Are Air Taxis Ready for the Runway?

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With so many people flying the crowded skies this Memorial Day weekend, it's a good time for an update on the embryonic air taxi industry.

After more than five years of development, the first of a series of cheap, small jets is expected to finally get FAA certification this summer. Once the Eclipse can fly, a number of new air taxi businesses (including DayJet, Linear Air, and Way To Go) plan to buy fleets of them and start operations.

Over the next few years, the Eclipse will be followed by other small jets from Adam Aircraft, Cessna, Embraer, and Spectrum Aeronautical—all of which should further fuel the air taxi industry. To get a sense of where all of this is going, I recently spoke with Esther Dyson, who is preparing to host her second annual Flight School conference on this budding industry. As she puts it:

It is beginning to come together. The business models are becoming clear. The players are emerging. This is private jet travel for the rest of us.

But why is Dyson, the impresario behind the long-running PC Forum conference, all of a sudden interested in airplanes? A big part of it has to do with the fact that many of the entrepreneurs who are starting these new air businesses come from the tech industry—Eclipse founder Vern Raburn was an early Microsoft executive; DayJet founder Ed Iacobucci started Cytrix Systems; Rick Adam of Adam Aircraft was previously the CEO of a data integration company called New Era of Networks, which he sold to Sybase.

But it's not just that her friends are invloved. Dyson explains the connection this way:

It is a new frontier. The PC was to mainframes what these companies are to the legacy airlines. (JetBlue is like the mini). There is the same lack of understanding from the establishment that the PC got. These people are troublemakers who want to transform the market.

While the planes themselves promise to significantly lower the cost of operating a jet, the real magic will come from the software that will allow the air taxi services to offer flights on-demand. Remember, these will be air taxis. That means, for the most part, the flights will not be scheduled. And these will be very much Web businesses. To crib from Dyson's upcoming Release 1.0 newsletter:

Expedia, Travelocity, and Orbitz changed the industry forever by making supply visible. Now, the next phase will come from a new group of air-service providers who will make latent demand visible, using online interfaces not just to publish information but to collect user travel requests and to use them to schedule and price flights dynamically. In other words, they will use the visibility of demand to create supply, in the form of specific flights that would not otherwise have happened.

To make all this work will require a lot of software and business smarts. Flight schedules and, eventually, routes will be created on the fly as passengers book flights online. That will present massive optimization and resource-allocation problems that only computers can solve.

Mostly, the flights will be short hops of no longer than 500 miles between non-hub cities that the major airlines make it hard to get to today, like Gainesville, Florida to Tallahasse. If you think about the air travel system as a massive network, the air taxi providers will be building their businesses at the current edges of the network. (It is at the edges where industry disruptions tend to get started). These business are all about edge competencies and coordination economies—that is, they hope to be coordinating latent demand for air travel at the edges of the curent air travel network.

Like any airline, the viability of the air taxi services will depend on their ability to keep the planes full on both legs of a trip. And that will depend a lot on price and proper marketing. The first planes won't have bathrooms, and many people are scared of flying in small planes.The air taxis will be competing with charter jet services on the high end (which are subsidized by plane owners who simply want to defray the costs of owning a jet) and business-class travel on the low end.

But if they can keep most flights to less than $1,000 per round trip, they should find a niche market among business travelers and the wannabe jet set. If they can get the price down to below $500 per round trip, then jet travel for the rest of us will have truly arrived.

Printable Version | published Aug 17, 2007

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