Wheels Up’s Q2 2022 headwinds and tailwinds – sales up 49%, loses $93m

Wheels Up, the business aviation membership company, has announced strong sales of $425.5m for its second quarter of 2022. This is up 49% compared to the same three months of 2021.

It grew its second quarter $63.8 million year-over-year to a net loss of $92.8 million. The company is now saying it will be EBITDA positive by 2024.

• Kenny Dichter, founder, chairman and CEO
• Vinayak Hegde, president
• Todd Smith, CFO

Full transcript at SeekingAlpha.com

Tailwinds

Strong Demand

Active members grew 20% from 12,667 from 10,515. Prepaid block sales, of more than $330 million for the quarter and up 180% year-over-year. Revenue flights up 19% to 21,705.

Smith: “We see continued leisure demand, and a steady pickup in business and corporate travel. We are also pleased with this level of growth considering we are comparing to a very strong second quarter of 2021.”

Pricing

Wheels Up has been able to raise prices – it had an index fuel surcharge in Q3 2021 and raised prices in June.

Hegde: “We have a number of pricing levers to both drive future consumer behavior and maximize our return on how our members use our products today.

They include hourly rates by cabin plus, minimum time flown, peak days surcharges, call-off periods and guaranteed availability. In addition, it is important to note that the fuel surcharges were implemented applied to all bookings post June 1st irrespective of the block programs for members previously purchased.

The most important takeaway is that we are managing pricing in a more sophisticated way. We believe these changes will drive a higher contribution margin by reflecting the true cost of the services we provide and a better customer experience by smoothing the demand across the fleet.”

Air Partner acquisition

Wheels Up acquired London Stock Exchange listed company Air Partner on April 1 2022. Air Partner is a charter broker and does not operate aircraft so integration has been relatively simple.

Dichter: “Our Air Partner acquisition is off to a strong start. We are exceeding our expectations on both revenue and profit. I want to command the Air Partner team for doing a great job of bringing new demand onto our platform as their customers fly in North America.

Air Partner also had several important supply relationships that have augmented our overall fleet capacity. At the same time, we are increasingly seeing our customers flying into Europe.”

Single Fleet Management System

Wheels Up has now got all of its fleet (including committed aircraft from third party operators) on a single Fleet Management System.

This is a huge part of integrating the five different operators it has acquired: Alante Air Charter (2022), Mountain Aviation (2021), Gama Aviation Signature (2020), Delta Private Jets (2019), TMC Jets (2019). It acquired Avianis a fleet management software company in 2019 to accomplish this but it has taken longer than planned.

Hegde: “For the first time in Wheels Up history, we have a holistic view of our supply that provides full visibility into our aircraft availability and maintenance, and the schedules support pilots including the vacation and training schedules. This allows us to see upfront where there is a mismatch in demand and supply and adjust accordingly.”

Hegde: “While we can’t always predict the adverse events that can affect our daily operations, our software and technology will enable us to instantaneously address those situations as efficiently and effectively as possible, most importantly this will enable better and safer operations and improve our overall customer experience.

Hegde: We now have the ability to more accurately forecast demands than ever before. Through this forecast, we can reduce stress on our operations by using smart pricing to shape demand and influence customer behaviour. As a result, we can maximize utility on our assets, as well as deliver a more profitable flight schedule.

Wheels Up still needs to get all of its aircraft on a single Air Operator Certificate (it holds six now). This will cut regulatory costs and make operating easier. It now expects US FAA approval for this in 2023.

Headwinds

Economy

Business aviation flights fall in downturns and the management team acknowledged this risk.

Dichter: “While our top-line was strong, we are cognisant of the uncertain macroeconomic environment. We do not expect to be completely immune, but the good news is we believe we have several levers to drive continued growth.”

 Wheels Up ended June with $427m in cash. This was after spending $108m on Air Partner CFO Smith says that it has enough cash: “We have significant cash on hand and balance sheet flexibility, which gives us the security needed to weather the macroeconomic conditions and the time to execute on our key initiatives, which we expect will ultimately deliver profitability. It also gives us flexibility to take advantage of strategic opportunities. However, we will be disciplined with our capital and focused on spending it wisely.”

Pilots, parts and maintenance

Wheels Up is working hard to hire and retain pilots and engineers. Wheels Up hired 350 pilots in the last eight months (more than it hoped). It has also announced partnerships with Delta and ATP Flight School. The company is, however, having issued getting pilot slots for training simulators.

Wheels Up has had some success hiring engineers and will grow mobile service units by 50% this year. This allows it to get aircraft flying again faster. “Given the large number of airports we serve, this is a critical capability,” says Hegde.

It is also investing in parts and other maintenance. There is a shortage of third-party maintenance slots.

“We do not expect the overall macro pressures on pilots, parts, and maintenance to subside anytime soon,”said Hegde. “That is why it’s imperative we proactively address these pressures to continue to execute at a high level.”

Sustainability

Of concern to all business aviation companies. Launched carbon offset programme announced electric vehicle partnership with Hertz. Dichter: “We remain focused on how we can reduce the overall environmental impact of our operations on our aircraft and in our facilities. I look forward to sharing more details on these important initiatives in future earnings calls.”