They know what they want. Theyll pay to get it. The secret of how one airplane service profits by catering to the needs, wants and whims of a well-heeled clientele.
When billionaire investor Warren Buffett sinks into a plush leather chair aboard his privately chartered NetJets flight, he counts on finding a glass of Cherry Coke waiting for him. For New York Knicks star Allan Houston, its a glass of fresh carrot juice, and for Jim Friess, an executive with the storied Claiborne Thoroughbred farm in Kentucky, its usually a range of food and beverage options stocked ahead of time.
“They are just so good about making sure they have exactly what I or my guests want—our favorite beers, wine, anything,” says Friess, who boards the plane at nearby Lexington Blue Grass Airport and has it whisk him to any point in the country with just a few hours notice. “Its the absolute opposite of flying commercial.”
The attention to detail isnt surprising given the amount NetJets clientele pay for the privilege of not having to wait at check-in lines, fret over connecting flights, search for lost bags, or endure commercial airline meals. With plans that start at about $350,000, individuals and corporations share ownership of a jet with 15 other parties. On top of that, monthly management fees reach about $5,400. For this basic package, a fractional owner gets to use a Cessna Citation V Ultra Jet, which seats seven, for 50 hours during the year.
Its not human memory that makes the magic for customers, though. Its custom-fitted technology.
Hundreds of variables are constantly juggled, from preferred meals and drinks, to pilot and flight-crew availabilities, revised takeoff and arrival plans, scheduled limousine pickups, and up-to-the-minute weather forecasts.
In the scheduled-airline world, travelers have come to anticipate delays and other hassles. But NetJets passengers, says chief information officer Mike Midkiff, expect to have a car waiting at the airport even if their plane is an hour early or if theyve arrived at an entirely different destination than originally planned. After all, theyve paid for that privilege. “Our customers can give us as little as four hours notice that they need a plane, and we will get one to their airport of choice. That means we have to be able to react very quickly,” Midkiff says.
NetJets, the undisputed leader in the fractional jet-ownership business, has 49 percent of the market, according to Aviation Research Group. That compares with 30 percent for its closest competitor, Flight Options. The NetJets story dates to 1964, when a group of retired generals and a collection of celebrities invested in a charter plane venture they named Executive Jet. The company, then based in Columbus, Ohio, didnt really take off until Richard Santulli, a former Goldman Sachs principal, came on board in 1984. Santulli introduced the fractional jet-ownership concept, and began to attract a loyal following of well-heeled clients. Warren Buffett, one of those clients, liked the concept so much, he bought the company in 1998.
When Santulli arrived, there were no computer or automated systems to control and manage flights. With fewer than 10 aircraft, there wasnt much need for it. Today, NetJets is bigger than some commercial airlines. The company manages just over 500 aircraft, operates more than 250,000 flights a year and employs about 4,000 people, including some 2,800 pilots. More than 800 employees are based at the companys Columbus hub, handling jobs such as scheduling, maintenance, customer service and weather forecasting.
The first big information-technology project involved the in-house creation of a customized system called IntelliJet, handling flight reservations, scheduling, crew management and invoicing. In the mid-90s, the Windows-based system served the companys few dozen planes well. But by the end of the decade, the company clearly needed a replacement system. “By this time, [the company] had between 200 and 300 airplanes with more on order,” says Midkiff, who has been with the company since 1990. “We wanted to be able to do more for our owners. We wanted a new system capable of anticipating potential scheduling problems earlier so we could be more proactive.”
On The Fly
On The Fly
Plans were laid out for IntelliJet II in the fall of 1998. Once again, Midkiff couldnt find commercial software offering the features the company wanted. So he quickly built a 50-person software-development team to perform the task in-house.
At the time, the company had three primary goals in mind:
- Capture and smartly manage more information about customers, operations and business partners such as airports, catering firms and limousine operators. When a customer books a flight by phone, NetJets will typically set up services, such as meal catering, hotel reservations and ground transportation provided by other firms. On any given flight, however, those services may need to be changed. If a passenger runs late, for example, the in-flight meal should automatically switch from a breakfast order to a preferred lunch order.
- Monitor flights, weather and operations, and automatically make smart decisions on routes or factors that might affect safety. Prior to IntelliJet II, it was up to the companys flight-operations staff to recognize when changes needed to be made, and then take action, such as rerouting a plane to another airport. With IntelliJet II, the company wanted to automate many of those processes.
- Make sure IntelliJet II could grow with the company. When the first IntelliJet application was built, the companys annual revenues totaled some $200 million. Today, its a $2 billion global operation with aggressive plans for growth.
