POST OF THE DAY
Berkshire Hathaway
Virgin no Competition to Netjets

Related Links
Discussion Boards

By TMFWBuffettJr
March 5, 2008

Posts selected for this feature rarely stand alone. They are usually a part of an ongoing thread, and are out of context when presented here. The material should be read in that light. How are these posts selected? Click here to find out and nominate a post yourself!

Here's the clip, which specifically mentions WEB and Netjets:
http://finance.yahoo.com/tech-ticker/article/5004/Branson-Takes-on-Buffett%3A-Book-Your-Private-Plane-for-Less

The basic idea is this; Lots of people fly private jets. Those private jets have to fly out to get them, fly them somewhere, and then fly back home. Often, one or two of those three flights are empty. Virgin's new website called "Virgin Charter" (http://www.virgincharter.com/) Allows charter companies to post the empty leg of the trip and allow people to bid. The idea is that the companies have a large fixed cost no matter what, so if they can sell a ticket for $100, that is better than $0 since they will have to fly empty.

So far, I'm not impressed. For one thing, the website is very buggy, but it just opened a few hours ago, so we'll ignore that for now. My biggest issue is that I had assumed the site would allow people to bid against each other in an auction style, with the high bidder winning the flight. Instead, the customer submits a bid straight to the company, which they then reject or accept. This seems worse for all parties.

I submitted a bid on a flight to get a feel for the operation. I submitted a bid of $200 for a flight from Ft. Worth Texas to Miami this Friday. I assumed the bid would be put up and wait to be outbid by another. Instead, it went secretly to the charter company, who responded in minutes. They replied: "this aircraft charters for $3400/hr ...I cannot accept $207.00...$8,2000 would be the lowest. Thank you".

There aren't that many flights or potential customers so far. As a result of not having an auction process, the company will likely fly empty again, losing the full value of their fixed cost, and I will go without a flight. This system is worse for both of us.

It is hard to imagine this taking away business from Netjets. I just can't imagine rich folks wanting to mess with continually checking a website just in case a plane happens to be going from where they live to where they want to go. This would require a lot of empty searches for most trips, and would require them to make no arrangements whatsoever until just days before they leave, since most of the Virgin Charter empty flights show up 7-10 days before they leave. The whole point to flying private is that you are rich enough to not have to deal with hassles. Instead, what I think this means for the industry is that people who would not normally fly private (me) would fly private because they would put up with the hassle for the chance at a remarkable deal. So rather than taking away business from Netjets, I think it would more likely add to the bottom line a little for the charter companies.

...but this is all assuming that the companies aren't hard lined as the one that gave me the terse response. The flight had an estimated value of $9,800 and they are rejecting low-ball offers, apparently unconcerned with their large fixed costs. Why would people come to this website sifting through flights constantly and messing with the hassle just so they can pay $8,200 for a $9,800 flight, and then be stranded in their destination needing to buy a one-way ticket somewhere to get back to where they were? If you're rich enough to pay $9,800 for a flight when you can book a major airline for $300, the chances are you aren't interested in wasting the time and effort trying to secure a $1,000 discount.

Sir Branson said flights can be cheap enough that "even students can book them" but if they all behave like this one it seems to me the whole operation will die quickly. The flights aren't cheap enough for the regular folks like me to mess with it, and they don't offer discounts big enough to make it worth the large hassle with which the rich people would have to contend. So who is left?

For an extra $1,000 I can just book from Netjets and go exactly when and where I want to go. Plus, I'm flying with a known entity with a known safety record and known aircraft ages. If I'm worth a few million dollars and I'm flying my family, I know which one I'd pick.