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The Cases for Corporate Shuttles: Fully Utilizing the Company’s Investment in Business Aviation

Posted on: June 30th, 2014 by JAgur

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The vast majority of value created by Business Aviation comes from the revenue side of the ledger: supporting the creation of more business. In other words, most Business Aviation trips help the cash register ring more often and louder.

On the other hand, there is a set of ingredients that allows a corporate shuttle to be more cost efficient than available commercial alternatives. Consider the following circumstances that set the stage for a successful shuttle operation:

• Predictable passenger traffic of sufficient volume.
• Poor ground and air travel alternatives.
• Strong economic benefits.
• Dedicated business aircraft operations.

BUSINESS CASE
The dedicated corporate shuttle is usually run as a no frills corporate “airline”, with committed assets and staff, serving designated sites at specific times. That approach can be economically compelling. Consider, as an example, the city pair of Atlanta and Birmingham.

• The driving distance is 149 statute miles on interstate highway that has unpredictable congestion.
• Airline service is not business friendly (three flights in the morning, with the first leaving at about 9am).
• Door-to-door, it takes longer to travel on the airlines than to drive, considering airport parking, TSA screening, boarding, et al. • The one-way airline ticket cost is $369.50 for the 135 air miles of the leg: $2.74 per passenger mile.

Given these circumstances, the breakeven points for a fully dedicated operation with various aircraft models would be (using Conklin & de Decker full costing, plus market depreciation, plus 10% for exceptional costs):

• Cessna CJ3 (6 passenger capacity) = 4.0 passengers to breakeven per leg.
• Hawker 900XP (8 passenger capacity) = 5.7 passengers to breakeven per leg.
• Falcon 2000LX (10 passenger capacity) = 6.8 passengers to breakeven per leg.
• Embraer 135 Corporate Shuttle (16 passenger capacity) = 9.9 passengers to breakeven per leg.

This example demonstrates that a dedicated corporate shuttle can provide a very strong Return on Investment (ROI). The case becomes even stronger when intangibles are considered:

• Significant travel time saved —at least 1.5 hours per passenger per leg.
• Increased traveler productivity and security en route.
• Departure times responsive to your passengers’ needs.
• Trip reliability—the airlines are late a high percent of the time.
• Improved balance of passengers’ quality of work life.

EVEN BETTER CASE FOR THE PART-TIME SHUTTLE
What if you don’t have a high volume city pair like Atlanta-Birmingham for a full-time shuttle? Consider looking at the opportunity from the “supply side” – available slack aircraft-time that could be put to high-return use. Most Business Aviation departments have a bell-shaped demand curve. Peak travel days are midweek. That leaves some slack aircraft-time on Mondays and Fridays. It may be possible to support small groups of travelers who can schedule appointments that match the aircraft’s availability.

The “supply side” approach to shuttle operations differs from the dedicated business case because you are using the aircraft’s slack time. The marginal cost for shuttle trips is only the aircraft’s direct operating costs (DOC). All the fixed costs are already assigned to the on-demand use of the asset. This greatly lowers the shuttle’s breakeven hurdle.

Let’s look at the same example of Atlanta-Birmingham trips supported by a part-time shuttle. Using Conklin & de Decker’s DOC calculations (plus the 10% ‘fudge factor’), the analysis shows the following:

• Cessna CJ3 (6 passenger capacity) = 1.7 passengers to breakeven per leg.
• Hawker 900XP (8 passenger capacity) = 2.5 passengers to breakeven per leg.
• Falcon 2000LX (10 passenger capacity) = 2.8 passengers to breakeven per leg.
• Embraer 135 Corporate Shuttle (16 passenger capacity) = 3.5 passengers to breakeven per leg.

It is obvious that the tipping point for implementing a part-time shuttle is dramatically lower than that of fully-dedicated services and assets. However, there are some caveats.

CAUTIONS ABOUT PART-TIME SHUTTLE OPS
For a part-time shuttle program to be successful, it must have several key ingredients:

• Priority – The primary reason you have the aircraft is to support high-value trips (e.g., providing on-demand travel for key passengers to do critical things). A shuttle trip should not supersede that purpose. Otherwise, you diminish the value of on-demand aviation services.

• Predictability – The schedule should be consistent. For instance, the same times on the first Monday and the second Friday of every month.

• Reliability – If you say you are going to run the shuttle on a given schedule, run it. To cancel for a pop-up on-demand trip damages the credibility of the shuttle program, which will lead to lost ridership. On the other hand, if you have a reasonable number of pop-up trips that make running a reliable shuttle program problematic, don’t do the shuttle program at all. Your aircraft will already be creating substantial value by performing like a fire truck: waiting and ready to go.

BOTTOM LINE
Dedicated shuttle operations can create a very nice ROI plus exceptional intangible benefits. On the other hand, you don’t need a dedicated aircraft to create great benefits from shuttle operations. All you need is an on-demand business aircraft that has routine slack in its schedule and passengers needing to travel between cities not well served by commercial alternatives.

by Pete Agur

Published by World Aircraft Sales, June 2014


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