Early in the planning process, two key technology decisions were made. The first: To write applications in Java and Visual Basic programming languages. Midkiff and his team didnt have a lot of experience with Java, but after investigating alternatives, Java appeared to offer the best opportunity to build a system that could easily grow and distribute information globally. The team looked at Sybases PowerBuilder, but chose Microsofts Visual Basic for the front end because of its market acceptance. The other option considered was building the application front to back in Microsofts C++, but Midkiff says the complexities of the language compared with Java drove the development team into the Java camp.
The second decision: To use a data-services architecture—that is, a platform that reaches into a central database and operates as a broker to distribute information to multiple applications. After researching alternatives, Midkiff selected Persistence Softwares platform, which had proved itself in the demanding financial services arena. The company needed data within the system to be updated as close to instantaneously as possible so that every application would have the same current information about customers, planes and crews. That would mean that when a customer called in a flight change, the system could push the change out to schedulers, flight crews, caterers and maintenance personnel.
Persistences platform essentially sits between a companys database and the applications feeding off that database, and forms the guts of financial-trading systems for clients such as Citigroup, says Chris Keene, Persistences chief executive. With IntelliJet II, Persistences platform sits between an Oracle database and 20 different applications, running off a server farm of about 25 Dell computers.
Persistences software allows planners to explore scenarios without changing the host data. For example, in the event of a possible scheduling change, a query can be sent to the database to check if a pilot can be reassigned. The database might register that such a change is feasible, but Persistence keeps that information in cache or in a virtual database. Other elements can also be checked, such as meal plans, flight crews, airport curfews and ground transportation, without affecting the host data.
Once a scenario is approved, the changes are synchronized with the database and the updated information can then be pushed out to the affected parties. NetJets has outfitted its pilots and flight crews with Research In Motions BlackBerry wireless devices to deliver scheduling changes via e-mail.
IntelliJet II also constantly monitors every flight to check for changes that might require attention. It checks such factors as the sunrise and sunset restrictions for airports and runway length necessary for each aircraft. The system then delivers alerts to the appropriate people for action.
IntelliJet II went live in February 2003, a little more than four years after it was conceived, at a cost of about $20 million. Midkiff says the project had to be modified several times to accommodate the companys rapid growth, adding to its cost and timeline.
The team of 50 developers did a “big-bang” rollout on Feb. 1, after eight months of testing. The old IntelliJet system was maintained as a backup if IntelliJet II ran into trouble. In the end, however, it wasnt needed.
That doesnt mean NetJets didnt run into turbulence along the way. It took a couple of tries before the development team found the right hardware/infrastructure mix. In the first go-round, the application and database were housed on Sun Microsystems equipment. However, NetJets eventually switched to Dell Computer equipment and Microsoft Windows after it found it could get twice the performance at a lower cost. Its now looking at transitioning its Oracle database for the same reasons, from Sun servers to Dell equipment running Linux.
With the upgrade, NetJets has seen a significant increase in the efficiency of the companys call center. Calls from the companys pilots and crews have been reduced because they now receive schedules directly via their BlackBerrys. Midkiff estimates the call center can now handle 25% more call volume without adding staff. He also reckons that staff in other areas, such as flight, meal, and ground-transportation planning, are about 30% more efficient because decision-making processes have been streamlined. “We dont plan to lay people off,” he adds. “It just means we now have resources to absorb growth without adding people.”
The launch of IntelliJet II comes at a critical time for the fractional jet-ownership industry. During the Internet boom of the late 1990s, the industry grew from about three or four players to upward of 50, says Jay Mesinger, an industry consultant who runs seminars for would-be jet owners.
Today, Mesinger estimates there are fewer than 10 players remaining in the fractional jet-ownership business. Before the shakeout is over, he says, it wouldnt be surprising to find only one or two flyers left—and hes betting NetJets will be one of them.
“IntelliJet II is an example of the way they run their entire business,” says Mesinger, who has experienced the NetJets service firsthand several times. “Its gold-plated personalized service, from start to finish.”
NetJets Base Case
NetJets Base Case
Headquarters: 581 Main St., Woodbridge, NJ 07095
Phone: (732) 326-3700
Business: Offers fractional ownership of business jets. Operating fleet of some 500 planes, making more than 250,000 flights a year.
Chief Executive Officer: Richard Santulli
Chief Information Officer: Mike Midkiff
Financials in 2002: About $2 billion in revenues. The Berkshire Hathaway subsidiary doesnt release profit and loss figures.
Challenges: Push information on customers needs out to pilots and flight crews. Create discernible value for private-charter services at a time when commercial airlines are slashing fares to attract fliers.
- Reduce telephone calls to Columbus, Ohio, operations center by at least 25%, to save $2 million a year.
- Increase efficiency by at least 20%, by automating processes that let customers change meal orders, hotel reservations and other aspects of their travel.
- Improve customer service, to maintain or increase perceived value of fractional jet ownership.