Wheels Up pledges 2024 profit

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Wheels Up announced strong second quarter sales growth – with sales up 49% in the last year – but the biggest announcement is that the company is now focused on becoming profitable by 2024.

This is significant. Since its launch in 2013, Wheels Up has been focused on growth. Kenny Dichter, Wheels Up’s founder, CEO and chair, often talks about becoming the “Amazon of business aviation.” It took Amazon nine years to make a profit.  

This is the start of the third stage in Wheels Up’s history. The first six years (2013-2018) were focused on selling memberships for its King Air fleet. We then had the dealmaking years – with seven acquisitions and the SPAC merger. Now we enter a period focused on the bottom line.

In an analyst call yesterday, Dichter was cautious: “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.”

You can bet that Dichter will of course keep pushing growth. Vinayak Hegde, president and Todd Smith, its new CFO, were clearly focused on making the company more efficient.

“None of us are satisfied with the current level of profitability of this business. So, we are going to work very, very hard to accelerate that and make that happen as quickly as we can,” said Smith, who joined from GE six weeks ago.

Smith said that the company would try to become profitable before 2024. Cynics can say that the SPAC investor presentation projected Wheels Up making $8m in adjusted EBITDA this year rising to $120m in 2024, but this commitment from a (now) listed company means more. 

Wheels Up had negative EBITDA of $46.9m in the second quarter – compared with a loss of $8.5m in 2021. This brings its EBITDA loss for the first six months of 2022 to $96.3m (versus $17m in 2021). Wheels Up expects to lose between $42m and $47m in the third quarter.

It is not short out of money. Wheels Up ended June with $427m in cash. This was after spending $108m on Air Partner, the global charter broker. It also has an unfinanced fleet if it needs to raise money.

“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,” said Smith.

Smith said that the company is focused on making aircraft operations more efficient and this will make a big difference to profitability. Wheels Up will also keep looking at changing revenues and programmes, with things like fuel surcharges, higher pricing, raised minimums and lower guarantees if needed. It also very much focused on technology – it spent $7.4m on software in the last quarter alone.

Hegde says Wheels Up has finally added all its owned, managed and committed aircraft to a single flight management system.

“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,” says Hegde. “This allows us to see upfront where there is a mismatch in demand and supply and adjust.”

Hegde says they can use this to schedule more crew and avoid maintenance on peak days. It also allows Wheels Up to react to changes quickly and accurately forecast demand. On quiet member days the company can also offer wholesale charter on its aircraft.

Hegde says that Wheels Up has 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 having issues getting pilots trained on simulators.

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.”

 Wheels Up will have a single aircraft operator’s certificate next year which will also make operating more efficient.

It would be a mistake to rule out Wheels Up closing another acquisition. But the company seems more focused on integrating existing businesses rather than buying new ones. CFO Smith says they have: “Just a little bit of flexibility in case there’s something strategic that comes along that we want to invest in. There is a high score rate that we are going to be very judicious with any decisions there.”

 Wheels Up’s share price rose 2% after its results were announced to $2.84 a share today (upp 11%). It has traded between $1.82 and $8.89 in the last year.

Dichter is confident that the company can keep growing. Wheels Up is expecting its third quarter revenue to rise 25% year-on-year. This is astonishing growth. It is predicting full year 2022 revenue of between $1.48bn and $1.53bn compared with $1.2bn in 2021. Dichter highlights that its revenue was $332m in 2018.

“I think we see a lot of enthusiasm about business travel, which hasn’t really shown up in the last couple of years,” said Dichter. “I think that coupled with our service and now the global platform that Air Partner affords us, we feel good about the demand.”

 Although he is definitely “cognisant of the uncertain macroeconomic environment” this bullishness sounds more like the Dichter we know.

 

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