In another blow to the private jet share social network, JetSmarter lost its home rental partner and board member Bradley Stewart, the CEO of XOJET

 

So the news about JetSmarter this week is that its short-lived entry into enticing its members to also rent homes through ThirdHome, announced Feb. 27, is kaput. By the way, there’s more big news coming next week, but we’ll get to that later. 

 

The failure of the ThirdHome relationship is significant. Part of JetSmarter’s attraction if we were an investor is that it can monetize its 10,000 and growing members or community into buying extra things across a variety of travel and lifestyle expenditures, private aviation just being one aspect of what it sells its customers.

 

In an email apparently sent to members, JetSmarter wrote some of its members ruined the home share relationship for everyone by trashing places they rented. Unlike properties that are designed purely for the rental market, ThirdHome is trying to make its niche via getting properties people actually live in for its inventory. Owners rent them when they aren’t personally living in them, so they are furnished more the way you would furnish your own home assuming you are affluent. But here come a few JetSmarter members. There goes the vase with grandma’s ashes or something to that effect.

 

When we asked about what impact losing the partnership has on JetSmarter’s business plan a spokesperson told us, “It has no impact. JetSmarter is adding new non-aviation benefits every day. They are excited to be rolling out social networking features for our members in the next 60 days, which will take the club element of the community to the next level. Members will be able to communicate through the app and pair together for experiences in the sky and on the ground.”

 

As to the rentals, the spokesperson said the company “is integrating with a new homes partner that is more ‘rental friendly’ for our members that will replace Third Home.” We’re not sure what that means, but it certainly seems to insinuate limitations on where JetSmarter can bring at least some members of its community.

 

This was the email JetSmarter allegedly sent to a member, who then posted it on Flyertalk in a thread called “JetSmarter – experiences, and discussions” with the bolding from us:

 

Hello Member Community,

 

We regret to inform you that the HOMES benefit has been discontinued until further notice.

 

Unfortunately, a handful of members chose to blatantly break the mandatory house rules on more than one occasion. We have addressed the inappropriate behavior with the at-fault members directly; however, due to the severity of the damages, the rental service provider has chosen to end its agreement with JetSmarter.

 

Thank you to everyone who enjoyed the HOMES benefit responsibly. Please know that we are in talks with alternative providers, and you will be the first to know as soon as we have an update.

 

Many thanks,

JetSmarter Team

 

This year has not been good for JetSmarter on the PR side. In February its president Gennady Barsky resigned and was subsequently charged with embezzlement from a previous job he held. Then in March JetSmarter was savaged in a piece by The Verge after it offered a journalist a free demo flight on the condition the writer would write a positive story or be subject to paying for the flight.

 

The article by The Verge interviewed customers who complained about poor communications and constant changes to what was promised versus what was being delivered and at least one member who backtracked, apparently out of fear of retribution from the company. The article also cited blog posts by Peter Maestrales, CEO and Founder of Airstream Jets who provided a fairly detailed analysis of why he believes the JetSmarter won’t work, with the zinger, “ Unfortunately, for this group of investors that day (an IPO) will never come. JetSmarter will never be allowed to trade on a public exchange because it is without a doubt nothing more than a Ponzi scheme of epic proportion.”

 

Bradley Stewart, the CEO of XOJET, which has a business relationship with JetSmarter (more on that in a bit) noted that plenty of tech-driven start-ups burn through lots of cash and put up huge losses. Some of them such as Amazon.com go on to be formidable forces.

 

With JetSmarter there is more to it from our perspective. Last month Private Jet Card Comparisons covered the “do they or don’t they’ saga about accepting American Express. It took us three back and forth exchanges to get clarity: Yes, but not for membership and not for anything you buy via its App. At least that’s how we understand it. Looking at correspondence from its salespeople to customers and from its PR firm to us, clarity was at best missing.

 

Another issue of poor communication is/was its helicopter service used by members to get from Manhattan to Westchester County Airport where its shuttle flights depart and arrive. Westchester is not an easily accessible airport from Manhattan, so the helicopter service was/is integral to the idea that you save a lot of time versus commercial airline flights with the JetSmarter shuttles. After all, you jump in a helicopter and are delivered to the FBO and walk to your private jet flight.

