November 12, 2024
Since becoming a publicly-traded company last month, Wheels Up is earning plaudits from at least one analyst following its first earnings call. At the same time, executives outlined how the private aviation provider deals with record demand that is swamping the industry.
Barrington Research’s Gary Prestopino tells Private Jet Card Comparisons, “We’re an aggressive buyer of the stock…At these (price) levels, five years from now, you are going to be very happy.” Prestopino is the most bullish of the analysts tracking Wheels Up with a price target of $19 to $21.
The stock was at $8.87 in late-day trading, up slightly from its $8.79 opening. It has traded between $7.20 and $15.
Wheels Up is no different than where Amazon was in its early stages
-Vinayak Hegde, Chief Marketplace Officer, Wheels Up
Before the call, Wheels Up reported a 113% revenue increase year-over-year during the second quarter to $285.6 million.
Flight revenue increased 154% to $212.6 million while membership fees gained 23% to $16.2 million. Aircraft management fees increased 46% to $50 million for the quarter.
Net loss increased by $1.6 million to $29 million. Adjusted EBITDA improved by $7.6 million to an $8.5 million loss on the same basis.
For the first six months, revenues jumped 88% to $547.2 million, while net loss narrowed 15% to $61.2 million and adjusted EBITDA loss decreased from negative $33 million to negative $17.1 million.
Active members for Wheels Up increased 47% to 10,515 compared to June 2020.
This year’s first-half numbers include the acquisitions of Mountain Aviation from January 2021 and Gama Aviation Signature from March 2020.
From the first to the second quarter, active members increased by 619, a 6.3% gain. Live flight legs increased 19.3% to 18,234, meaning Wheels Up was flying about 200 revenue flights per day. The number excludes empty legs and flights for owners of managed aircraft.
During the call, executives increased forecasted revenue for the year from $912 million to between $1.05 and $1.1 billion on surging demand.
“Private aviation has rebounded more quickly than anyone in the industry expected. We see unprecedented demand for leisure travel and the beginnings for a return of business and international travel,” Chairman and CEO Kenny Dichter told analysts.
June was the busiest month for private flights in the U.S. since October 2007, according to Argus TraqPak. WingX reports U.S. flights in the first 26 days of July were 30% ahead of pre-pandemic 2019 levels. TraqPak forecasts over 300,000 private aviation flights in North America during August and October, more records. It has been tracking flights since 2007.
At the same time Wheels Up cut earnings targets as it covers higher costs and increases by $25 to $35 million spendings on technology, customer service, pilot recruitment and retention, and adding capacity.
Prestopino calls the lower earnings forecast, “Not surprising.”
Dichter told analysts, “We have made the strategic decision to invest in the growth of our business while some industry participants are pulling back. This gives us even more conviction and confidence to pull forward.”
Baird analyst Michael Bellisario maintains his neutral rating but drops his price target from $12 to $11.
Following the call, he wrote, “Overall, our key takeaway from the 2Q21 update is that additional spending to support the top-line momentum and the absorption of higher costs will limit the near-term profitability outlook. The demand backdrop remains favorable, and management is focused on investing for future growth.”
Bellisario added, “The strong balance sheet, which currently has approximately $537 million of cash and no debt outstanding, supports the company’s long-term growth initiatives.”
However, he believes profitability may be pushed back. “We had previously modeled run-rate Adjusted EBITDA profitability to be achieved in 2022, but the added investment spending and cost pressures push out our forecast for Adjusted EBITDA breakeven by one year.”
Improved demand forecasting, Dichter says, allowed the company to make short and long-term commitments for supply from third-party charter operators through guaranteed rate programs. The GRPs now represent over one-third of Wheels Up’s off-fleet capacity. That’s up from close to zero at the beginning of the year.
Dichter says GRP deals for an aircraft can range from a day to a year. They give Wheels Up exclusive use of the airplane, meaning greater scheduling flexibility without having to buy more jets. It also enhances its ability to deal with some of the fueling and ATC delays that have been roiling the system.
CFO Eric Jacobs said the company is looking at adding to its owned/lease fleet and ramping up incentives to managed aircraft clients to increase the availability of their jets for Wheels Up members. There are currently 180 owned aircraft and 165 under management, he said.
Incentives to aircraft owners who provide increased availablity for charter include lower monthly management fees and alternative hourly fee arrangements. The company is also culling legacy management contracts that don’t fit its business model.
As the industry struggles to match availability with record demand, in an exclusive interview this afternoon, Dichter said, “We look at our market in a similar way that Uber looked at the car market in 2007.”
Up to $15 million of the additional spending is being allocated to technology.
Chief marketplace officer Vinayak Hegde, who joined from Amazon and Groupon in May, said funds will speed up the development of machine learning that will “place the right plane in the right place at the right time.”
It will also help Wheels Up combine unscheduled and scheduled maintenance, decreasing the time aircraft are out of service.
Hegde added, “Our industry is very complicated. Flight demand comes with little notice. There is no technology that provides real-time visibility of aircraft across operators, or crew availability or maintenance schedules, or insight about where the aircraft have to be and when. There is safety vetting, trip services like catering and ground transportation, and international trip support…Today, much of the background of the entire industry is executed on analog labor-intensive processes that are not optimized.”
He said, “We have to utilize technology to drive automation, and there are a lot of things we are going to do. Wheels Up is no different than where Amazon was in its early stages.”
Plans call for rolling out significant new enhancements on its app over the next year. The upgrades will enable customers to better search for specific destinations and compare prices by week and day. There will also be better visibility for shared flights. Travel preference alerts are also in the works, Hegde said.
Dichter called the milestone “very exciting,” adding, “We’re going to be in a position to service very strong demand.”
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