Surf Air seems to think that through the subscription model they can adequately plan ahead. Since they know their revenue and operating costs in advance (potentially years in advance sine there is a waiting list and can assume all memberships will be filled) they can plan for changes in oil prices and contract for future fuel delivery at today’s prices, well ahead of even larger price spikes. http://reyhanilaw.com/blog/surf-air-is-revolutionizing-airlines/ They see demand as a much greater price driver for airlines than oil. Also, they only have to cover costs for one year since they could (potentially) raise the membership price for the next year. Hope that helps!
Hey Anna, great questions.
1. Safety – Surfair.com says “As part of each membership application, we conduct thorough security checks on all members and guests.” I looked a little deeper and saw that they teamed with Cluso Investigation to perform background checks so I assume that members are vetted much more than they would be at a traditional airport security counter. Sorry I couldn’t find more details.
2. Management – Jeff Potter, former Frontier Airlines CEO stepped in when the airline was struggling and made some changes. They had 430 members at the time and one giant step that he took was to align the funding, business and operating models. He knew how much money the company needed to operate, knew that there were lots of people on the waiting list, and knew how much money the company needed to make. In order to hit his revenue target ($21 million in revenue, https://pando.com/2014/11/21/maturing-surf-air-adds-new-planes-new-routes-and-fresh-appeal-to-its-membership-based-airline/) Potter set a minimum customer base to hit utilization targets (1,000 members) and a price ($1750 a month). This allowed the company to create the customer value and capture enough to allow the company to profitably operate.
Surf Air can definitely scale, but can they scale so that they remain profitable? They need to be on the lookout for routes that will be traveled enough by their members so that they are still in the black at the end of the day. Choosing a route that does not align with its business model, or a route that will drop utilization to a point at which they are no longer profitable, are dangers. Adding more routes also means adding more members, but how do they ensure that their members are equally spread across all routes and not just the popular ones (which would keep utilization at 100% – something they do not want)? Great question, and I’m excited to see how Surf Air does this in the coming years.
I’m not sure Xavi. There is a corporate option on the website which makes sense. I think a company would be able to get a membership and be allowed to book more than one flight at a time. A “private” member can determine the number of tickets he/she would like to have and that is how many flights he/she can reserve at one time. AKA if you have one ticket, you cant book a return flight until your first flight has landed. I think a company would just scale that up so they can book 5, 10, 15 seats at a time for its employees. If your employees are always on the go this would make sense. At 1750 (assuming no corporate rebate) employees would need to make 6 flights from Burbank to SF monthly (ca. $300 with United).
I have visited Reddit a couple of times, but I have not yet caught on. It is interesting that the company is still in the red since it is such a popular online platform (36 million accounts). Also after looking a little deeper the fact that it started right up the street in Medford, MA was interesting! I’m wondering if the push to get the company in the black will pressure the company to compromise its values for profit. We saw the sensitivity in online communities with Threadless and I’m wondering how close to the “edge” Reddit is. What’s your take?
Thanks for the great write-up. SpaceX has always been a company that has fascinated me.
I love the idea of making the rockets reusable. Not only will this reduce the hassle of retrieving rockets that have re-entered the atmosphere and crashed, but could also result in a substantial cost savings for SpaceX. There will be a certain amount of redesign that will have to go into the new rockets and they will also have to be made more robust (especially to handle re-entry). I’m curious to see where it goes. I’d still love to find a way to reduce the amount of space debris.
I am happy to see that even in low volume industries such as space, there are efforts being made to improve operations in order to reduce costs. Scaling rocket production (although not to mass production standards) is one such step to reduce launch price. I wonder what production techniques and materials these innovations will create. Will major rocket components ever be able to be 3d printed and still fulfill design requirements? I think that would be a great way to reduce production costs and further automate the process.
I wonder if affordable consumer space travel is really within reach … keep it up SpaceX.
Thanks for the write-up. This might be the next place I try for my next suit (too late for Holidazzle).
This is interesting that such a digital brand is facing stock outs. I can understand why they carry so little inventory, but is it worth the potential sales losses?
The costs associated with this are understood, but customers may just run to substitute the suit with a competing good. I wonder if instituting a promotional strategy where the customer facing the stock out can be incentivized to accept a marginally lower price for the suit with a “buy it now” option in exchange for an increased lead time? This may reduce the cost of holding excess inventory and complement the just in time inventory strategy.
Does that seem like an option that might work?
I think that Surf Air and Ryanair are similar on the airlines operations front, but differ greatly in the value that they provide the consumer. The customer demographics are essentially polar opposites. I think that if Surf Air ever wanted to take on longer trips and larger aircraft then their operations would be much more similar (aside from the amenities). Interesting point, thanks for bringing it up!
I’m actually going to be flying with Copa to Lima for FIELD 2. Thanks for such a nice write-up concerning their business and operating models.
I was wondering if, in your research, you stumbled over any information regarding whether the re-engining options for their existing airplanes was something that the airline was looking at. Boeing is re-engining the 737 as a 737 MAX with more modern and efficient jet engines. This would be a great way for Copa to reduce operating costs while still using the right plane for its passengers.
I wrote about Surf Air who cannot benefit from these upgrades, but if you’re interested, check my post out!