Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: Tomorrow, Carol, I'm going to do what millions of other
Speaker 2: people are going to be doing. Lucky you are going
Speaker 2: to wake up in the middle of the night. I'm
Speaker 2: going to struggle to install some car seats in the
Speaker 2: uber to get to the airport at four am. Fly
Speaker 2: with the entire family somewhere for the holidays. In my case,
Speaker 2: we're have a little layover in Denver before we make
Speaker 2: our way to a much warmer part of the country.
Speaker 3: No complaints, but you're crossing your fingers that everything goes well.
Speaker 2: Crossing my fingers that everything goes well. I'm not alone.
Speaker 2: The trade group Airlines for America says that a record
Speaker 2: fifty four million passengers will fly on airlines in the
Speaker 2: US between December nineteenth and January sixth. You know it
Speaker 2: would be nicer than doing that, Uh yeah, flying on
Speaker 2: a private jet.
Speaker 4: Well, we've got a perfect person to ask about that.
Speaker 4: Michael Silvestro is chief executive officer of the fractional private
Speaker 4: jet firm flex Jet. They own and operate and maintain
Speaker 4: some three hundred aircraft, and he joins us here in
Speaker 4: our Bloomberg Interactive Broker studio. He's also a former football player,
Speaker 4: which is really kind of cool.
Speaker 5: Yes, good, good, good research for you.
Speaker 3: Really impressed tonight, Gars, exactly. Welcome, welcome, How are you?
Speaker 5: Thank you, thank you for having me. I'm great, thank.
Speaker 3: You, well, it's great to have you here.
Speaker 4: We have spent a lot of time talking about private
Speaker 4: aviation over the last I want to say, especially kind
Speaker 4: of the pandemic.
Speaker 3: It just felt like all of a sudden it took off.
Speaker 4: Nobody wanted to be Those who could afford it would
Speaker 4: tap into it in a big way and really saw
Speaker 4: it take off.
Speaker 3: Tell us where we are in this marketplace right now.
Speaker 1: So just like everyone else, that pandemic brought travel to
Speaker 1: a halt. But coming out of the pandemic, we've seen
Speaker 1: a couple of macro trends. First of all, people who
Speaker 1: had the ability financial wherewithal to fly privately before the
Speaker 1: pandemic who chose not to are all in now convenience.
Speaker 3: They started it and they've stayed with it.
Speaker 5: Absolutely.
Speaker 1: Our retention rates of those that have come in after
Speaker 1: COVID are running ninety seven ninety eight percent. So if
Speaker 1: you have a sense just to give your sets of metrics,
Speaker 1: we were on a very very strong run pre COVID
Speaker 1: coming out of the pandemic. Like if you look at
Speaker 1: our book of business today from where we were five
Speaker 1: years ago, it's up sixty percent. Wow.
Speaker 2: When do we talk who is flying? I know, democrats.
Speaker 2: Demographics have shifted quite a bit for you guys in
Speaker 2: recent years. You're seeing more and more young people. Yeah,
Speaker 2: now become part of the program. People in their forties.
Speaker 2: What's the demographic looking mind.
Speaker 1: Yeah, timm so coming the last The macro trend is younger, bigger,
Speaker 1: and longer. So a generation ago, a man or a
Speaker 1: woman would wait till maybe late fifties sixties to start
Speaker 1: flying privately. Today young men and women in their forties
Speaker 1: are all in. Secondly, they're not starting with small airplanes,
Speaker 1: you know, they're not starting small and moving their way
Speaker 1: up the food chain. They're in on mid supermd and
Speaker 1: heavy jets, and they're going all over the world. So
Speaker 1: the number of transatlantic crossings we did this summer to
Speaker 1: Europe were unbelievable. So people are just going everywhere.
Speaker 4: Remind us and our pursuits team often taps into this,
Speaker 4: but remind us kind of the financials in order to
Speaker 4: do to be a customer on one of your jets.
Speaker 1: Sure, well, depends upon it really all depends upon your missions,
Speaker 1: which can be easily defined as where do you go
Speaker 1: off and with how many people, and that kind of
Speaker 1: helps us create a profile of you and what airplane
Speaker 1: and services would best serve your missions. So you know,
Speaker 1: if you take a mid sized airplane a preet Er
Speaker 1: five hundred for member air for instance, for us, the
Speaker 1: buy in on a whole aircraft basis is about twenty
Speaker 1: million dollars, So you end up saying, hey, I want
Speaker 1: to fly one hundred hours a year, So that's about
Speaker 1: a two and a half million dollar check, and then
Speaker 1: your management fee and then your hourly rates roll up
Speaker 1: to for one hundred hours, you're talking about not quite
Speaker 1: a million dollars a year an operating costs.
