VistaJet matures but Flohr wants to keep disrupting

Alasdair Whyte
By Alasdair Whyte July 13, 2017 15:21

VistaJet matures but Flohr wants to keep disrupting

Thomas Flohr does not just see himself as an entrepreneur. He wants to be a revolutionary.

Flohr did not launch VistaJet in 2004 because he just wanted to build a company. He wanted to change business aviation. After flying as a charter customer and then buying a Learjet for his own use, Flohr thought that most people were getting a bad experience.

He believed that ownership did not make sense to most customers; that fractional ownership was too complicated; and that many charter flights used tatty aircraft with poor customer service. His solution was selling guaranteed availability rather than aircraft. VistaJet sold Flight Solution Programs (or FSPs where customers bought hours in advance) using simple two page contracts. To do this he ordered new aircraft from Bombardier so he had a standardized fleet.

Not everyone agreed with his plan. Aircraft managers questioned whether anyone could make money chartering aircraft that were owned rather than ones that owners made available for charter. Fractional ownership companies argued that people wanted to own part of their aircraft. After VistaJet launched in Europe many said it would not work in Asia or the US – the most competitive business aviation market in the world.

Flohr does not lack confidence. He was happy to ignore the doubters.

There were even more sceptics when he switched VistaJet’s fleet from smaller Learjets and Challenger aircraft to Challengers and large Bombardier Global aircraft. In 2012 when he placed an order for 56 new Globals many doubted that VistaJet would take delivery of more than a handful.

But VistaJet did. In the last three years, it has doubled its fleet to 72 aircraft. It now has just one order remaining.

As a private company VistaJet chooses when to release its financial data. In July 2017 it announced that total flight hours sold in April, May and June 2017 were up 57%. Program sales – where customers commit to hours in advance – accounted for 63% of revenues. Average utilization was up 11%. The company also announced that it would stop all positioning fees (charges that charter customers pay to get the aircraft to fly to the airport they are at).

But despite this growth, Flohr is not looking to buy more aircraft. He still wants to disrupt business aviation and now he feels he has all the assets in place to do this.

Corporate Jet Investor met with Flohr in his London office to discuss his next plans.

Corporate Jet Investor: In the last four years, you have taken delivery of more than 20 aircraft and launched in the US and Asia. Are you now sitting back?

Flohr: In the three years between 2013 and 2016, we have gone from a company with 27 aircraft to 72 aircraft. Why did we do this? Because we were a regional player. We knew it worked in Europe, the Middle East and Northern Africa, so I took the entrepreneurial decision to do the same thing on a worldwide basis. But to do this we needed to switch from Learjets to Globals.

“I took the brave decision to grow the fleet faster to get to this point where I do not need more aeroplanes to give a global coverage”

Corporate Jet Investor: Did you have to grow so fast?

Flohr: Yes. You have to have the aircraft in place to have guaranteed availability anytime, anywhere and charge people one-way pricing, which worked so well in Europe.

We are replacing ownership. People do not need to buy planes; they buy hours with us. But we have to offer global coverage.

If you have just five aircraft and try to offer guaranteed availability people say: “Come back when you have grown up.”

So that is why we went very fast. We built out this global infrastructure, at a pace exceeding the speed of what my chief commercial officer, Ian Moore, is selling hours at.

I am so proud of what our sales team has built, a company growing between 22% and 25% every year consistently. You will probably tell me that I have a great chief commercial officer. I do. He is great.  But I took the brave decision to grow the fleet faster to get to this point where I do not need more aeroplanes to give a global coverage.

Corporate Jet Investor: So you genuinely are not looking to add anymore aircraft for the next few years?

Flohr: We are done. We may take one or two more aeroplanes.

Corporate Jet Investor: Are you happy for your average fleet age to get older?

Flohr: Right now the average age of the fleet is 2.3 years. So 2.3 years is okay. In 2020, the math is simple, you do not take more aircraft, three years pass by, the fleet is 5.3 years.

Corporate Jet Investor: Which is still in warranty for most of them?

Flohr: Exactly. So now if we continue to grow – and I am not going to make a forward looking statement – if we continue to grow exactly at the same pace as today and we stop taking aeroplanes then the fleet age goes up. By 2020 we are going to have doubled the number of hours flown, because a company growing 25% compound a year doubles every three years.

I am a little more conservative. So until the end of 2020 I have 42 months. We believe just doing what we’re doing so far, we’re going to double this company by end of 2020.

Corporate Jet Investor: Doubling hours flown, but not assets or staff?

Flohr: That is exactly the point. So I have the infrastructure with 72 aeroplanes, I cover the entire globe from Honolulu to Tokyo to Singapore to Mumbai to Dubai to wherever we are. We are very efficiently covering the globe.