 

Originally helicopter transfers were a free membership benefit. Some members were then being charged. Then they were told it was suspended (as we reported). On June 5 JetSmarter CEO Sergey Petrossov was telling us that yes helicopters were available via dynamic pricing.

PJCC: We understand helicopter service from Manhattan to HPN has gone from free to $250 and now $395 each way. Is that true?

 

SP: “For Smart members who would like to use helicopter transfers, it will cost $395. This service is complimentary for Sophisticated members.”

The above answer turned out to be less than forthright. On June 16, a poster on Flyertalk posted the below allegedly from JetSmarter:

Dear Iguanus,

My name is Rich Mozeleski, and I’m the Head of Global Operations at JetSmarter. I’m reaching out today to ask for your input on the future of the HELITRANSFER service. I fully recognize that as of late, the HELITRANSFER service has not met your expectations, and that means it hasn’t met ours – and I want to be transparent as to why.

We recently engaged ARGUS, the world’s premier independent aviation safety ratings organization, to help us increase our margins of safety and achieve an even higher level of proactive safety management throughout our operations. At the same time, we are incorporating lessons-learned that we’ve picked up along the way and are becoming even more selective about the businesses we partner with. We are also proactively dissolving any existing relationships with operators who do not share in these values (click here to read an example). And of course, we continue to maintain our constant focus on improving your membership experience.

With that said, ARGUS has recommended that to increase our margins of safety, JetSmarter move HELITRANSFERS from the single-engine, single-pilot Bell 407 helicopter to the twin-engine, dual-pilot, finely-appointed, and spacious Sikorsky S-76 helicopter, operated by ARGUS Platinum-rated commercial operators. This is the same helicopter that the Queen of England and other leaders and military organizations around the world trust with their safety and comfort. The ARGUS Platinum rating means that ARGUS completed an independent, on-site audit of the entire business operation so we know we can trust who we are working with to provide services for you.

To comply ARGUS’s safety recommendation and partner with more professional operators, we would no longer be able to provide transfers as a complimentary service, so we’ve come up an innovative HELITRANSFER offering. Essentially, you create the HELITRANSFER you want, and we reimburse you in flight credits for every extra seat sold – up to the entire cost of the flight. Or choose to heli solo; it’s completely your call.

Here’s how it works:

We’ll give you access to create a custom seven-seat HELITRANSFER aboard the safe and luxurious Sikorsky S-76 for $2,800 per trip.

You’ll then choose the seats you want, and we’ll give fellow members the option to purchase the extras for $475 per seat – that means if you sell six seats, you will be reimbursed in flight credits for the full cost of your transfer.

You can then use your flight credit to create on-demand PRIVATECHARTERS or SHAREDCHARTERS, or to book companion seats on shared flights.

I know this is quite the change, so your input means a great deal to us. Only if we receive positive feedback will we make this change. With that said, I strongly urge you to review ARGUS’s recommendation so you understand why we feel this change is necessary.

I’m available by phone or email if you’d like to discuss any part of this further.

Best Regards,

Rich Mozeleski

The company has also been telling members the service was/is on hiatus and that it was changing vendors based on safety concerns and in the meantime, it was offering a ground shuttle service from the city to the airport.

 

When we first reached out to JetSmarter a couple days ago in the wake of losing Third Home to ask what services they are still selling to their members beyond shuttle access, empty legs, and on-demand charter, they told us “helicopter transfers in New York City” as one of the several examples.

 

When we challenged the accuracy of that claim, we got a revised answer:

 

“We have been concerned about the safety and service level of helicopter service provided to members. ARGUS did a safety analysis of the operation and recommended we move to a dual pilot dual engine helicopter solution to increase our margin of safety. So, we temporarily paused the helicopter service in New York to access the situation and provide our members with the safest solution possible. Currently we offer private helicopter transfers on-demand upon member request. A new seat-sharing option for helicopter transfers we intend to roll out in the next 2-3 weeks.”

