Beacon Air: Making Private Jets Accessible for Everyone

Despite what the name and marketing may suggest, Beacon is not an airline. Rather, it is a broker that aims to transform regional travel by offering subscribers unlimited access to mid-size executive private flight and it does it by arranging flights and related services on its members’ behalf.

Paul Stamm, VP of Sales at Beacon describes it as “a membership based, private air service for the super commuter traveling through the Northeastern Corridor.”[1] Yet, despite what the name and marketing may suggest, Beacon is not an airline. Rather, it is a “broker that aims to transform regional travel by offering subscribers unlimited access to mid-size executive private flights and it does it by arranging flights and related services on its members’ behalf. All flights arranged by Beacon are operated by air carriers possessing appropriate FAA and DOT authority to conduct such services.”[2]
I believe Beacon is highly effective at driving alignment between its operating and business models because it first maps how it wants create value for customers and capture value from them and then makes only operating choices that efficiently allow it do so.

Business Model

Beacon creates value by matching unused flight capacity to a predictable market demand. It selects routes with high commuter traffic and this combined with a membership based model ensures predictability and consistency of demand. For example, the flagship BOS/NY route “was chosen based on market research that suggested that the route was the best product/market fit given the synergies between the financial community in NYC and the biotech/medical/consulting industries in Boston”. [1] Beacon prices its membership so that the time savings it offers over other transportation options like driving, taking the train and commercial air travel are commensurate with the price premium. The membership also includes unlimited flights. The unlimited flights are a marketing tool as most of Beacon’s target customers will fly no more than twice a week. However they still find the unlimited option attractive as it offers them the flexibility to accommodate unexpected travel needs. The subscription model also allows it to reliably and predictably capture value from its customers.

Operating Model
Business people and lovebirds want to spend as little time as possible in getting to their destination and they are willing to pay a premium for that. Beacon clearly makes operating choices that fully support a hassle free travel experience. It owns no aircraft and employs no pilots or flight attendants. All nuts and bolts aviation operations are handled entirely by its operator, Dynamic Aviation who is licensed to perform such services. This allows Beacon to focus on the parts of its operating model that create value that the customer cares about. Such operating model features include:

A dynamic aircraft scheduling system which allows it to operate multiple flights a day profitably. Beacon only uses aircraft with a 6-10 person seating capacity which allows a flight to fill up more quickly, ensuring it will operate as scheduled. Also, if a customer misses a flight, they don’t have to wait hours for the next one. Lastly, at the beginning of every month, Beacon reserves flights with Dynamic Aviation. The number of reservations is based on the number of subscribers and their reservation history and patterns. This allows Beacon to significantly reduce the cost to the subscriber as they do not have to pay for unused capacity either in the form of less than full flights or idle aircraft.

Smaller planes which help Beacon better create a hassle free travel experience. Smaller planes can only accommodate the carry-on luggage used by most commuters, saving significant time in baggage handling and screening procedures.

Background checks are completed on all members beforehand so that there is no time wasted with TSA checks. You simply “show up and walk onto the plane” and if you’re a little late, Beacon will wait for you.

A payment platform which uses price tiers in addition to the subscription method of collecting revenues to create additional value for its customers. Customers who commute more frequently and more predictably pay a higher fee for increased access to flight capacity.

A concierge level of customer service that makes booking and changing flights free and extremely easy, allowing Beacon to deliver on the promise of flexibility. It also provides other concierge services like “car rentals, drinks, flowers” [3] and guest passes (presumably for commuters in relationships. It is currently working on a booking platform that will make end to end travel between its destinations and their transportation options seamless. This will take its hassle free customer experience to the next level.

Alignment between Business & Operating Models
Beacon’s business model would not be successful without its operating model and vice versa. For example, it would not easily know how much flight capacity to reserve at the beginning of the month if did not have a subscription model. Likewise, if Beacon was not selective in its target market and point-to-point route selection, it may not have been able to use its current operating model as there would be too many combinations of trips and routes. This would make it harder to deliver on its hassle-free travel experience.
Lastly, implementing an operating model that makes use of existing infrastructure lets Beacon focuses all its resources on developing its key competitive advantage which is its concierge level customer service. Beacon can now exclusively hire talent that focuses on how to create a better experience and better value proposition for clients and leave the work of aircraft operations to those who have the expertise to do so.

Implications for Future Performance
Ultimately, planes don’t create value for the customer, frequent flexible flights do. Beacon has realized this and is poised for significant growth in the commuter travel market. Furthermore I believe this tight alignment between operating and business models can be successfully replicated wherever there is high commuter traffic globally.

 

Sources

[1] Interview with Paul Stamm, VP Sales, Beacon 21/09/2015

[2] https://flybeacon.com/press

[3]http://techcrunch.com/2015/02/10/surf-air-founders-jet-to-the-east-coast-with-new-private-flight-service-beacon/

 

 

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8 thoughts on “Beacon Air: Making Private Jets Accessible for Everyone

  1. Very interesting, does the price point serve the right population? Does Beacon fly long haul flights or just short ones such as Boston to New York? Flights are already quite frequent between the two areas and cheap. Wondering if the limited number of seats puts restraints how flexible pricing can be.