So since my investment cycle has now come to an end, if I continue to sell at the same pace as have always done the fleet utilisation is going to double, because if you stop taking aeroplanes the hours go up. I actually believe we will accelerate, but let’s say we are at the same pace.

Corporate Jet Investor: I cannot see you not ordering more aircraft before then.

Flohr: You cannot? We have one more order left. At this point in time, absolutely no. Our order book is done.

Corporate Jet Investor: Manufacturers must be calling you every week?

Flohr: A lot of people call me every week but I’m not buying. Why would I? I want to fill this fleet, I added these aeroplanes not because I love adding aeroplanes. I added these aircraft because of a master strategic plan to cover the globe with silver metallic planes with a red stripe, identical in type, identical performance, identical service in the cabin, to give our clients a true alternative to ownership and that’s what we have achieved.

So now we continue to sell hours and what happens? You know what happens when you stop investing? You add sales, this happens.

This is the start of the sea change of the company. Because we stop taking aeroplanes, we add revenue.

Go back to 2012, 2013, we said “We have got to do it with 70, 75 aircraft.” Nobody believed it.

“I added these aircraft because of a master strategic plan to cover the globe with silver metallic planes with a red stripe”

Corporate Jet Investor: That is partly because at the time everyone thought you wanted 70 aircraft for Europe! At the time you were not talking about the US. In fact in 2010 you said that you would never do America because it was too commoditized.

Flohr: Do you think I’d go out and tell everybody my secrets? Why would I tell everybody what I want to do, I’d rather go and conquer!

Corporate Jet Investor: Why did you decide to cut ferry flights?

Flohr:  This is the whole value proposition, that we have an efficient global infrastructure. I do not need to raise my price to the client, I can be more efficient and make more money. Over the last four quarters, we have had a 4% improvement on ferry. That is massive.

The other guys, the fractional guys, they are focused, they have a home base, they have a home country. It is called the United States. So if they fly internationally they ferry back.

Corporate Jet Investor: A lot of people say that it is impossible to make money with an owned fleet. How do you argue with that?

Flohr: I believe that everybody should do what is best for them. With us our business model would not work if we did not own and control the quality, the service level, the pilot training, the maintenance track record, the infrastructure, the IT, the not subject to owner availability, everything. The numbers are showing it.

Corporate Jet Investor: Why is there so much scepticism?

Flohr: The answer is: I do not know. I really do not know. Perhaps not everyone is ready for it. If you are disrupting an industry of course there is scepticism and people have the right to their own opinion.

It is like a phone infrastructure, if you are not covering the whole country or the whole world people will not subscribe to you, or only partially. We have this existing infrastructure.

All the other people, they live hand to mouth. We start the year with a backlog of customer cash and then the only question is: how many new FSP hours are we selling per year?

In 2016 we sold 10,000 new hours and we believe our corporate target is that we will sell another 10,000 hours this year. We have said this publically.

Corporate Jet Investor: If this happens you are going to get bored.

Flohr: Matteo [Atti – executive vice president of marketing] genuinely just came in and asked me, ‘why are you smiling?’ I promise this is not staged. He said ‘Why are you smiling?’

I said, “I enjoy every day what I am doing and finally after building up this global infrastructure we can now prove with the numbers that it was the right move.”

It was a big move, it’s a $2.5 billion balance sheet. When we met it was $500 million, it is now $2.5 billion. It is very technology driven.

“God bless everybody doing a little bit of technology and all these apps and this and that. With us, it is end to end booking”

I mean God bless everybody doing a little bit of technology and all these apps and this and that. With us, it is end to end booking. Customers go on our app, you go right there, you have an immediate price. Then nobody needs to go and say the flight is subject to owner availability. With VistaJet it is straight through, booking, done.

Corporate Jet Investor: And you already have the money in your account making it much easier?

Flohr: Exactly.

Corporate Jet Investor: But will you get bored and want to do something else?

Flohr: This is just the beginning. This year I think we’re going to fly about 60,000 hours, the market is about 1.8 million hours, 1.9 million hours, we have 3% market share. Let’s talk again about being bored when we have 10% market share.

Corporate Jet Investor: What about an IPO?

Flohr: An IPO is raising capital. I personally do not need any money. If it would make sense for the company to take a strategic investor, IPO, whatever, then we will consider it.

Corporate Jet Investor: You did look at an IPO two years ago?

Flohr: Again, let’s phrase this correctly, we did not look at it, we prepared ourselves. Because if you are a prudent investor, which I believe we are, you prepare the company to access capital markets such as the bond market, such as minority shareholders, such as an IPO. You prepare the company.

