Interview: OneJet President And CEO Matt Maguire

Regional network OneJet is using smaller, twin-engine jets to connect markets that offer corporate demand but few nonstop options. Over a month in, it connects Indianapolis, Milwaukee and Pittsburgh. OneJet president and CEO Matt Maguire walked BTN transportation editor Michael B. Baker through the business model that will fill the hole left behind by major airlines’ hub consolidation.

Give us the rundown. Where do things stand?

We started operations April 6 between Indianapolis and Milwaukee. We just started service from Milwaukee to Pittsburgh on May 4 and from Indianapolis to Pittsburgh May 11. We'd taken a view that this would be a five- or six-month process to see loads build to where we want them. We've been pleased with Indianapolis-Milwaukee. As of last week, we were up to about an 85 percent load factor in our inaugural market. Our expectation is there will be some bumps here and there, but overall, the trend line is great.

We're using light-jet aircraft, a different aircraft type than most corporate travelers are used to flying on. It's a Hawker 400 aircraft. If you've only ever driven around in a van and [then] gotten into a Porsche, that's the experience. We're operating from the main terminals. We have a full check-in lobby, we print boarding passes and we're one of the few carriers beside the big guys to have gotten into the TSA Precheck program. But the question [remained]: Was this a product that could get mainstream traction, one that would be permitted to be used by people in managed corporate travel programs? In these first few weeks, beyond the traffic period, we've been pleased to see folks from corporate travel programs being permitted to purchase the service. We've seen a lot of repeat purchases from folks in that program and sales from places like [American Express Global Business Travel, BCD Travel and Carlson Wagonlit Travel]

What about expansion?

We plan to add one aircraft a month to the network, starting in June. We're taking a very metered approach. We're running at 99 percent on time, but it's a walk-before-we-run approach. Being a new product and brand in business aviation, you only get so many bites of the apple, probably only one. Adding about one aircraft a month, we would expect to maintain that into next year. This time next year, we'd be in the range of 15 aircraft spread over four to five bases, connecting eight to 10 cities.

And destinations?

If you look at the logic on how we're growing our network, the locations were chosen early because we see them as potential future locations for bases, a place where we base aircraft crews and have connections to all the points currently in the network. They were all former airline hubs. There are a lot of markets within 400 to 800 miles, our sweet spot in terms of stage length. There also was a good local market of demand to complement the flow of demand [when it was a] hub. We think in terms of base locations and wanting to maximize the revenue contribution to the network—not just on a route basis—of adding this station. Is there a complementary market of demand between point X and Indianapolis and point X and Pittsburgh? If we can find markets—and we have, and we'll be announcing this in the next few weeks—where there is significant traffic for large companies, that's something we're inclined to do.

Will the strategy be the same as you add markets?

It will be. Frankly, if we were going out of LaGuardia, that strategy wouldn't work. In places like Indianapolis and Milwaukee, there's a lot of opportunity for growth: plenty of gate capacity and airspace capacity. Now that we're in that program and seeing the traction we're seeing, we'll certainly stay with that approach.

So where is business originating? Do you contract with corporate clients directly?

The biggest thing we need to see in the first five months is usage by people in managed corporate travel programs. We are partnered with American Express, BCD and Carlson, and we also in key markets have [contracted with] four or five Fortune 100 companies to be a preferred vendor. You go through legal departments and risk departments to get in, but having customers like that saying this is a product they like and [one that] is important for our communities is a validation of one of the key questions: safety and credibility. Our chief operating officer, David Gross, was vice president of operations for Flexjet and before that vice president of operations for US Airways Express. He's supported by Jon Snook, who was senior vice president of customer services for American Airlines. The operations themselves are run by Edsel Ford's aviation company, Pentastar Aviation, a 50-year-old organization, platinum-safety rated. Our average pilot has about 9,500 hours of experience. These things weren't cheap and took a while to come together, but this is why, when going into big companies and through long processes, we're getting positive outlines.

What types of agreements are you doing?

For companies of the right size, we're doing preferred-vendor deals, which give a discount off the top and a further discount based on actual usage.

What's your distribution strategy?

The markets we're flying are 40 to 50 passengers per day each way. This is really a combination of having the right size aircraft for that demand [and] being able to access the existing airline distribution system. We're in Sabre, Travelport, Worldspan and Apollo, and our inventory is distributed in exactly the same way that a traditional airline's inventory would be. We have Type A connectivity, full e-ticketing, settlements by [Airlines Reporting Corp.], so no one down the distribution pipeline—including the [travel management companies] and corporate travelers— has to change anything to access this inventory. It's showing up as the only nonstop product in the corporate booking tools and in Travelocity and Expedia, and that's key. We knew early on for corporate travelers we would have to be in the GDS.

How does pricing work, then?

The bigger vision of the model is meant to build nonstop connectivity into small- and medium-volume regional markets. The challenge is that demand is highly variable. If you have to go in and produce seat miles every single day regardless of demand, the economics would be very tough. On days when there is peak demand, it is economically feasible to provide service. The challenge is those peak days of demand occur sporadically. Our model is built to identify and allocate aircraft based on where your highest-yielding customers buy a ticket for a particular departure date. If we have an aircraft in Indianapolis, and there is a collection of markets in the GDS that are accessible and bookable, the first ticket we sell is almost priced at a hurdle rate. If we sell one ticket to one person, we're committed to operating that flight. We never cancel flights. So, we price that ticket to say what the cost is of operating the segment. Think of airline revenue management in reverse: What is the revenue we can generate down the normal part of a pricing curve for those remaining seats on the airplane between the initial time of sale and day of departure? It's all about allocating capacity in real time based on where the highest-demand customers are purchasing and [then] filling in the network on a day-to-day basis based on those sales.

So how does pricing compare with the established commercial carriers?

The highest fares will be two to three times the lowest coach connecting fare of the market. If you peg that at a full-fare coach level, that would be a good way to think about it. One of the key guys here is a guy named Dr. Barry Smith, who was the chief scientist with Sabre. He's supported by Cindy Barnhart, who runs all the transportation activities and is chancellor at MIT. All we're doing is based on data that we can see from the GDSs, from ARC and from some sophisticated models that look at the right opportunities for this service. In terms of those highest price points, we see a willingness to pay between 5 percent and 12 percent of the market. If United is charging $300, and we have the only nonstop product and have five seats to sell and see 10 people in the market, we can charge something a little above $300 to sell those seats.

So, you don't break down by class—all seats are the same?

Yes, all the seats are wonderful. The aircraft is an all-leather interior. The legroom is equivalent to first class on a regional jet, so it's very comfortable. The line we're walking is that this isn't really a luxury product. We've tried to model it after the Northeast shuttle model, where it's a reliable, consistent, fast product but is a premium product in the sense of being almost a premium utility. The premium part is the consistency and ease of the travel experience and the convenience of it. This isn't about flying people in private jets. It's about taking that existing business-aviation capacity and repurposing it as a product that can engage within the normal traveler market.

You could have flown these smaller planes from smaller private terminals, but you chose to operate from main airport terminals. Why?

By regulation, we could have operated from the private terminals. Those terminals are great because it's a 30-second walk from your car to the plane and there's no security. If you want to go from the main terminals, it takes you six months to go through [the U.S. Transportation Security Administration]. You have to invest a lot of man-hours and expertise and money to do it. [But] we really felt if you want to introduce this as a mainstream product for mainstream travelers, especially when you start selling to Fortune 500 companies and going through risk departments, you need something that will be a familiar and normalized experience for people. It's meant as an investment to make this usable by mainstream travelers.