Surf Air – Subscription Private Airfare

Surf Air has proven to be a game changer in an era where commercial air travel has come to be detested.

All-You-Can-Fly

For a monthly fee of $1,750 (plus $1,000 signup fee), members are able to enjoy an “all you can fly” ticket. With 90 daily flights to 12 destinations [a], their business model is to “keep the price closer to commercial flights but the experience on par with private jets.” [e]

What’s the Angle of Attack?

Membership

“Membership currently stands at 1,500 members and is carefully limited, so as not to overwhelm the service and guarantee quality for all members.” [b] This ensures there are always empty seats to allow for last minute bookings (aside from peak travel times). There is a waiting list of potential customers.

Customers

Surf Air Customers travel often within the geographic areas operated in (between business locations or to vacation homes). Surf Air offers an alternative to “commuters who spend between two to six hours on the road each day, or those who work in the city but drive to a weekend escape every Friday.” [b] Customers are “are wealthy, but not so rich they can commit to the cost of locking in fractional ownership on a private jet. At the same time, they are traveling for business and for them, time is money.” [c]

Relative Advantage

Time savings is one of the biggest advantages to Surf Air. Customers avoid the wait at a traditional airport, are able to use private air terminals with free parking and free Wi-Fi, enjoy free checked baggage, free snacks and beverages and no fee for changing travel arrangements or last minute booking. This creates a unique customer culture.

interior

Competition

Competition includes commercial airlines as well as business aviation operators. Commercial airlines are able to offer a more affordable option, but require the hassle of a traditional airport (waiting, security, parking, etc.). Business aviation operators offer a more luxurious and customizable experience (pickup, flexible times, flexible destinations, etc.) but at a much more premium price. Surf Air bridges the gap between the two: offering the luxury and convenience of business aviation, sacrificing only on flexibility, choosing to operate on a fixed schedule.

What’s the Ops Tempo?

Airline Operation

Surf Air operates much like a traditional airline, but under differing boundary conditions. The company owns its fleet of airplanes (Pilatus PC-12) which needs to be operated and maintained. Pilots, on-wing maintenance, ground crew and fuel are all expenses needed to keep the planes operational. In order to keep operating costs low, they run propeller airplanes since they fly a maximum range of 2 hours. A turbojet would complete the journey 15-20% faster, but consume much more fuel. Fuel price is a main cost driver as for any airline.

plane

Routes

Surf Air wishes to remain differentiated from commercial airlines and operates in high volume markets in need of short-hop flights. They also focus on using under-utilized airports, reducing airport rental costs. “Ninety percent of American airports fly less than a third of their capacity, while 50% run on less than 10% of their capacity”. [g]

Subscription Method

“Because of subscriptions, we know exactly how much revenue we’re going to generate at the beginning of every month. So we can scale our operation effectively, because we know exactly how much flying we’re able to execute.” [d] This allows for the business to produce predictive revenue on a regular basis. Operating costs are fixed since the airline operates on a schedule and Surf Air is able to control its utilization (under 100%) in order to maximize revenue as well as maintain the culture and “feel” that the customer desires.

Culture

In order to cultivate the service culture that they are known for Surf Air has to train and maintain a devoted staff that is able to tend to all of their customer’s needs and concerns. This also includes the IT investment that has made the last minute, online booking option possible. Staff are encouraged to make the customer experience as memorable as possible often going over and above their job descriptions to call ahead for flowers or chocolates. This service culture results in low customer turnover.

Machbusting or creaming the bird?

Surf Air struggled after launch, signing just 225 members. Members initially complained that the flights they wanted were always booked, and that flights were delayed or cancelled. [e] New management brought major airline experience to the company, effectively aligning the business and operational models. Surf Air has more frequent flights and new routes between existing destinations and foresees itself on an hourly basis in the coming years. Currently, markets outside of California are being looked at, and to accommodate growth, Surf Air is aiming to have 65 planes in operation by 2020.

[a] www.surfair.com

[b] http://www.sherpareport.com/aircraft/surf-air-membership.html

[c] http://www.cnbc.com/id/100811076

[d] https://www.zuora.com/guides/surf-air-subscription-based-aviation/

[e] http://www.latimes.com/business/la-fi-0410-surf-air-20150410-story.html

[f] https://twitter.com/surfair/status/275733475770900480

[g] http://www.fastcompany.com/3050740/beacon-how-does-the-uber-of-private-flights-work

 

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12 thoughts on “Surf Air – Subscription Private Airfare

  1. Really interesting company Michael ! I wrote a post on Ryanair (https://digital.hbs.edu/platform-rctom/submission/ryanair-low-prices-without-unnecessarily-pissing-people-off/) and it’s really interesting to see how their business models are different while part of their operating models are similar e.g. leveraging the secondary airports or having a single aircraft fleet. I also think it’s fascinating how, even if the target customers for these 2 airlines are totally different, the customers are looking for some similar things like punctuality, availability, practicality, and value for what they get. I wonder if Ryanair has something to learn from SurfAir and vice versa. What do you think Ryanair could leverage from SurfAir as they are trying to turn around their image of the “meanest airline in the sky” ?

    1. 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!

  2. Cool post and nice thread. hiis is a super interesting idea for a company with an interesting value creation and capture side as well as an intriguing operating model.

  3. Nice post! It will be really interesting to see how the company handles expansion as it grows its subscriber base. The financial and flight data fueling this operating model must be really interesting to analyze. I’m sure it is quite hard to balance customer price per month with service level, routes available, and flight capacity. Very cool – thank you!

  4. Very interesting model Michael. I was curious about who d you think is paying for the service, the end-users or their companies? I imagine many company policies would not allow a subscription model like this though certainly the company is being very successful.

  5. 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).

  6. Very interesting post, Michael. I know this new model is something that has been widely discussed in the aviation industry as of late. Frequent first/business-class customers are very important to airline profitability and this model really targets that customer group (those that can afford to pay for a premium experience but not a personal jet), so I can see the potential for disruption. But ultimately I struggle with how a business like this can really grow. What do you see as their primary challenges associated with scaling?

    1. 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.

  7. Thanks for the interesting post, Michael! My old boss in SF used to fly Surf Air from SF to Santa Barbara pretty regularly and seemed to really enjoy it. I do wonder about two things though: 1. safety – what are they doing to ensure that the screening of the passengers is comparably thorough to traditional passenger screening (especially given that they’re planning to expand beyond California) and 2. I’d be curious to know what the new management you mentioned (the one that came with airline experience) did to align their operating and business models. Cheers!

    1. 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.

  8. Cool company and great write up, Michael! With fuel as the main cost driver for this relatively small “airline,” I wonder the extent to which cost fluctuations are built into their operating model? Depending on their funding structure, I imagine that monthly service fees may not be able to adapt quickly enough to keep up with a rapid and/or sustained spike in oil prices. While all airlines face similar exposure to macro fluctuations, Surf Air’s size and operating model seem particularly susceptible.

    1. 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!

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