Credit Crisis Hobbles Air Taxis Seeking to Grow Despite Solid Demand, Carriers Are Shrinking or Going Under for Lack of Investors

By Joe Sharkey

David Jolly contributed reporting from Paris.

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With fares rising and commercial air service in the United States increasingly unreliable for business travelers, Ed Iacobucci figured his plan for an air taxi service would be a no-lose proposition. So why is Iacobucci shaking his head in frustration?

Just as his company, DayJet, had proved that there was a business in using small jets for short flights on demand and was poised to expand its market, the credit market froze. DayJet was unable to raise $40 million it needed to grow, Iacobucci said. Expansion plans were postponed and the company laid off 100 of its 260 workers.

“All of the metrics are wonderful,” he said. “We’re getting repeat buys. We’re getting people buying at the price points we want. But we haven’t been able to raise the capital.”

The air taxi business is a relatively new phenomenon. The Air Taxi Association says there are about a dozen companies operating in various regions in the United States, with a handful more in Europe.

The companies promote convenience, filling the gap between commercial airline service and charter service, in which a customer pays for an entire plane.

For the business travelers who make up the majority of air taxi customers, the companies represent time saved. “Think of us,” said one carrier, Linear Air, “as a car service with wings.”

Air taxi companies use small jets or propeller aircraft, usually on set routes. Most operate from uncrowded secondary airports and fly from one small city to another, avoiding the time-consuming connections at big hubs, typical of flights on major airlines.

The result, the air taxi companies argue, is that a business trip that will often require an overnight stay using commercial airlines can be done in a day because the traveler can fly directly to the meeting site.

DayJet, which is based in Boca Raton, Florida, and began flying last year, is the biggest U.S. air taxi operator, the most aggressive and so far the hardest hit by the credit crisis. A second company, Pogo Jet, has also been affected, postponing an initial public offering originally set for March. It now says it plans to begin operations next year.

The other companies, because they had already lined up financing or use less expensive propeller planes or have more modest expansion plans, are doing all right, so far. And while the rapid rise in fuel prices has not helped any of the air taxi companies, it has not hurt them particularly either, because all are using aircraft that are new, high performance and fuel efficient.

Stefan Vilner, chief executive of JetBird and the head of the European branch of the Air Taxi Association, said the credit crunch had hit the business hard. In January, when the association officially started, it counted 14 companies in Europe. Now there are nine, he said. The others, he said, “have gone by now, because the opportunity to finance has gone.”

Nonetheless, he said, Blink, a British company, Bikkair of the Netherlands and London Executive Aviation remain in the market. JetBird, which Vilner said was “fully financed,” is scheduled to start operations in 11 months using Embraer Phenom aircraft.

The air taxi companies are not the only ones rooting for their model to work. The major manufacturers of the class of aircraft called very light jets also have a vested interest. Eclipse Aviation, the maker of the jets used by DayJet, claims over 2,600 orders for its six-seat Eclipse 500 – the best-selling very light jet – but it has not yet come close to the production level of 500 jets a year that it says it needs to be profitable.

Other manufacturers include Cessna, Embraer and Honda. Embraer, the Brazilian aircraft maker, recently announced that it would open an assembly plant in Florida to produce some of its Phenom 100 very light jets.

DayJet has a fleet of 28 Eclipse 500s. The company also uses technology that efficiently positions aircraft and analyzes fares, making it the leading innovator in selling on-demand, per-seat fares. It currently flies to 45 community airports in Florida and nearby states.

Iacobucci said the “proof of concept” phase had been successful. DayJet has about 1,600 members, nearly all of them business travelers, who pay an annual fee to register. About 200 are frequent fliers. “Our average ticket price is in the $600 to $700 range, exactly where we want to be” for flights of less than 300 miles, or 480 kilometers, he said.

But the tight credit markets have put its future in jeopardy.

“Our target was to wind up the year with about 100 aircraft and something like 30 to 40 markets fully developed, which we considered was critical mass,” Iacobucci said.

Can DayJet make it without expanding to that critical mass? “Absolutely not,” Iacobucci conceded. But he said he believed that the critical investment would materialize as it became clearer that air taxis were practical and would become more so in the future. “For us, it’s all a matter of timing,” he said.

DayJet says its fares are slightly more than a typical walk-up coach fare on a scheduled airline. The industry, in general, promotes its fares at about half the price of a charter flight and heavily markets the ease of travel.

The Eclipse 500s, which were the first to market, are the only jets used by air taxi businesses in the United States, and cost $1.6 million each. Linear Air, which operates in New England and nearby states, flies mostly eight-passenger Cessna Grand Caravan propeller- driven planes, but plans to buy seven Eclipse 500s, which fly about twice as fast. Linear plans to acquire eight more Eclipse 500s by the end of the year to augment its growing business.

SATSair, based in Greenville, South Carolina, is also expanding its air taxi service throughout the southeastern United States. SATSair flies four-passenger Cirrus SR22 propeller planes that use a single pilot and are equipped with a parachute intended to bring the plane down safely in case of emergency. SATSair said it operated 16,000 flights in 27 states last year – 60 percent more than the previous year.

Pogo, whose management team is led by Robert Crandall, the former chief executive of American Airlines, said it planned to start an air taxi business with Eclipse 500 jets at several hundred general aviation airports within about 600 miles of New York City. The service is scheduled to start in the second quarter of 2009.

Not all air taxis offer the on-demand, per-seat service that DayJet’s sophisticated logistical technology allows.

“There are a variety of air taxi models, but they all center on one thing: putting the on-demand price-point within reach,” said Joe Leader, president of the Air Taxi Association, founded last year to promote air taxis worldwide.

In Europe, Leader said, several air taxi startups are flying the new Cessna Citation Mustang model, which at $2.65 million is at the high end of the very light jet market.

Air taxis, whether they operate on a per-seat or per-plane model (the way that taxicabs on the street typically operate) present “an evolutionary step that will probably lead to a revolutionary change in how we travel” as big airlines are cutting service and leaving some markets altogether, Leader said.

Originally published by The New York Times Media Group.

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