September 15, 2024
FlyExclusive CEO Jim Segrave says the company has cut costs, replaced money-losing aircraft, and put new financial procedures in place.
Despite red ink and decreasing revenues, FlyExclusive executives say if you go inside the top line numbers, the 5th-largest charter/fractional operator in North America is exiting the severe turbulence of the past year.
However, it’s still too early to unbuckle your seat belt and move around the cabin.
Founder, Chairman and CEO Jim Segrave tells Private Jet Card Comparisons, “We have put all the pieces in place. We have the right team. We still need to execute.”
BTIG analyst Marvin Fong, who has NYSE: FLYX as neutral, agrees, calling it a “show-me” story.
The stormy weather includes replacing the revenues from its largest customer, Wheels Up, which accounted for 38% percent of revenue in the first half of 2023 and is still the subject of pending litigation.
That deal dates back to when demand for private jet travel surged in the early stages of the Covid pandemic. Wheels Up kept signing members at the time as other providers shut off sales and needed capacity beyond its fleet.
FlyExclusive, which had just launched its jet card program after being focused on the wholesale market since its inception in 2015, provided the lift via a GRP, or Guaranteed Revenue Program.
In addition to losing that big chunk of revenue, in 2023, the North Carolina-based company was running up bills of over $1 million monthly for financial consultants related to last December’s SPAC IPO.
The euphoria of trading on the New York Stock Exchange was quickly greeted with headwinds.
The transition to public ownership came with non-compliance notices after the company failed to file its Q4 2023 and Q1 2024 financials in a timely manner.
Ballooning expenses related to its legacy fleet jets, which are no longer in production, were out of the public eye. That didn’t mean they weren’t having an impact.
Supply chain issues from windshields to widgets added to reliability woes.
Segrave says dispatch availability across the 37 large cabin, super-midsize, and light jets exiting aircraft was in the low 30% range.
In other words, nearly 70% of those airplanes were unavailable on any given day.
FlyExclusive offers guaranteed availability with fixed pricing with as little as 24 hours’ notice.
What’s more, those fleets were losing over $3 million per month, Seagrave says.
However, in the investor call last night, Segrave said the clouds are parting.
Before looking ahead, here’s a review of Q1 and Q2 2024 numbers.
Revenue in the second quarter dropped from $100.3 million to 79.0 million year-over-year.
Net income from operations went from a $10.4 million profit a year ago to a $ 21.8 million loss.
Net income before taxes went from a $5.8 million profit to a $27.9 million loss.
Comprehensive net income attributable to FlyExclusive, Inc. went from a $7.5 million profit to a $5.2 million loss.
Looking back at the first six months of 2024, revenue for H1 dropped from $177.4 million to $159.0 million.
Net income from operations reversed from a $2.0 million profit a year ago to a $49.3 million loss in 2024.
At the same time, net income before taxes went from a $5.9 million loss to a $60.8 million loss.
Comprehensive net income attributable to FlyExclusvie, Inc. went from a $1.6 million loss in 2024 to an $11.2 million loss in the first six months of this year.
Fong projects full-year revenue to be $330.7 million this year with an EBITDA loss of $51.1 million.
He forecasts the top line to grow to $427.9 million in 2025 and a swing back into the black with an EBITA profit of $18.1 million.
BTIG discloses a banking relationship with FlyExclusive.
On the call, Segrave said that the new CFO, Matt Lesmeiseter, had already cut 95% of the financial consulting costs.
So far this year, 15 of the 37 legacy aircraft have exited the fleet.
“This reduced the monthly loss on these aircraft to less than $2 million per month,” Segrave says.
The reduction in the loss-making has also enabled the company to cut sales and general and administrative expenses.
Headcount has been reduced from 750 at its peak to 620.
Its fleet modernization plan, with fewer aircraft, will result in a reduction of around 20 more positions as more legacy aircraft exit.
BTIG’s Fong adds, “With the busy 4Q selling season still ahead, FLYX could materially exceed its target of having more than 50% of the 37 planes sold by year-end.”
Younger Challenger 350s are replacing the inefficient super mids and large cabin aircraft.
Segrave says dispatch availability of its first Bombardier jet has been over 95% in the first 60 days, a 300% improvement over the aircraft it is replacing.
Plans are to add one Challenger per month, eventually increasing that fleet to 20 stand-up cabin jets.
Further, FlyExclusive is repainting and refurbishing those aircraft via its in-house MRO.
