Brad Stewart’s business card simply says CEO and chairman, XOJET.
But he actually runs three different companies. There is XOJET, the fleet operator; the company’s Aviation Advisors, XOJET Private Client Services – the charter brokerage; and GMJ Shuttle, which operates corporate shuttles for Fortune 100 companies. He is now looking at adding aircraft management.
“These are all very different businesses but they are connected and stronger together,” says Stewart. “At one level the brokerage and XOJET’s fleet operations are both about advising and serving customers. There is a real synergy there. XOJET and GMJ – no one ever focuses on GMJ – are also the best operators of aircraft in the world – with the highest return on capital in the industry. They do not have to be under the same brand to benefit from synergies.
Stewart says that the three companies also benefit from scale including sharing a management team.
He says that he wants XOJET to be seen as a trusted adviser for individuals and companies looking to fly. This can include using XOJET aircraft or a fleet of 1,087 aircraft that have been vetted by his team. In 2016 much of the charter brokerage was focused on smaller or larger aircraft than XOJET operates. The company says that light jet and heavy jet charter was up 22%.
The three different businesses also give the company diversity. GMJ Shuttle runs corporate flights for large Fortune 100 businesses – a stable, profitable but slow growing division. Charter broking is profitable, relatively low-risk but low margin. XOJET – which owns its aircraft – is a riskier business with potentially higher rewards.
The company was founded in 2002 as PCMT by tech entrepreneur Paul Touw (now launching charter market Stellar). In 2006 it was renamed XOJET and ordered 12 new Cessna Citation X aircraft. In 2007 it raised finance from TPG – one of the greatest aviation investors ever. It used this cash to placed orders for new aircraft including one for 20 Bombardier Challenger 300 jets worth $450 million. By 2012 it planned to be operating a fleet of 127 aircraft worth $3.1 billion. In April 2008 XOJET announced its international plans.
But then the global financial crisis hit. Demand for business jet charter fell sharply. The company was forced to change its business plan. Touw left (he has since launched Stellar a business jet charter marketplace). Stewart came in as adviser in 2010 and was promoted to president in 2013. “XOJET was effectively bankrupt in 2009 and 2010,” says Stewart. “The business model was not capable of surviving a terrible market so the company restructured in 2011 and 2012. It is much stronger now.”
The company had sales of more than $300 million in 2016 and Stewart says that it has been profitable for three years.
The six principles of owned charter
The majority of aircraft that are used for charter in the US are owned by individuals or companies that make them available when they do not need them. This means that most charter companies do not worry about ownership costs. XOJET is one of a relatively small number of charter operators that own aircraft.
Despite ownership costs, Stewart believes that there are benefits from an owned fleet. As a former management consultant, he has identified six principles that an owner-operator needs to be profitable. These are: a closed loop network; a floating fleet; high utilisation; direct distribution to customers; dynamic pricing; and scale advantages. Although he highlights that these principles may not work for new aircraft.
XOJET meets all of these tests.
More than 80% of passengers on XOJET aircraft come from its own sales team, including its programmes. The company says that it sold more than 950 programmes in 2016. This programme includes Preferred Access (for a refundable $100,000 deposit); Elite Access (guaranteeing availability at 12 hour notice for $200,000 deposit and $8,500 hourly fee including fees and surcharges); and an Enterprise Access for corporates.
In the last few years, XOJET has also added sales offices in New York and Los Angeles to boost its direct sales. It is also about to open a new office in Palm Beach, Florida. This is on top of its headquarters in San Francisco and an operations centre in Sacramento.
Most of the 20% of passengers that it does not sell directly come from charter bookings made from broker Sentient Jet (part of Directional Capital) and JetSmarter – both XOJET preferred partners.
XOJET boosts its utilization by not basing aircraft at one airport and having just two types (this also saves on crew and maintenance costs).
He believes any owner-operator needs a minimum of 15 aircraft. XOJET now has a fleet of 41 super midsize aircraft (GMJ has another six). In January 2017 TPG also acquired TMC, which had been XOJET’s preferred travel provider for a number of years. TMC has another 55 aircraft. He does not plan to order any more aircraft for XOJET soon.
He has no plans to launch XOJET outside the US but he is keen to add aircraft management – something the company stopped focusing on in 2006.
“We have clients who are flying a lot and we can help advise them on the pros and cons of owning an aircraft versus programme,” says Stewart. “We have a fantastic platform and can offer owners great service. And it fits into our advisory strength.”
He says that the company can launch management itself but is also interested in acquiring significant management companies.
The future for charter
With XOJET, his consultancy background and a place on the JetSmarter board, Stewart has a wide view of the US business aviation market. He also spends a lot of time thinking about it.
“There are three key themes at the moment,” says Stewart. “Private airlines like Surf Air or JetSuiteX offering fixed schedules; digital brokerage like JetSmarter, Victor and others; and plane sharing.”
He is not convinced all of them will necessarily succeed. “As a former consultant to United I know how tough the airline market is. Airlines have trouble making money when they cannot fill aircraft. It is much harder with five or six passengers and smaller aircraft,” says Stewart. “But we are not in this market so I don’t know how big it can become.”
Stewart is also unsure if selling individual seats on other routes will work.
“Plane sharing is still unknown.”
“Plane sharing is still unknown. It seems to work on some fixed routes but I am not sure how big this,” says Stewart. “But we are seeing JetSmarter and Wheels Up try it.”
Although he is watching new business models closely he does not see any direct competitors. “We operate in a very different market. Our customers are prepared to pay more for a whole aircraft and have customers with very different requirements,” says Stewart.
But he is convinced that digital brokers will shape the industry. “Digital brokerage is the idea that customers can push a button and get a jet. This is happening. This is a real thing. You have to have an app and online offering.”
JetSmarter announced what it called a strategic partnership with XOJET in 2016. JetSmarter favours XOJET aircraft when its customers charter mid-size aircraft and JetSmarter is developing an app for XOJET customers. Significant XOJET customers – ones spending more than $200,000 a year – also get free membership of JetSmarter.
Stewart is a member of JetSmarter’s board and believes that tech company is not understood by many in the market. “JetSmarter is first and foremost a digital story and secondly a plane story,’ he says. “JetSmarter is the undisputed leader in business aviation.
Private equity typically does not hold on for 10 years but Stewart says that XOJET’s investors and co-owner TPG are prepared to wait. “TPG is a wonderful investor,” he says. “We are responsible for getting a great return but there is no pressure for us to sell.” He is an adviser to TPG on aviation and points to its investment in TMC as its support for the sector.
“I am not the sort of person who is jealous of someone with a washboard stomach.
He laughs when asked if he is jealous of JetSmarter’s valuation. “I am not the sort of person who is jealous of someone with a washboard stomach. My parents taught me to be happy with what I have and I am very proud of XOJET.”
He adds: “It is fantastic being responsible for a whole enterprise. I wake up in the morning and go to run a $500 million business with thousands of clients who are interesting people. It is also satisfying seeing how the business has changed,” says Stewart, “and we have not reached our full potential yet.”