    1. Beacon only does short flights where they can compete with rail and driving. So I would imagine routes like BOS-DC or Cincinnati-Chicago. I agree that flights between BOS-NYC are already frequent and cheap, but I think Beacon is trying to monetize the value it offers by not having to arrive an hr to 30 minutes before a flight and go through TSA. It is a fair question to ask if TSA Pre-Check and frequent flyer programs mitigate most if not all of these items. However, Beacon’s customer service is not matched by even JetBlue or Southwest.

      On price point, I think it does. There are already three tiers and they are willing to customize pricing and offerings for corporate customers who are not as price sensitive. Perhaps these companies will pay a little more to have 2 people under the same subscription.

  2. A very fascinating and unique business model here. My concern is on it’s ability to scale in the U.S. I imagine there are not too many destinations with as much high traffic as NYC/BOS that are also short enough for a small jetliner carrying 6-10 to fly. Frequent flyers often fly to multiple destinations and I’m wondering whether there are enough subscribers that fly primarily between just these two cities to drive volume. However, I can foresee this also doing well in the Western European market where the flights are generally shorter and with a NYC-like hub in London. Looking forward to seeing what next step Beacon will take.

    1. Yes I think you are right, they probably aren’t too many of these routes available. It is interesting to note the founders did something similar on the West Coast with SurfAir (which owned the planes) so they might expand back into that market. Eventually though, Europe is perhaps where the most money is to be made especially with work authorizations in the EU being quite flexible

  3. I was thinking about setting up a similar business in Europe as I definitely believe there is a market. A lot of people in the target customer segment like to go travelling to different European countries over the weekend. In addition, certain legs (such as for instance Frankfurt, London) are interesting for business travelers during the week. The question I have asked myself however is, how does beacon manage utilization and how available are these flights in practice? Given that you have no price to regulate supply and demand it basically sounds to me like a first come first serve model. While for instance a partner of an investment firm would fly from London to Frankfurt at any price on short notice he would be upset with the Beacon product if he can rarely get a ticket. I think it could be interesting to somehow explore the opportunity for having options that give you more flexibility for customers with a higher willingness to pay.

    1. Great question Max. I think they use their tiered pricing to fish out those who want more flight availability. For the lowest subscription price, you can only book one roundtrip flight at a time. For the highest, you can book two at a time. The other way is by offering multiple frequent flights so the effective capacity is higher and mitigates the first come first serve problem. Another way is adding more capacity – they are bringing in planes that can seat 9 people on board soon and I can forsee them start to operate multiple flights at once.

      I do agree that none of these will completely resolve the partner flying from London to Frankfurt on a friday evening at short notice, he will likely not be able to get a flight because that is a very popular time. One thought, could be to have members trade their flight for something valuable, like prority or a guest pass so that if the partner really wants to fly that friday he can exchange with someone who has more flexibility and values the compensation (whatever it is) being offered.

  4. Interesting article!

    I wonder how does Beacon Air manage relationships with Dynamic Aviation and how do they share revenue and expenses? I used to do project for Russian airline company that was considering to enter this market and start similar flights from Moscow to Saint Petersburg (similar distance to BOS/NY). The company was thinking of doing the whole business itself without inviting partners since it has all the needed capabilities (customer service, schedule managing, etc.) and resources (fleet, clients database, etc.)

  5. Intriguing business and operating model here, and a great write-up as well! A couple of thoughts:
    1) I would be curious to see their flight utilization data thus far, as it seems as if the subscription, unlimited flights, on 6-10 passenger planes approach is in tension with ether A) Plane utilization B) Flight availability. There are several contributing factors here:
    -1) The impact of being 1 passenger short on a 6-10 passenger plane is significant from a utilization percentage standpoint (especially when comparing to larger commercial jets). I’d be curious to see what their break-even passenger per plane level is.
    -2) The subscription, unlimited flights model both reduces and increases variability in # of passengers vs. expected per month (once again,I’d be curious to see the actual figures). It reduces variability by giving you a baseline of travelers to expect, as you know the exact number of memberships you have. However, it increases variability by reducing the friction of booking a last minute (and potentially non-must-have) flight and incentivizing an increased usage of the service as the customer is paying a flat fee, so they might as well use it, right?
    2) The airplane leasing concept is a pretty cool way to start up, and has allowed Beacon to focus on areas where they truly add value compared to competitors. However, their claim to gain efficiencies by utilizing excess flight capacity becomes reduced, or perhaps even eliminated as the number of flights they offer per month increases, up to the point where they become Dynamic Aviation’s largest, or sole client. At this point, Beacon will be bearing much of the risk and paying a premium to Dynamic Aviation. But, I suppose when that time comes, they can decide whether to buy Dynamic Aviation or take on those responsibilities on their own.

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