UA Enters Jet Stream

UA Enters Jet Stream

By David Jonas

United Airlines is planning a big entrance into the booming business aircraft market in order to attract and placate customers generally disenchanted with commercial aviation. United's entry into the high-profile corporate jet realm could round out product offerings for corporate clients, but only if the pricing and service levels meet buyer expectations.

United's new subsidiary could gloss over the airline's well-known operational difficulties of the past year, which alienated many of its best corporate customers.

The carrier last week confirmed that for many months it has been exploring several corporate jet initiatives that potentially would link into its broad commercial flight network as early as the first quarter of next year. Concepts under exploration include fractional jet ownership, fleet management, business aircraft charter and corporate shuttle products.

Should the project come to fruition, it would be the first time a major U.S. carrier offers a comprehensive corporate aircraft program aimed at top executives. British Airways late last month announced a marketing agreement with charter brokerage Air Partner to provide similar service to premium customers, and Air Canada last week agreed to provide equity in Skyservice, a Canadian aviation company that runs a corporate aircraft division.

In a statement, United said, "Many corporations and individuals view these products as a necessary supplement to traditional commercial airline service in today's high-paced business environment." Indeed, some United clients contacted by BTN said a corporate jet operation would provide value in certain circumstances, particularly for flights to less accessible destinations.

"This will give us the ability to go to a corporate account and meet the needs not only of the 97 percent of travelers who use United, but also the handful of top executives who may not have traveled on commercial flights in years," said a United official. "Whether we lost them or never had them, we will be able to get more of that business."

United confirmed that Stuart Oran, currently vice president of international, officially will head up the program when it is formally announced as a separate entity this summer. The carrier also confirmed that a fleet of corporate aircraft, 200-strong, could begin flying for United as early as next year and be fully operational by 2006.

"From a sales and marketing standpoint, whether or not they use the current United sales group to facilitate business, they certainly have the contacts at virtually every major corporation in the world. Thus, they have instant access to key decision makers," said Mark Walton, principal at Consulting Strategies in Rolling Meadow, Ill. "Furthermore, there may even be a possibility of coordinating some benefit for using the new service as production on current corporate agreements."

That is just what Gerry Williams, director of travel and expense reporting at Minneapolis-based Medtronic, has in mind: "If we go that way, and we may because we don't want to own our own aircraft, we will strive hard to include it into a traditional discount program and tie in penalties and rewards."

While United said it would bring operational expertise to such products, it also acknowledged that such individualized customer service in the business aviation realm "encompasses a different set of challenges than commercial airlines generally face."



Leveraging Buying Power

Nevertheless, United could leverage its own buying activities, including fuel and maintenance, to get the program off the ground. "There is no question they can be competitive with any current private jet leasing, charter or fractional ownership company,"

Walton said. "In fact, they most likely would have significant cost advantages, as their buying power is more significant than their competitors."

Medtronic's Williams agreed, but said, "On the other hand, as far as service, I don't know if people will be attracted simply because it is United."

Pfizer's senior manager of global travel Phil Dunphy also is skeptical. "I don't know if commercial carriers understand the level of service that needs to be provided," he said. "If someone just flew on a scheduled commercial United flight and had a poor experience, that will carry over to the airline's other business."

Dunphy added that United would be competing against itself for high-yielding customers while leaving the rest of the traveling public languishing in an inferior product. "Is this the beginning of higher-end people taking smaller planes and flying in luxury and comfort, while 747s become big cattle cars to carry the masses?"

In fact, fractional-jet ownership and interest in corporate aircraft has increased significantly in recent years. The National Business Aviation Association said the number of companies operating business aircraft in the United States grew 40 percent in the 1990s, up to 9,317 last year. The trade group, citing

AvData of Wichita, said fractional owners numbered 3,694 last year, up 40 percent in just one year. Meanwhile, Air Charter Guide found that charter activity grew 12 percent in 2000 alone.

FlightTime of Waltham, Mass., is filling the need for corporate aircraft in a variety of ways (BTN, Oct. 30, 2000). "This industry still is in its infancy with tremendous potential. Most people look at charter and think only of the absolute costs and not the service," said CEO Michael Foliot. "Having a player like United enter this part of the industry will broaden awareness and validate that chartering is a viable alternative."

Foliot added that United finally must have realized that a certain segment of customers is looking for added value and convenience beyond first class. "Because of the increased focus they will bring, we welcome them as a competitor," he said.

Corporate shuttles, one configuration United is mulling, has appeal for certain large, multinational corporations with significant volume on particular city pairs. FlightTime arranged such a product for Procter & Gamble and is pursuing others. "We have had ongoing discussions with a range of companies on both transcon and transoceanic arrangements," Foliot confirmed.

Meanwhile, the leader in fractional ownership, Executive Jet, last week placed an order for another 100 midsize Galaxy aircraft for its NetJets fractional ownership program. Executive Jet, a Berkshire Hathaway company, now operates 345 aircraft for fractional owners with almost 600 more on order. The company said the popularity of NetJets "has surged over the past decade," and it expects to fly more than 200,000 flights in 2001 to more than 90 countries.

On the other side of the Atlantic, British Airways last month forged a marketing partnership with Air Partner, a charter broker, to provide private jets to the carrier's passengers. Customers can book tailored services through a dedicated support line, including escorted connections at the airport between BA flights and onward private flights. A BA spokesperson said the agreement does not include equity or relate in any way to corporate contracting. "We simply are responding to input from our first and business class customers who said they would like business jet service to destinations not in the BA network," the spokesperson said. "We are marketing it now in the U.K. and will bring it to the U.S. this summer."

BA's chief competitor Virgin Atlantic, already well known for its high-touch service, also is exploring private jets. "We have been talking to a number of manufacturers about introducing corporate jets into the Virgin fleet," the carrier confirmed, adding that CEO Richard Branson favors Virgin Jetset as the possible name.

It remains to be seen how quickly, and to what extent, corporate buyers will be drawn to commercial carriers' private jet operations. Many Fortune 500 companies own private aircraft outright, and while United, BA and charter/fractional operators say corporate aircraft maximizes productivity, that may not be enough to draw in buyers already pressured by the economy.

"You can build a business case for this kind of program, but why launch it now?" Dunphy asked. "If we have too much of an economic hiccup, all those private jets will just sit on the ground."

Delta Air Lines said it has no plans to initiate a corporate jet operation. American Airlines was not available for comment. However, Air Canada last week agreed to invest in Skyservice, including the Skyservice Aviation corporate jet division. Skyservice chief Russell Payson said the company's business aviation division nicely complements Air Canada's business class by offering premium customers the use of private jets.