Speaker 2: So when you say fractional jet, you're actually owning a
Speaker 2: piece of the jet. Yeah, you know, Timo's that's different
Speaker 2: than other firms.
Speaker 1: It is, and the model for us is is that
Speaker 1: we own and operate over three hundred airplanes. But when
Speaker 1: you buy a ship, you're actually purchasing an undivided interest
Speaker 1: of a serial numbered aircraft that is part of our fleet.
Speaker 1: So as an individual owner. You can depreciate it, you
Speaker 1: can finance it, but then you allow other flexjet owners
Speaker 1: to fly on your plane and vice versa. So the
Speaker 1: master Interchange agreement allows the operating metrics to work.
Speaker 2: So let's go with that. With that embryer two and
Speaker 2: a half million dollars buy in, and then operating costs
Speaker 2: that are associated with it, what are those typically?
Speaker 1: Usually well, for one hundred hours a year, it's you know,
Speaker 1: by the time you do a management fee in an
Speaker 1: hourly rate, it ends up to be about eight to
Speaker 1: nine thousand dollars an hour.
Speaker 2: So to make this it's you know, it's some people
Speaker 2: would say it's it's hard to make it worth it.
Speaker 2: You know, no matter how much you fly, it's about convenience,
Speaker 2: it's about comfort. It's about time not spent at you know,
Speaker 2: Newark Airport, yeah or whatever. Who's the typical profile in
Speaker 2: terms of like net worth that that make this choice.
Speaker 1: Yeah, So there's really two i'd say major constitution tints
Speaker 1: that fly ultra high networth individuals that are using it
Speaker 1: for a combination of business and pleasure.
Speaker 2: These are people thirty million dollars and above. Typically networks
Speaker 2: think network that's a good benchmark. And then what we've
Speaker 2: seen recently is a lot of corporate flight departments are
Speaker 2: using fractional flexjet to supplement their own airplanes. So they're
Speaker 2: not going away. People are still going to have aircraft
Speaker 2: in their flight department, but rather than buying the fifth
Speaker 2: or sixth or seventh one, it's a smarter way to
Speaker 2: deploy capital where you just engage in a fractional share
Speaker 2: in addition to the airplanes that you fly yourselves.
Speaker 3: All right, so who's using your jet card?
Speaker 5: The jet card?
Speaker 1: So we have a very robust business that we own
Speaker 1: in the family of companies called Cention Jet. So you
Speaker 1: buy a block of twenty five hours, it's like a
Speaker 1: big gift card in the sky. And so and you
Speaker 1: buy them in a category of an airplane, not necessarily
Speaker 1: a specific aircraft type. So that would just be for
Speaker 1: someone who's an occasional user. That would average only about
Speaker 1: twenty to twenty five hours a year.
Speaker 3: Okay, so not too much.
Speaker 2: And would you see but would you see it? The
Speaker 2: person the profile of that person is not an ultra
Speaker 2: high net worth individual. Maybe they have many millions of dollars,
Speaker 2: but they're not actually buying a two and a half
Speaker 2: million dollars share right in an aircraft.
Speaker 1: They would be I would give you two examples. The
Speaker 1: difference would be perhaps they don't have the financial wherewithal
Speaker 1: or the net worth that a fractional customer would, But
Speaker 1: they might and they would just only buy a jet
Speaker 1: card because of their frequency of use. So you could
Speaker 1: be very, very wealthy. But you just hey, I have
Speaker 1: two or three trips a year, so it's not worth
Speaker 1: me investing in a fractional share and make that commitment.
Speaker 5: You just do a jet guard.
Speaker 3: What's the biggest business for you, guys? Where do you
Speaker 3: make the most money?
Speaker 1: Oh, fractional so flexjets model, which is very you know,
Speaker 1: there's all these ways.
Speaker 5: To get on board.
Speaker 1: But the beauty of the fractional model is our recurring revenue.
Speaker 1: So once you're in the family, once you've bought or
Speaker 1: leashed your share, you're paying a management fee. Just like
Speaker 1: belonging to a country club, whether you go for dinner
Speaker 1: or play golf, you still expect a level of service
Speaker 1: when you show up. You want the greens mode, You
Speaker 1: want a wonderful menu. Same thing for us to deploy
Speaker 1: and to have on the ready three hundred airplanes around
Speaker 1: the world. That takes a significant infrastructure.
Speaker 3: It also takes pilots.
Speaker 4: And one of the things that we've talked about a
Speaker 4: lot I feel like tim with people in the aviation
Speaker 4: industry is the.
Speaker 3: Shortage of pilots. How are you dealing with that? And
Speaker 3: tell us what color you can give us?
Speaker 1: All, Well, that's a wonderful question. I would tell you that.