How do you prepare the company? You subject the company to a very, very stressed due diligence on yourself. Legal due diligence, market due diligence, financial due diligence, just like somebody from the outside would do.

We have then decided to uplift our accounting standards with E&Y to the standards of the New York Stock Exchange, which is called PCAOB [Public Company Accounting Oversight Board] standards. It means that now the accounting standards are not only the accounting standards of E&Y in Europe, they would fulfil the quality standards to cope with a US IPO. This was a big job, this whole job in due diligence, everything cost me over $10 million.

Corporate Jet Investor: Not a fun job.

Flohr: No. Fun is spending time with customers. Now we uplifted our accounts and every single year since then, 2016 again, our accounts have been audited to the standards of PCAOB. So now if markets are permitting and want to we can IPO. Or if – God forbid – we have to, we can access the capital markets.

Corporate Jet Investor: Although the time to access is when you do not need it?

Flohr: Yes, exactly, the time to access is when you do not need it. We do not need it and we do not feel at this point in time we want to, but we are ready. That is a huge, huge flexibility which people outside the company do not understand. When people criticize us from the outside they have no clue of the level of diligence we run the company with.

Corporate Jet Investor: What are the big themes shaping the industry?

Flohr: OK, I am not going to talk about safety. This is a given, it is something that is at the core of the company. It was from the start and will be in the future.

In term of broader themes, one theme is this that this is a global business. This is a global business full stop.

The second is a massive, massive, massive move away from ownership. It is asset light.

Corporate Jet Investor: The sharing economy?

Flohr: Yes, and I think we are hitting the sweet spot with that. I mean we’re at the forefront of that sharing. We are sharing a $2.5 billion infrastructure with the world community at the top end of the market with a consistent product which is equivalent to the expectations they would have to owning their own fleet, to their lifestyle, to their safety standards, security standards and so on.

“We are sharing a $2.5 billion infrastructure with the world community”

Third one, is end-to-end technology, you have got to have your iPhone all the way to booking, click, catering and everything.

Yes, so technology, technology, technology, everything flows through, look at the volumes we are doing 22,000 flights this year around the globe. Last year we had 18,000. When you track for 22,000 flights, everything has to be technology. Technology for us is a barrier to entry for competitors.

So you asked me about four themes: global, asset light, technology and the last one is the number one, culture.

We have a culture in the company second to none. We have a true customer focused, customer driven, can do attitude culture to the highest moral and ethical standards.

If we have an AOG and it takes 11 hours to ferry a plane in, I am going to ferry it in 11 hours if the customer wants to wait for such an aeroplane. I am not going to short cut it. I am not going to dump him. He is going to get the product he wanted to.

If I have to, there is no financial limit to live up to our contractual commitments and that really, really earns us the business of very large corporations. I cannot share this customer base with you. You would be blown out of the water by the kind of corporations that use us today.

What happened as of second quarter last year is that we started winning businesses, not 100 hours here, 100 hours there. The contract sizes went up to 400, 500 hours. We have one client with a 1,000 hours with us.

It is a corporate and some days they need three planes at the same time on three continents. And why own an aeroplane? I think that is the power of that infrastructure. Of course nobody has done this before us, so how did I know it’s 70 aircraft, 75? There was a lot of math behind it, but at the end when you ask where the scepticism is coming from, nobody has ever done this before. So, of course, people doubt it until you actually prove it. I think that is exactly the track we are on.

I would go back to the number four element of our list here, business culture. Our culture is global. Our flight attendants are trained by the British Butler Institute. They are handpicked in Asia. They are handpicked in India. They are handpicked in the United States, catering to the culture of the client. We are serving Chinese teas when we fly within China.

I think that is really the heart of the company.

Corporate Jet Investor: How many sleepless nights have you had in the last 14 years?

Flohr: I do not think I have had any sleepless nights. You know nothing was easy in the financial crisis, but even then we did not have a year of loss in the financial crisis. Let me say it loud and clear, we were audited by E&Y, so this is not like we are doing our own accounting cooking station here. We are audited by one of the top four.

There is a lot of good stuff coming. It might be a bit boring but it will be more of the same. I have visibility, I run this company from this app. I can be anywhere, anytime, it is right here in my app. I have flights today, I click on that and can track everything.

I am so far away from being bored. I believe it is just the beginning. Now we have built a global brand, now we have 3% market share. We continue to be a real, amazing alternative to full ownership and fractional ownership and we believe that approaching 2019 when we actually have filled up this fleet, then we will be looking at more aircraft.

Alasdair Whyte
By Alasdair Whyte July 13, 2017 15:21

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