This morning Volato announced plans to go public via a merger with a special purpose acquisition corporation, or SPAC as they are called. It is the latest in a series of private aviation flight providers to attempt an IPO, with the only common denominator being that they have not worked out very well to this point.
In making its case, executives of Volato and its merger partner, Proof Acquisition Corp I (NYSE: PACI), say the 2021 start-up brings a unique and disciplined approach to the market.
2021 start-up Volato wants to use its fleet of HondaJet private jets to take on NetJets, Flexjet, … [+]
It will be competing against stories that haven’t panned out and several misfires.
Both Wheels Up and Blade Urban Mobility went public via SPAC IPOs back in 2021. They are both struggling.
Wheels Up, despite beating revenue projections, has seen mounting losses and its stock price closed today at $2.41 following a 10-to-1 reverse split to avoid a delisting. It had been as high as $15 after going public at $10 per share.
Likewise, Blade ended the day’s trading at $3.98 per share despite reaching as high as $18.40 per share back in February 2021.
Directional Aviation’s Flexjet, Inc., which includes Flexjet, the second-largest fractional provider behind NetJets, jet card leader Sentient Jets, FXAir, PrivateFly and related businesses, announced a SPAC IPO last Fall, and then in April scrapped plans.
Verijet, another start-up, announced an IPO with New Vista Acquisition only to halt those plans days later when its partner decided to return funds to investors instead of seeking an extension of the fund.
Surf Air also abandoned SPAC merger plans for a direct listing. It didn’t go well, with shares falling short of their $20 target price, falling quickly to $5 on their first day of trading.
FlyExclusive, the fifth-largest U.S. operator based on charter and fractional flight hours, is still moving ahead with plans for an IPO anticipated in the next two months.
However, after canceling a contract to provide flights for Wheels Up’s members, it now finds itself the target of a lawsuit from its former customer.
Jet.AI, a name change from Jet Token, has also filed for a SPAC IPO.
So has Flewber. Last year it unveiled what it described as a game-changing app. Its SEC filing showed despite grand plans, it generated only $4.3 million last year in revenues with $6.9 million in expenses. Most of its sales were via a legacy brokerage, not its ballyhooed technology.
‘Failed Or Failing Business Models’
If you’re struggling to understand why Volato wants to go down the same route, Jack Backus, CEO of its merger partner, said during an investor call this morning, “Volato has shown they have the entrepreneurial mindset and the nimbleness to make a mark in an industry that is dominated by a few large successful companies but cluttered with smaller companies with failed or failing business models.”
Matt Liotta, its CEO and Co-Founder, says Volato doesn’t plan to be the Airbnb, Uber, or Amazon of private jets like Wheels Up and Flewber.
He isn’t targeting urban mobility, which was part of the pitch from Blade and Surf Air.
Instead of pioneering new markets, Volato plans to grow by gaining a share in the segment of flyers who need four seats or less and fly on flights of two to three hours or less.
Executives say 70% of domestic private flights are less than three hours.
It plans to accomplish its mission with its fleet of HondaJet very light jets. Currently, there are 18, with 23 on order, three of which are expected to come in Q4, with 11 more in 2024.
The company is also hoping to pick up another half dozen of the type from fractional owners who founded themselves looking for a new home when rival Jet It shut down.
In the bullseye of Volato’s customer target are Phenom 300 users.
The pitch to flyers who have seen the cost of flying privately surge by over 30% since 2020 is if you are making shorter flights, particularly under two hours, the HondaJet offers more legroom, a quieter cabin, and it costs less.
NetJets, Flexjet, Airshare, Nicholas Air and GrandView Aviation (ranked 1st, 2nd, 9th, 10th, and 22nd among U.S. charter/fractional operators) all have jet cards or fractional programs using the top-selling Embraer light jet.
Volato’s Difference
Liotta, a serial entrepreneur prior to entering private aviation, says with a management team of seasoned industry executives, he believes Volato can avoid the pitfalls of others.
For example, both its fractional and jet card programs are focused on flyers traveling within and between a half dozen base regions. While you can fly to other places, you then pay repositioning charges.
In May, Wheels Up announced a large pullback of the primary service area where it offered guaranteed availability with capped hourly rates. It cited the cost of the empty legs flying to pick up and drop off passengers in the Midwest and Pacific Northwest.
Fractional ownership and jet card programs generally charge only for occupied hours, the time the customer is in the plane, so those repositioning legs don’t produce any revenues – only costs.
Another difference is Volato’s jet card programs are as-available.
That means while clients get fixed or capped rates, it only has to provide an aircraft if it has one available.
Many card programs guarantee availability, which for operators means if they don’t have an airplane in their fleet available, they then have to source a jet from another operator.
Volato’s jet cards also don’t guarantee recovery flights at the original price for card members if there is a mechanical, something that also can result in steep losses for that flight.
If card customers sacrifice some benefits compared to other programs, they can walk away since their deposits are refundable. They also get deep discounts on empty legs and can gain flight credits if they agree to move departure times or even airports to better accommodate Volato’s needs.
On the flip side, Volato believes it has reinvented fractional ownership. In its program, while you buy a share of an aircraft in the traditional way, starting with a 1/16th slice, you fly as much or as little as you want.
Traditional fractional contracts associate a share percentage with annual hours. For example, an 1/8th share entitles you to fly 100 hours per year. You can only roll over a limited number of hours or lose them. If you need to fly more, there are limits on how much you can buy.
Volato further gives owners a revenue share from their aircraft to offset some expenses, and executives say the structure of the program allows tax benefits on ownership regardless of whether flights are personal or for business.
Whether Volato can succeed where others have struggled is yet to be seen.
It’s focus isn’t absolute. It is launching a Gulfstream G280 fractional program, with the first of the super-midsize aircraft coming in 2024.
Last year it generated $96 million in revenues. However, $67.6 million came from selling shares and only $14.5 million came from flying and management fees.
That should change as it builds its fleet. According to its presentation, over five years, it will generate an average of $32.4 million in revenues from each HondaJet, with $19.5 million from flights and $5 million from management fees. It forecasts a 17.4% EBITDA margin.
As it prepares for the IPO, which it expects before the end of the year, Volato said it has also scored $48 million from Proof’s venture capital arm in a deal completed last month. It plans to use those funds to accelerate growth.