 

Members have also fretted about cuts in some European shuttles and empty leg vendors disappearing from the JetSmarter app for various stretches. Stewart told us, “Both XOJET and TMC (which shares the same ownership as XOJET) have a commercial arrangement with JetSmarter whereby JetSmarter has purchased A) all empty legs and B) digital exclusive distribution rights.” That should come as good news to members fretting about several providers that apparently disappeared.

 

In the last month, anonymous emails to Private Jet Card Comparisons and The Verge accused JetSmarter of missing payrolls. JetSmarter’s answer to us was that they had changed from a twice per month payroll to every other week. The Verge reported it spoke to employees who said there have been missed payments and salespeople who said the company had changed commission percentages and delayed payments.

 

Then there was also a class action lawsuit filed by a former employee for unpaid overtime, and several senior executives who have churned, including media entrepreneur Jason Binn who was much ballyhooed when he joined just last September. Additionally, Stewart tells us he left the JetSmarter board at the end of June but remains an advisor. He declined to say why calling it “strategic but confidential.” He said JetSmarter is still working on developing an app for XOJET that was announced last year, but added, “albeit the pace is slow…a bit disappointing.”

 

Member discontent we’ve seen includes what is perceived as very poor communication with constantly changing offers, rules, and delivery. Originally, you joined for under $10,000 and you got all the shuttles you could fly on free and when you got an empty leg, you had the entire plane. With memberships now ranging from about $5,000 to over $40,000 and free trial memberships being offered from time to time, lower tier memberships now require payments for shuttle flights longer than three hours and you only get a limited number of empty seats on empty legs.

 

Petrossov if anything is a salesman. When we last spoke to him last month, he reported that the shuttles are now profitable, some shuttles have a 40% profit margin and the company was operationally profitable in May. He also told us his top 1,000 customers spent an average of $140,000 in the past year, which would be $140 million in revenue. He also said the company has a 90% + retention rate with its members. After we included the above in a recent story we wrote for Forbes.com we received two LOL messages from senior private aviation executives.

 

As to our question about what else JetSmarter was selling members now that the home rental is gone, we were sent the following:

 

Non-Aviation Benefits Include:

 

24/7 concierge for ANY ad-hoc request; members can use this right from our app

 

Member events and social gatherings (including gallery openings, celebrity meet-and-greets, and more)

 

Perks and Benefits from brand partners all over the world (discounts, free perks, and giveaways)

 

Exclusive Restaurant or Club Reservations

 

Hotel Reservations + unique hotel perks (i.e. early Check-ins, late Check-outs and free hotel amenities)

 

Yacht charters

 

Catering in-flight – food preparation & presentation

 

In-flight gifts from brand partners

 

Ground transportation

 

Helicopter transfers in New York City

 

Any other logistical needs members would rather hand off

 

We didn’t really think the above answers were very specific and were taken aback that they were touting helicopter transfers to us while in the same period saying they now say they are on hiatus.

 

We then asked:

 

Can you give specific examples of brand partners and examples of specific active ‘free perks’ and ‘discounts’ being offered to members?

 

ANSWER: “Members can receive discounts and free perks from numerous brand partners, including Zide, Bluefish, The Clubhouse London, Anatomy Fitness, Golden Mile Fitness, Soothe, The Supper Club, River Yacht Club, Modernist, Farfetch and more.”

 

Who is your yacht charter partner?

 

ANSWER: “This is going to be a new feature in the app, similar to how members booked homes they will be able to book yacht charters. We are working with multiple partners on this.”

 

Regarding inflight gifts from brand partners –again – are there any specific current programs or programs in the last six months you can share?

 

ANSWER: “In-flight we did liquor tastings, food tastings, headphone giveaways, sponsored sports packets, amenity kits, lotions and more.”

 

We went back to JetSmarter to find out the specific yacht brokers they are working with, whose headphones they were giving away, etc.

 

Petrossov told us when we spoke to him that a lot of the negative stuff is growing pains. When you go from scratch to over 250 employees in a couple years turnover is natural. He also said he had recently implemented better communications for his top tier members, which would be a very good idea because folks who spend $40,000 on memberships and over $100,000 per year on private aviation don’t grow on trees, and there are a plethora of very good choices.

 

So reading all this, you probably are saying, why would we want to see JetSmarter succeed?

