect that an Uber model will be developed in the near future and 46% believe that this will bring new customers into business aviation. We believe that this would also open new customer segments and generate more volume - a case we saw in taxi markets: Although Uber and Lyft took away some volume from “classic” taxi operators, the total number of rides doubled (data form New York City, 2015 to 2017).
LSP Digital sees substantial opportunities for a new model that closes the gap between commercial airlines and private business jets. Airlines and the business jet industry should embrace this trend and prepare for new forms of air travel.