Segrave says the net effect is that his preowned Challenger 350 fractional program will give FlyExclusive a 20% pricing advantage over competitors selling new Challenger 3500s.
Fong notes, “[W]e estimate the fleet of 20 Challengers will generate around $80 million per year of contribution profit versus the $39 million peak annualized loss of the non-performing fleet.”
Segrave says there is a robust pipeline for its CJ3+ and XLS+ new fractional program, with 50 contracts out for signature. Eight of those are for the preowned Challengers.
Even better, the still strong preowned market means FlyExclusive is selling the legacy aircraft at a profit compared to acquisition costs.
That money is being funneled into its fleet refresh.
Regarding the late filings, Segrave told analysts, “We are now fully compliant.”
He promised “institutional level financial reports” for the future.
Its Q1 results, due in May, were just filed yesterday. The Q2 results were filed yesterday, the deadline.
The net is that FlyExclusive now has a “meaningful opportunity to improve on the top and bottom line,” Segrave says.
“I look forward to delivering the types of returns we know are achievable in this business and continuing the institutional-level financial reporting cadence we have established here in Q2,” Lesmeister later posted on LinkedIn.
In addition to losing the GRP revenue, Seagrave says the top line was partly impacted by transitioning to more flying on midsize and light jets, which have lower hourly rates than super mids and large jets.
While pricing has been under pressure, Segrave says FlyExclusive has gained market share in the jet card market and with wholesale customers.
Its second Challenger will be used to launch its fractional program in the super-mid category.
While cash and cash equivalents in the quarter dropped sequentially from $11.6 million to $9.3 million at the end of Q2, the company said it secured a $25 million cash infusion on Tuesday.
In the first six months, despite a stale market, Jet Club and charter revenue were up 37.5% to $146.9 million, offsetting a large chunk of the $66.9 million GRP revenues from Wheels Up.
While charter and jet card flight hours increased by 61.1% gain in flight hours, the hourly rate was down by 14.6%.
However, Segrave says that the drop was driven not by discounting.
He attributes it to fleet mix, with more light and midsize jets flying.
Argus reports charter and jet card flying down 5.2% in the first six months.
FlyExclusive added seven new CJ3+s since 2023’s final quarter as the large cabin Gulfstreams exited.
Seagrave says the average hourly rate will increase as the super-mid Challengers join the fleet.
In H1, fractional ownership revenue increased from $1.8 million to $8.3 million.
MRO revenue more than doubled to $3.7 million.
SG&A expenses are also down by around $1 million per month.
The current fleet consists of 25 CJ3/CJ3+s, 35 Excel/XLSs, and 15 supermids. The latter is a mix of Citation Xs, Sovereigns, and the new Challenger.
New marketing has increased qualified leads.
“I’m bullish compared to three or four months ago,” Segrave said after the earnings call., adding, “We have a clear path.”
The market has been competitive, with transcon rates dropping to under $30,000.
Wheels Up, the 4th-largest player in North America, is paring its King Airs and Citation Xs, its platform for market-leading pricing.
In its earnings call, CEO George Mattson said it will start a fleet modernization program.
Vista Global last week disclosed it is selling its aging Citation Ultra and Citation X fleet.
It will focus on the VistaJet fleet of Globals, Challengers, large-cabin Gulfstreams, and a smattering of Excels.
In other words, the landscape for private flyers could be markedly different a year from now.
FlyExclusive, Wheels Up, and Vista’s XO have been leaders in the value segment.
They often undercut the likes of NetJets and Flexjet in the transcon market by 30%-to-60%.
Pricing up and down the East Coast is also a dealmaker’s delight if you are flexible.
For now, Segrave says he has no plans to change the pricing for his Jet Club jet card (memberships increased by 28%).
Both XO and Wheels Up continue to be aggressive in pricing on high-density routes.
Consumers want lower prices. Our ongoing subscriber survey shows price increases as the top reason you are considering changing programs.
It’s up 20% from last year.
Fixed jet card rates are 22% higher than in 2019 and 30% above those CARES Act FET-free deals.
Flight providers need to make money.
Former American Airlines Chairman Robert L. Crandall used to say in that part of the industry, “You’re only as smart as your dumbest competitor.”
Of course, he had loaded up debt buying new airplanes and adding staff and facilities.
While the strategy made sense, the post-deregulation consumer wanted cheap airline tickets.
Who acquires the legacy fleets from Vista, Wheels Up, and FlyExclusive and how they are deployed will be interesting to watch.
Read the entire FlyExclusive Q2 2024 filing here.
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