Story ID: 046
Wheels Up Focusing on Business Travelers
By: Mark Huber
Caption: New programs designed to entice small and medium businesses
Word Count: 1354
Wheels Up's new CEO, George Mattson, has a message for customers: “We're going to be very much of a ‘show me’ and not a ‘tell me’ company,"
Mattson, who stepped in to lead the financially beleaguered company in early October, further vowed, "We're just going to go get it done and then tell people what we did. We’re going to deliver operational excellence and consistency, Our stated goal is to become the best-run private aviation company and we are delivering tangible, measurable progress every week, every month.”
He inherits the helm at a membership and charter private aviation provider that has been rocked by performance problems and nearly $1 billion in losses in recent years and is now seven months into a reorganization plan. That plan concentrates on implementing primary service areas, reducing deadhead legs, improving operational performance, rebalancing its client base to focus more on business clientele, and leveraging its relationship with Delta Air Lines to provide “seamless” solutions to its customers that integrate premium airline and private aircraft travel.
Ideally, Mattson would like to see a customer mix that is 50 percent business customers and 50 percent leisure travelers and within that universe, 50 percent on-demand charter and 50 percent coordinated program offer, as opposed to the company’s historical emphasis on leisure travelers, which has been 90 percent of the business.
Rebalancing the mix would optimize aircraft utilization, he said. “We’d spread out demand Monday through Thursday with corporate [customers] and Friday through Sunday with the individual leisure travelers,” he said, adding that Wheels Up 2.0” will offer customers "much more of a solutions-based, go-to-market strategy” that can accommodate both members and non-members worldwide with the assistance of its Air Partner charter brokerage in Europe.
As an example of how this would work, Mattson cited the hypothetical case of a member who flies Delta to Paris, then connects to an Air Partner-brokered private jet flight to Poland, flies back on Delta, and then catches a Wheels Up flight to South Carolina.
Wheels Up has shed membership year to date as it focuses on two main service areas—east of the Mississippi River and in the southwestern U.S., primarily California—but already has seen a financial benefit from the reforms. It has been aided by $500 million in loans and a credit line from Delta, Certares Management, Knighthead Capital Management, and Cox Enterprises received in September in exchange for a stock position that has grown to 95 percent ownership of the company.
CFO Todd Smith said no current payments are due on those loans and, while the principal will have to be eventually repaid, the interest is paid in kind via the value of the stock. He said that the company is looking at adding another $50 million from a to-be-determined investor but noted that the current capital infusion is sufficient to meet the company’s needs. “Our belief is that we're comfortable that the funding that we've raised is what we need to execute our business plan and turn [the company] around," he said. "We've been on a journey over the last year to improve the profitability of the business and fix our cost position—we've taken a lot of cost out already."
The Delta-Wheels Up connection has grown in recent months with the addition of Mattson, a Delta director, the current lead investor and chairman of seaplane operator Tropic Oceans Airways, and a former partner at the investment banking firm of Goldman Sachs, where he was responsible for oversight of transportation and airline practices. Mattson is based in Atlanta, the location of Wheels Up’s new operations center.
Other current and former Delta executives who have recently joined the company include Dan Janki, Delta’s CFO as Wheels Up chairman; and Dave Holtz, Delta’s former chief of operations, who is serving as president of operations at Wheels Up and will run its new 35,000-sq-ft consolidated operations control center in Atlanta, which opened in May. Mattson credits Holtz with transforming Delta over a decade from an airline tarred with a reputation of “operational mediocrity” to one known for “operational exceptionalism and excellence.”
“[FAR] Part 121 and Part 135 aren't exactly the same, but they're more similar than different in many respects and we're taking a lot of those same disciplines, processes, procedures, and focus on execution to the operation,” Mattson said, stressing that the immediate goal for the company is delivering consistency of service, using an airline analogy, comparing Delta to two luxury competitors.
“Delta is not Emirates [Air Lines] and it’s not Singapore [Air Lines]. But when you get on a Delta airplane you expect something and you tend to get it—or a little better. We’re trying to get to the same place: you expect something from Wheels Up and you get it. That level of consistency and discipline is where we are going.”
Delta CEO Ed Bastian praised the new team, which is largely comprised of current and former Delta executives and individuals previously or currently associated with the company. "With new leadership in place, Wheels Up is well-positioned to drive strategic, operational, and financial improvements for its customers and stakeholders in the months and years ahead,” said Bastian, whose company infused Wheels Up with $70 million in August—since repaid.
Delta holds a 40 percent equity stake in the company and is its largest shareholder. Smith said that $150 million of the $500 million in new money available to Wheels Up is a credit line that the company has yet to tap, and he suggested that Wheels Up's cash-burn rate is improving. “Once the dust settled by late September, we saw a very positive [customer] response to the removal of the uncertainty [about the company’s future] and the announcement of new [investors],” he said.
Because Wheels Up is a publicly traded company, Smith could not provide specifics per securities rules as he spoke within 30 days of the company releasing its third-quarter financial results. Wheels Up’s owned and leased fleet stands at approximately 180 aircraft, according to Smith, with 60 being King Airs. At one time, Wheels Up operated nearly 76 of the turboprops. It is in the process of consolidating its various Part 135 certificates, a task that Mattson hopes will be completed next year.
The situation arose as Wheels Up went on an acquisition binge to add capacity, buying charter operators including Gama Aviation, the Travel Management Company, and Mountain Aviation. The company also has access to another 1,200 vetted aircraft from its partner providers.
Smith held out the possibility that Wheels Up might dispose of additional aircraft as it right-sizes its fleet. In November, Wheels Up launched its “Up for Business” program, aimed at attracting more small and medium-sized enterprise (SME) members with discounts and tailored benefits.
The program offers significantly reduced deposits, initiation fees, and annual dues; a contract term of 18 months; and a round-trip discount. Up for Business members also will have access to a second aircraft on the same day once per quarter. The feature is designed to cater to companies that do not allow key senior executives to travel together.
Wheels Up now offers two programs for corporate fliers: Up for Business for small and medium-sized companies (with either a $250,000 or $300,000 deposit) and its existing business membership for larger businesses/high-volume fliers focused on custom enterprise solutions (with either a $500,000 or $1 million deposit). Both programs come with travel benefits from Delta.
Up for Business members depositing $250,000 will receive one SkyMiles Diamond Medallion designee and members depositing $300,000 will receive two. All members will continue to have the ability to use funds on deposit for both private travel with Wheels Up and commercial trips on Delta. "Wheels Up is an integral part of Delta's portfolio of premium, corporate flight solutions providing unique benefits to our respective and joint customers," said Bob Somers, Delta senior v-p of global sales. "The Up for Business customer is an important segment within the total addressable market for business travel.”