Wheels Up execs see turnaround despite continued losses

The Q2 2024 results for Wheels Up are out and will undoubtedly provide fodder for the proponents and detractors of the Delta Air Lines-backed private jet company.

Wheels Up – The Good

Proponents will be able to point to continued improvements in operations and reliability (see Final Thoughts), a decrease in loss-making Legacy PSA Contracts (down to 5%), the resulting increase in Adjusted Contribution Margin, strong block sales, and an increase in its on-demand charter business leveraged by Air Partner.

The trend lines are all pointing in the right direction and meaningfully moving quarter over quarter and year over year

– George Mattson, CEO, Wheels Up

The completion rate was 99% in Q2, on-time performance was 87%, and there were 31 so-called Brand Days, dates with no cancelations, a record for the company.

Is that good or bad?

So far, aside from Volato, other private jet flight providers haven’t shared their numbers.

Block Sales jumped 51% to $145 million compared to Q2 in 2023, when bankruptcy rumors were swirling (see table below).

Wheels Up Block Sales by Quarter (2021-24 by Quarter)

Source:  Wheels Up

Wheels Up also increased those jet card deposits sequentially by $31 million during a period when most sellers of charter products say they have seen business soften and the market filled with offers for bonus flight hours and credits.

The reduced PSA, where capped rates apply, drove the contribution margin from 1.0% to 7.8%, with forecasted improvements in Q3.

Moreover, 60% of the company’s gross flight revenues are now non-programmatic, and revenues were essentially flat quarter-to-quarter.

If you factor in the gross value of that off-fleet charter business (instead of the net difference between what the customer paid and what Wheels Up paid the operator), something Wheels Up calls Total Private Jet Flight Transaction Value – that gross number, $217 million was up 13% sequentially

Wheels Up transitioned its King Air 350i and Citation Excel/XLS fleets to a single FAA operating certificate during the quarter. The certificate includes its Hawker 400XP aircraft.

The result has been “significant operational efficiencies across maintenance, training, and scheduling.”

The transition of its Citation X aircraft to the same operating certificate is in process.

Put another way, Wheels Up was in a very poor situation, and management is executing the plan they articulated last year, even if, more broadly, it may seem like watching water boil.

READ: Wheels Up makes first Delta-era program changes

Growth plans

“We’ve been doing a lot of work over the last 12 to 18 months to fix some of the structural issues in the business, and I think we’re finally starting to get to the other side of that, where it’s starting to translate into the financials in the way that we had hoped,” CEO Geroge Mattson tells Private Jet Card Comparisons.

He adds, “We’re in a position now, hopefully, where we can start to really scale this again, but scale it structurally to produce a profitable business rather than an unprofitable one.”

The former Delta Air Lines Board Member named CEO last September says, “The trend lines are all pointing in the right direction and meaningfully moving quarter over quarter and year over year.”

While Wheels Up has been strategically selling down its King Air 350 and Citation X fleet, Mattson expects news later this year on “plans to modernize the fleet, including bringing in larger, more capable aircraft.”

However, OEM executives shouldn’t get their order books out.

Mattson adds, “Buying brand new aircraft off the production line is not necessarily, in our view, the optimal way to expend capital, but certainly newer, more capable, and different models than the ones we’re flying today.”

Through the first half of the year, Wheels Up was in a comfortable fourth spot in terms of the largest charter and fractional operators in the U.S.

It currently has 164 aircraft in its fleet, including 40 Citation Xs and 56 King Airs.

READ: Wheels Up adds functionality for on-demand charter customers

Wheels Up – The Bad

Detractors won’t need to look far for headlines.

They will rightfully point to continued red ink.

For the quarter Net Loss was $97 million on $196 million in revenue, with a $37 million loss on an Adjusted EBITDA basis.

In the first six months, Wheels Up lost $194 million on $393 million in revenue, with an $86 million Adjusted EBITDA loss.

However, CFO Todd Smith says he still expects to reach Adjusted EBITDA positive territory by the end of the year.

Wheels Up First Half, Q2 Financial Results

Source: Wheels Up

Also, its current 8,268 Active Members are 35% below their 2022 peak (see table).

The year-over-year drop from 11,639 active members is a 29% drop since the reduced PSA for capped rates was announced.

Attrition was expected to be in the 20% range.

Wheels Up Active Members (2021-2024 by Quarter)

Source:  Wheels Up

Wheels Up 2024 Q2 Earnings Highlights

• Q2 revenue of $196 was flat sequentially compared to Q1 at $197 million and down year-over-year from $335.1 million. The company attributed the decline to selling its aircraft management business (sold to Airshare), Aircraft Sales (spun out to its management), and reduced Primary Service Area.
• Net loss improved by $63.6 million year-over-year to $97.0 million. The second quarter of 2023 included a $70 million non-cash goodwill impairment charge with no equivalent charge in the second quarter of 2024.
• Q2 2024 EBITDA loss improved sequentially to $37 million. It was down from $49.2 million in Q1 and a $40.3 million loss year-over-year.
• Cash and Cash Equivalents fell to $261 million at the end of Q2 2024, down from $301 million at the end of Q1 2024 from $384 million.
• Operating cash usage in 2Q was $27 million, down 63% from the first quarter and down 87% year over year.
• Deferred Revenue – deposits from members for future flights – was $702 million.
• Block Sales increased sequentially to $145 million from $114 million in Q1. Year-over-year Q2 2024 block sales increased 51%.

Board of Directors News

Gregory L. Summe, Managing Partner of Glen Capital Partners LLC, joined The Wheels Up Board of Directors, effective August 7.

Summe fills the unexpired term of David Adelman, who is stepping down to focus on other professional pursuits.

