Wheels Up struggles to balance demand and supply


Wheels Up’s third-quarter results came out last week and they are a great insight into the whole US business aviation market. Compared with the same three months in 2020, sales were up 55%; active members up 45% to 11,375; and live flight legs up 52% to 19,714. Demand is clearly there.

But it made an adjusted loss of $24m for the quarter – versus an $8m loss last year (which admittedly included some government CARES funding).

“While we believe we have performed better than most this quarter, we haven’t met the high expectations that we have set for ourselves and our brand. As much as external factors have driven most of the challenges, we will not rest on that as an excuse,” said Kenny Dichter, founder, CEO and chairman Wheels Up, on an analyst call last week.

Dichter said that the company did not have enough pilots for it is core owned fleet, so flew less than in the second quarter of 2021. Its third-party charter suppliers – many on guaranteed rate programmes where Wheels Up commits to days or weeks – had similar problems. Maintenance and parts delays also made things worse.

This means it was hit by higher costs when buying third-party charter – it saw spot-charter prices rise by 20%. Wheels Up also needed to upgrade some members on to larger (and more expensive) aircraft to make flights happen.

To help solve these problems Dichter says they are out hiring 150 pilots and 100 technicians. It is also increasing pay, improving conditions (like hotels for pilots) and has launched an innovative stock incentive programme. It is looking to buy some King Airs and Citations to grow its owned fleet.

While it is still out selling memberships, it is also looking to manage demand. New members who deposit less than $100,000 now must wait 90 days to fly. Prices have also risen on its core fleet. But Dichter says he is more interested in keeping members than short term gains. “The most valuable brands in the world are built by doing the right thing for their customers over the long term and not taking shortcuts in the near term.”

The number of aircraft under management fell to 160 at the end of the quarter. Wheels Up says it could lose another 20 aircraft before the end of the year. Wheels Up hopes to grow this business in 2022 but is focusing on aircraft owners who want to benefit from charter. “Charter friendly managed aircraft are an increasingly important source of supply for us as it allows us to flex up our capacity at pre-negotiated rate,” said Eric Jacobs, CFO of Wheels Up.

Dichter is confident that it can improve supply through technology – as it becomes what he calls the Amazon of aviation. “The reality is our growth has exceeded even our most optimistic expectations and the broader industry is still largely functioning on our analogue systems,” said Vinayak Hegde, the new president of Wheels Up who held senior roles at Airbnb and Amazon. “We will optimise this marketplace by building a trusted platform where supply and demand meet efficiently providing liquidity to operators with great selection, price and convenience to our customers.”

Hegde says that they can do this using data and machine learning to optimise flight, maintenance, and crew schedules, cut empty legs and improve utilisation. But it will take time. Wheels Up is also out hiring 50 programmers.

The loss in this quarter means the company has made an adjusted net loss of $41m in the first nine months of 2021. In its pre-IPO prospectus, it had forecasted an adjusted loss of $29m in 2021 and an $8m profit in 2022. This may now be pushed back. At CJI Miami, Dichter said that the company’s investors are happy to forgo short-term profits in return for a larger company. This is again like Amazon. The online retailer was launched in 1994. It went public in 1997 and made its first full year profit in 2003.

“We believe the challenges are largely in our control, fixable and being addressed today,” said Dichter. “With seemingly no end in sight to the continued demand for private aviation from both consumers and businesses, we are more encouraged than ever, but it will take some time and patience to address these supply constraints and increase costs.”

The only way is …  Wheels UP CEO Kenny Dichter said: “We believe the

challenges are largely in our control, fixable and being addressed today.” 

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