Last December, Scott Duffy got the kind of offer every entrepreneur dreams of receiving. The 37-year-old former dot-com executive had been trying to raise funds for an online booking site for charter aircraft. Coincidentally British billionaire Sir Richard Branson, founder of the Virgin Group, had been studying the same opportunity. That's when Duffy says the Branson camp called with a tantalizing offer: "We want to give you much more money than you ever imagined you'd need, and we'll put all of our marketing behind it." Duffy quickly forgot about other investors. "It wasn't even a choice," he says.
On June 12, Duffy launched an invitation-only maiden flight of the new business, Virgin Charter. He hopes to have the site open to the public by this fall. Branson and Duffy hope to capitalize on the booming, $10 billion-a-year charter aircraft industry. Private aviation has been in a steady climb since the 2001 terrorist attacks increased the wait time and frustration of commercial airline travel. Not everyone can afford to buy their own planes, of course, and even the folks who do own them frequently try to offset the costs by chartering the aircraft out when they're not using them. That's where services such as Virgin Charter come in, acting as middlemen for travelers looking to charter a business trip or high-end vacation.
EBay for Private Jets
Private aviation is a crowded, fragmented market. There are some 2,500 charter aircraft operators in the country. Most of them own just three or four planes. There have also been a number of players trying to address the online booking market, among them Blue Star Jets and AirCharter.com. John Maguire, who runs JetTrip.com, says it's very hard to get up-to-the-minute pricing and availability information from the charter operators: "We spend 10% of our time on the phone with customers and 90% tracking down available jets."
Virgin Charter hopes to bypass some of those problems by creating what's essentially an eBay (EBAY) for private jets. Customers will input their desired trips and charter operators will bid for their business. The customers will then choose which operator they want. Virgin Charter, based in Santa Monica, Calif., will get an unidentified cut of each sale. Richard Aboulafia, a vice-president with the defense and aerospace research outfit Teal Group, said the venture "could produce some interesting results" if Virgin is able to improve the efficiency and fluidity of the market. "Turning a luxury product into a larger near-commodity product is a clear trend with business jets these days," Aboulafia wrote in an e-mail.
Duffy's adding a bit of social networking to the site, which is expected to be available to all customers in the fall. Charter customers and the aircraft owners will both be able to post comments about each other on the site, so travelers will know whether the operator was late and the plane owners will know whether the customer smoked in a nonsmoking plane. Given the fussy nature of private aircraft owners and customers, this could make for some interesting reading.
One of the biggest issues in dealing with charter operators is the lack of information about their safety records and the quality of their planes. That's why many private aviation customers tend to choose one charter operator and stick with them. Duffy is encouraging plane owners who list on the site to get their planes certified by third-party observers such as Wyvern Consulting, whose parent company, CharterX, is partnering with Virgin Charter. "Our belief is that if a buyer looks at 10 quotes, they'll gravitate toward the ones with the high safety and quality ratings," Duffy says.
Flying private isn't cheap. Even a two-hour trip from Los Angeles to Denver can cost $20,000 round-trip. Duffy hopes to reduce costs somewhat by establishing Virgin Charter as a clearinghouse for "empty legs," the return trips without passengers that chartered planes often make to their home airports. Duffy gives an example of a recent trip he made from Las Vegas to his home city, Los Angeles, with six friends. To test his theory he called charter operators and found one plane that was returning empty that usually rented out for $5,000 for the one-hour jaunt. He offered $1,000 and the charter operator accepted.
"Today charter companies are quoting you in a vacuum. With us, they'll see what other people are quoting," Duffy says. "We think we'll create price competition in the space."