David Ingles: Whilst most of us cannot take to the skies, we’ll just talk about it. Global airline passenger traffic has obviously collapsed because of the pandemic, but private jet activity was at about the same level three weeks into January at the start of last year, so it’s as if nothing has taken place between then and now. It does seem wealthier travelers do want a safer and more reliable alternative to commercial flying. Our next guest runs the private aviation group Vista Global, which owns brands VistaJet and on demand flying service XO.
Joining us now from Europe is Vista Global Founder and Chairman, Thomas Flohr. Thomas, I hope you don’t read too much into the way this question is phrased, but obviously, something has taken place during this pandemic which has benefited your business. Where is demand coming from?
Thomas Flohr: I think the main driver is that the addressable market has expanded dramatically. There was a McKinsey study that showed over 90% of corporations and individuals that can actually afford flying private were not flying private. Now given the destruction of the commercial infrastructure, they are using the infrastructure of a company like ours — Vista Global — and they still do need to conduct travel and that is really the only way to get from A to B these days.
David Ingles: Is that something you’re assuming will and can continue once the world moves out of this pandemic or is it more of a one off? Talk to us a bit about the assumptions for the next two to three years.
Thomas Flohr: We always talked about the benefits of using the private jet infrastructure because of the efficiency and the time saving you actually achieve. Now with the pandemic we have shown the world that this is really the backbone of how people can still travel.
In my judgment, a great number of people who are now flying on private jets will stay, but the overall traffic due to electronic media, such as Zoom, will reduce the normal travel demand. We see a very strong growth figure going into 2021 and the years beyond, as we see a much more broadened addressable marketplace.
Haslinda Amin: Thomas what are you seeing in terms of demand from China? How strong is it and what kind of growth are you anticipating?
Thomas Flohr: We saw a very strong recovery in the second half of 2020 from Mainland China and to Mainland China, we see this continuing into 2021 as we are approaching the middle of the first quarter. Chinese corporations need to get to remote places and to other cities in Europe and America, so they are using this global infrastructure that we have, to get there safely and I think that is one of the key drivers.
If you think about it, the touchpoints of a private jet versus a commercial jet is about a factor of three percent. There is much less interconnection with other people, with big airports, as we are flying out on smaller aircraft. Sometimes we take our passengers straight on the airplane to their next destination, creating a travel bubble, so that is also very safe.
Haslinda Amin: Given that demand has remained resilient, what are we seeing in terms or rates? About a year ago we were talking about $16,000 an hour, is it higher or is it lower now?
Thomas Flohr: We see pricing as very stable. We’ve actually just launched a Global 7500, a product very important for Southeast Asia because it pretty much gets you non-stop to any spot in the world — all of America, Europe ect. That price point is slightly higher, but still a lot less expensive than buying your own aircraft. We see stable pricing but long range flying out of Southeast Asia, non-stop, is really what is driving the growth.
Haslinda Amin: Speaking of buying your own aircraft, are there more people wanting to get their own pilots licence so that they can fly themselves, fly their families. Is that a trend that is developing?
Thomas Flohr: I don’t think we see more people applying for licences, but what we do see is that corporations — especially in difficult times like this — they certainty hesitate to go to a board and say can I approve a $30–$50 million capital expenditure. This is where OPEX versus CAPEX comes in, with Vista Global you just buy the hours you need and you can get going tomorrow, rather than going through the lengthy, complicated and inefficient process to buy a whole aircraft and put it on your balance sheet.
David Ingles: I guess the question then becomes, if I’m not putting that fixed cost on my companies balance sheet — as your client — you’re obviously taking that cost on in terms of depreciation etc. To go back to an earlier point, in terms of what you plan for your fleet are you looking to increase that in the years ahead? Do you have enough confidence right now to do so? What are your plans?
Thomas Flohr: Yes, we’re rolling out the Global 7500. We have presold many hours on this aircraft and this is really a game changer, something which happens only once every 20 to 25 years, where a new product is being rolled out.
We have every day of the year a 30% oversold, especially as the XO brand, that means we have to off fleet some of the traffic at XO — of course at Vista Global everything is on fleet — but with the sales, with our over 100 sales executives around the world, we have a pretty good finger on the pulse, on demand. We see the expansion of the fleet from the current 130 airplanes significantly growing over the next couple of years.
David Ingles: Thomas you touched on pricing a little bit earlier. We have a viewer question right now — What is the price of your service compared to flying first-class or business? — $16,000 an hour as Haslinda mentioned. Have you toyed with the idea of shrinking that gap in order for you to capture a bigger part of that market?
Thomas Flohr: That’s is a wonderful question. At the XO brand, we have industry leading technology and it allows you to go on the app and create your own flight and pick seats on the flight, which is crowd-sharing. If you put ten passengers on a Global, you reach approximately the first-class pricing, but with obviously all the advantages that you create your own flight, have a lot less touchpoints from a health and safety point of view and you make the flight non-stop point to point.
Technology is driving to bring the price down and we are leading this charge with our XO infrastructure and technology. We believe this is a trend that will continue going forward, that the entire marketplace will be digitally transacted and that’s where we see the future going. That is also why we invested so heavily into this technology structure, to be the Google of this industry.
Haslinda Amin: Thomas we know that commercial airlines have been decimated by the pandemic, is there a sense or is there any anecdotal evidence perhaps that commercial pilots now want to fly private jets?
Thomas Flohr: Obviously, the company is hitting a good point here, and there is a flood of pilots in the marketplace today. We haven’t laid off a single pilot in this entire pandemic because we saw very early on a recovery. Of course, we have many requests for joining the Vista Global group globally and we are slowly looking, as we add to the fleet, we will need more pilots. It certainly is a big trend though, that commercial pilots are applying for jobs in the private jet industry.
Haslinda Amin: Thomas before we let you go, sustainability has come to the forefront, especially with the pandemic, what are you doing about carbon footprint? How is that fitting into your strategy?
Thomas Flohr: We are very much focusing on that, we believe we lead the industry with this. We’ve reached out to every single one of our Members — remember we have a subscription business model — we asked them to contribute, just like Vista Global is contributing. We see a high level of education that we are doing with our Members and they are contributing with their real dollars to help with sustainability and I think that is a very tangible contribution. These funds are being used partially to buy bio-fuel etc., so obviously, there is a very big commitment to this big task that we all have together.
David Ingles: Thomas, thank you so much for joining us to today.