April 23, 2024
Lower prices for flexible flyers, more reliable operations, and faster recovery flights when there is a mechanical for Wheels Up members.
Lower prices for flexible flyers, more reliable operations, and faster recovery flights, when there are mechanicals, will enable Wheels Up to win a bigger share of profitable customers, particularly corporates.
Interim CEO Todd Smith told attendees at the annual Jefferies Business Aviation Summit today that by streamlining operations, cutting costs, and focusing on a smaller, more populated capped rate service area, the flight provider can become profitable.
The savings for flyers and better performance are byproducts of strides the company has already made, with the larger impact expected to be felt as Wheels Up transitions to a slimmed-down primary service area later this month.
Smith told attendees that having a national “one size fits all” program meant about 20% of its customers were being flown at a loss.
However, the full impact will take time.
Smith said he is honoring the capped rate guarantees across large swaths of the Midwest and Pacific Northwest until member contracts expire, which could drag out over 12 months.
As Private Jet Card Comparisons reported last month, Wheels Up is restricting ts King Air program rate caps to flights east of the Mississippi and eastern Texas.
The changes also cut its western zone for capped hourly rates to California, Arizona, Nevada, Utah, Colorado, and several key resorts.
It totally zapped its capped rates on large cabin jets.
Members in places losing the caps can still fly. However, their flights will be priced dynamically, meaning that Wheels Up will account for the empty repositioning flights instead of just charging for occupied hours.
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Conversely, Smith said the changes will benefit members in the areas still covered by the rate cap guarantees.
While many programs offer fixed hourly rates, Wheels Up uses a cap, which Smith says gives upside protection.
However, better technology and flying in areas with member density means the ability to offer lower rates since Wheels Up will have fewer and shorter loss-making empty legs.
Technology improvements will enable Wheels Up to offer members lower prices on low-demand dates.
He said that flyers who can travel on Thursdays and Mondays are likely to see discounts compared to those who need to fly on high-demand days such as Fridays and Sundays.
“We’ve been working on the tools via our app or otherwise, so if they are willing to fly on a Thursday instead of a Friday, that may result in a much lower hourly rate,” Smith said.
He pointed out that post-Covid, more customers are flexible to work remotely, and for those who can, there will be savings.
At the same time, the drop in demand is helping Wheels Up.
“The percentage (of customers) that is (on Wheels Up operated aircraft) has picked up substantially as we have seen the supply equation come back into balance,” Smith told the Jefferies conference.
He added, “More importantly, a year ago, we often found ourselves, because of the shortage of availability within our own fleet, going out into the spot market and having to charter a plane that was above the rate we were charging our members.”
He said, “Now we see that third-party flying at a profitable margin relative to a year ago, where it was not. That has improved for us as a result of the supply-demand balance that has returned to the market.”
Smith said a more concentrated flying area simplifies operations, meaning faster recovery in the case of mechanicals and “lower cost of maintenance per hour.”
Another positive is in the cockpit. “We’re at the point now, largely, we have our pilot ratios where we want them to be,” Smith said.
While cash fell by over $200 million in Q1, Smith indicated that Wheels Up has various levers it can pull if it needs to raise more money.
He said sales of non-core assets are underway.
Plans to trim its owned fleet will raise cash, as will continued sales of membership blocks.
He said liquidity is not an issue with “more options…If we…get to the point where we need to raise funds if needed.”
Wheels Up is also getting a boost from corporate accounts, which Smith says is the fastest-growing membership segment.
An additional revenue stream is coming from a new effort with shareholder Delta Air Lines targeting corporate accounts of the airline.
Wheels Up received support from Ed Bastian, the CEO of its largest shareholder, Delta Air Lines, during a talk at the Wings Club last month, where he said he backs the Wheels Up turnaround plans.
Smith said while profitability is the focus, it expects to resume measured growth in 2024.
The company previously said the cut in its PSA is likely to impact about 20% of its revenue, although Smith pointed out that much of that flying was being done at a loss.
Smith said he hopes to get “people increasingly confident in terms of the progress we are making; that we are well on our way towards those profitability goals for 2024.”