Speaker 1: One of the things I'm the most proud of is
Speaker 1: that the Flexjet pilots on their own voted they when
Speaker 1: we bought the business, they were unionized, and they voted
Speaker 1: to have an at WEILL relationship with senior management as
Speaker 1: opposed to being represented by a union. So we have
Speaker 1: from the get go. Well that was about six or
Speaker 1: seven years ago. Okay, so we have a wonderful relationship
Speaker 1: with our pilots.
Speaker 5: A couple things.
Speaker 1: Number One, we are committed to having the highest paid
Speaker 1: pilots in the sky.
Speaker 5: We also have.
Speaker 1: We're very we really try to operate on a familial
Speaker 1: culture and so we end up treating people with great
Speaker 1: respect and care and we just we just we just
Speaker 1: we just know how to treat people.
Speaker 2: Where do your pilots come from?
Speaker 5: All over them? A lot out of the military.
Speaker 2: So those are on the younger side. Do you have
Speaker 2: folks who retired from the big airlines?
Speaker 5: We do, not a lot, but you know, because.
Speaker 2: There's mandatary sixty five.
Speaker 1: So I just flew with a guy that had been
Speaker 1: with us less than a year. He was sixty six
Speaker 1: years old, incredibly fit and competent, and so we're happy
Speaker 1: to have them.
Speaker 3: Is it hard to find them though? That's what I
Speaker 3: just kind of go next to the defanse apply.
Speaker 5: Well, here's something else we did.
Speaker 1: You know, we were noticing what our attrition rates were,
Speaker 1: and we noticed a couple of years ago. Because one
Speaker 1: of the things that speaks to our culture is we
Speaker 1: don't have a train contract, so we take you at
Speaker 1: your word. So if you apply and get accepted as
Speaker 1: a job as a pilot for Flexjet, we don't we
Speaker 1: train you. We invest them money in you, and you
Speaker 1: are not obligated at all.
Speaker 5: There's no there's no.
Speaker 1: Payback in case you leave us. So a lot of
Speaker 1: people were negatively profiling in US, coming, getting trained, and
Speaker 1: then leaving after about two years or so. So one
Speaker 1: of the counter intuitive things we did was we raised
Speaker 1: our minimums.
Speaker 5: So while everybody was in.
Speaker 1: The face of a pilot shortage, you would think, well,
Speaker 1: you'd lower your minimum.
Speaker 2: Tract more people.
Speaker 5: We would raised ours.
Speaker 1: To three thousand hours as a minimum.
Speaker 2: So that's what you need to have under your belt
Speaker 2: in order to become.
Speaker 5: A flexjet pilot.
Speaker 1: Only fifteen hundred hours, so twice as much as what
Speaker 1: the industry calls for and what we have attracted in
Speaker 1: the last two or three years since we've done this
Speaker 1: is someone who's more career minded that they want to
Speaker 1: come to Flexjet because they appreciate the culture, the compensation,
Speaker 1: the work rules, the environment, and our retention rates had plummeted.
Speaker 2: Where were they going when they were leaving to the airlines.
Speaker 2: What do you find when somebody who owns a fraction
Speaker 2: of a jet wants to use that jet, but then
Speaker 2: somebody else is using it.
Speaker 5: Well, that's the beauty of the model. That's not their problem,
Speaker 5: that's my problem.
Speaker 3: Does it happen a lot?
Speaker 1: No, No, we end up having this the model. So
Speaker 1: we as a company, we own about twenty percent of
Speaker 1: our fleet ourselves.
Speaker 5: It's called core.
Speaker 1: Fleet, so we don't commit out about one out of
Speaker 1: every five planes, and that's what we need to avoid.
Speaker 4: What you just asked me, can you use data AI
Speaker 4: or something to help you figure out kind of what
Speaker 4: we're just curious.
Speaker 1: Yeah, you know, we're still We have a very sophisticated
Speaker 1: scheduling program that we created ourselves, but then we also
Speaker 1: add very experienced schedulers that look at the board and
Speaker 1: say how we move things around to make sure that
Speaker 1: we take care of our customers.
Speaker 3: I can only imagine there must be like a room.
Speaker 5: How it is so Actually, no, it is a room.
Speaker 1: It's a beautiful, brand new, just year old global command
Speaker 1: center that we built in Cleveland, Ohio, which is our
Speaker 1: headquarters where we have visibility into our entire fleet around
Speaker 1: the world.
Speaker 3: Pretty cool stuff. Mike, thank you so much.
Speaker 1: Thank you for having me very much, very Christmas.
Speaker 5: To both here.
Speaker 3: Yeah, look forward to talking again in the new year.
Speaker 5: Thank you.
Speaker 3: Mike Selvestro, Chief Executive Officer.
Speaker 4: A flex jet joining us right here at our Bloomberg
Speaker 4: Interactive Brokers studio