 

First of all, JetSmarter is good for the industry. Empty legs are flights flown to position a jet before or after a revenue flight. As much as a third of all private jet flights are empty legs. If JetSmarter can figure out a membership fee and surcharge structure that fulfills members’ expectations for shuttles and empty legs, it helps the industry become more efficient.

 

Yes, we agree with those people who say flying on a shuttle in a Challenger with all 12 seats filled is pretty cramped and certainly not the type of experience you envision when you see Brad Pitt stepping off his Gulfstream. Yet it does provide members a bypass of the awful airport experience you get when flying commercially.

 

JetSmarter research has shown its membership and fee price points for shuttles has attracted everyone from college students to personal trainers and small business owners. Many of these people probably aren’t in the market to pay $5,000 to $10,000 per hour or more to charter an entire plane. JetSmarter is bringing them into the world of private aviation.

 

While commercial airliners might ring up to 3,000 flight hours per year, highly utilized private jets are at best doing one-third of that. And while there is growth with people and companies that can afford to fly privately, spending between $150,000 and $500,000 per year on chartering an entire plane, there is a much larger market for people who would pay $10,000 to $25,000 or even $50,000 per year for some type of shared quasi-private aviation solution like JetSmarter, SurfAir or JetSuiteX.

 

Private aviation in the U.S. creates over 1.1 million jobs and $219 billion in economic activity annually. Broadening its base to people in the top 1% (an annual household income of $400,000 opens the market from what I would currently estimate 500,000 households and several thousand mid-size businesses to more like 1.2 million households (The full top 1%) and tens of thousands of companies if not more. Business aviation, often the target of uninformed politicians and media pundits, could certainly benefit by being more accessible, thus ridding some of the stereotypes.

 

Will JetSmarter be the next Amazon.com or Pets.com?

 

We don’t know enough to make a firm conclusion. Do we think that members paying $5,000 to $15,000 per year may have set their expectations too high? Well, without JetSmarter, are they going to be chartering entire planes? Probably not, so Petrossov has offered access to a world they probably couldn’t have afforded or justified. Yet expectations are a two-way street. Willie Walsh, the CEO of IAG, the parent of British Airways, Iberia and Aer Lingus, said the reason Ryanair has been successful is it sets the expectations low, and by getting you there in one piece, even after being nickel and dimed, its customers still feel they got there 50 bucks worth.

 

We asked Stewart if he thought JetSmarter needed to make any changes to its business model. He said, “(It’s) not really my place to say whether they should make changes. I do think there is a growing, likely significant market for plane-sharing and digital brokerage, not to mention a broader social network built around travel and adventure. I think JetSmarter has potentially defined a new market niche and is best positioned to capture this opportunity. We – XOJET and TMC – are certainly betting on them to be a dominant player.”

 

Our suggestion to Petrossov is two-fold:

 

Assuming your idea can be turned into a profitable enterprise, cut the circus. For all of the negatives we’ve discussed, the JetSmarter concept offers a lot of value if what is being offered is clearly communicated. The cheesy high-pressure sales approach we think will backfire if it isn’t doing so already. Part of the profit model could, of course, be that the private aviation side is a loss-leader or breakeven and because members love JetSmarter so much, they then buy lots of profitable things from you. But that takes a trusting relationship with customers.

 

Secondly, you’re 28 years old Sergey – and congratulations for what you’ve accomplished. Frankly, it’s brilliant. We say hire a seasoned CEO who has a background in providing top customer service and experiences from Four Seasons or Ritz-Carlton and hire a COO from the world of private aviation that will give your operation credibility. After all, you’re not flying planes, you are really just a broker with an app, but wow, you are making things appear messy.

 

Sergey, it’s time for you to become a Vice Chairman with all your shares and the potential upside they have. You can lead the way to monetize your members with partnerships and all sorts of other creative ideas, and then have a strong team to make sure all the i’s are dotted and t’s crossed.

 

We appreciate the heads up that Tuesday you are “rolling out a huge new feature for charter customers, allowing people to book charters by the seat to any destination globally, not just amongst shuttle cities.” We wish we could make it the lead, but right now there is a credibility gap in what you are selling and what you are delivering, and the sad thing is there shouldn’t be.