Summe’s initial term as a Class II director will continue until the 2026 annual meeting.

He will serve on the Audit and Compensation Committees of the Board.

Previously, Summe was the Managing Director and Vice Chair of Global Buyout at The Carlyle Group, where he was a member of the firm’s Operating Committee and responsible for the Buyout Funds in Financial Services, Infrastructure, Japan, the Middle East, and Africa.

Before that, he was the Chair and Chief Executive Officer of PerkinElmer Inc. from 1998 to 2009.

He also served as a senior advisor to Goldman Sachs Capital Partners from 2008 to 2009.

Before joining PerkinElmer, Summe held various leadership roles, including as President of General Aviation Avionics, President of the Aerospace Engines Group and President of the Automotive Products Group of AlliedSignal, now Honeywell International, General Manager of Commercial Motors at General Electric Company, and Partner with the global consulting firm McKinsey & Company, Inc.

Final Thoughts

According to our current subscriber survey (with over 350 responses so far), Wheels Up is improving significantly, although it would be wise not to take partial numbers to heart.

At this point, 76% of current Wheels Up members rate satisfaction levels as Excellent or Very Good, compared to 74% of the overall sample.

Most importantly, that’s up from 49% last year when the overall average stood at 73%.

Poor and Below-average ratings dropped from 22% in 2023 to 7% this year(compared to 4% overall this year and 10% last year).

Of Wheels Up members considering leaving, the percentage citing Declining Custom Service dropped from 50% to 10% (compared to 16% across all respondents). Delays and Cancellations went from 48% to 33% (compared to 26% for the overall sample).

In other words, from the standpoint of many customers, the operational turnaround has been meaningful.

That said, it’s not all roses.

Increased Prices as a reason to leave jumped to 57% from 27% year-over-year. That’s still below the overall average of 65%.

Moreover, 48% of current members who are considering leaving cited Financial Stability/Viability, which is a new answer option this year. That compares to 18% across all providers.

Wheels Up has been addressing this by tightening its integration with Delta via both sales and marketing programs, including wheeling out Delta CEO Ed Bastian to speak with customers.

Still, you don’t need to be a financial wizard to see that more work needs to be done on the P+L and in perception.

Private Aviation growth

During this morning’s earnings call, Mattson said, “We’ve seen members return to Wheels Up who left over the last couple of years.”

We believe private aviation as a whole has not yet capitalized on the opportunity of the addressable market…many people who could afford to fly privately do not

– George Mattson, CEO, Wheels Up

He added, “We are bringing on new corporate customers via our corporate sales initiative with Delta. We have also begun working with the Delta Sky Miles loyalty team to identify and engage their high-net-worth customers who represent attractive private aviation prospects.”

Mattson called the initiatives “a large and attractive opportunity.”

Sky Miles has over 20 million active members and over 40,000 corporate accounts, and Delta Air Lines’ extensive marketing footprint touches tens of millions more.

Mattson noted, “We believe private aviation as a whole has not yet capitalized on the opportunity of the addressable market…many people who could afford to fly privately do not.”

Mattson says it’s possible to target Sky Miles customers who perhaps live in Jupiter, Florida, and are flying to Las Vegas regularly in paid first class.

Instead of driving to Palm Beach and connecting in Atlanta, they could save half a day by flying nonstop from nearby Witham Field on Wheels Up.

According to the same survey, 72% of Private Jet Card Comparisons subscribers who use both airlines and private aviation cite door-to-door time savings as a reason they choose private skies, with 57% specifically noting more convenient airports.

About one in six use private aviation to connect with scheduled airline flights, something Wheels Up and Delta tested with the latter’s new service from New York to Naples, Italy, and something Mattson says will be expanded.

READ: The top reasons for choosing private jets over airline flights

UHNW target

Knight Frank estimates that, as of 2023, there were 253,000 UHNWis in North America. That number is expected to grow to 318,000 by 2028.

Some estimates put the addressable market for private aviation at close to two million households.

One clear thing these days is that the industry’s surge of new consumers in 2021 and 2022 is back to the pre-COVID trickle.

Wheels Up Founder Kenny Dichter’s contribution to bringing new customers into private aviation over the past two decades shouldn’t be understated.

He may only be second to Warren Buffett, who made NetJets a household name.

Drink Milk, Fly Private

Detractors may feel that loss-making private jet operators make it harder for them to raise capital for their businesses, and that could be true.

At the same time, aviation attracts investment for many reasons, including that it’s a sexy industry compared to making widgits.

I’m told that UHNW investors in private aviation are users who came to believe in the concept they invested in because they were customers.

Most of the major media coverage of the industry is negative. Private aviation doesn’t have a “Drink Milk” campaign.

I would consider it a good thing to have Delta—and in the future partners such as Air France, KLM, Virgin Atlantic, Korean Air, Aeromexico, and LATAM—as portals for future private aviation users.

A bigger pie would be good for everyone.

So far, Wheels Up has honored all its contracts during the Covid supply chain and labor challenges, even when it had to take a hit financially and operationally.

Others used fine print to make changes, and it may not have been a wise decision for Wheels Up since they struggled to deliver a reliable product, and the losses grew exponentially.

It’s nice to see some signs of a turnaround.

Most importantly, based on their rules and policies, the programmatic offering still fits well with what private aviation customers are looking for.

Air Partner, which many believed was a frivolous acquisition, may end up being the most important deal next to Delta Private Jets, which created the current foundational partnership with Delta Air Lines.

I guess sometimes we have to wait to see how the movie ends.

READ: A brief history of Airlines and Private Jet partnerships

(Editor’s note: An earlier version of Total Private Jet Flight Transaction Value included cargo and group charters.)