A Time for Streamlining

Feb. 13, 2009
Charter has been hit hard by the economic decline; here’s how two operators are coping

CARLSBAD, CA — The charter numbers are down by double digits for two primary Part 135 air taxi operators — Schubach Aviation and Jet Source (see sidebar) — at the McClellan-Palomar Airport here. The two companies approach the market differently, and Jet Source also operates two separate fixed base operations at the airport. Yet, if there is an overriding message, it’s that lean times call for new measures, in particular analyzing everything that is in place and looking for ways to streamline.

Comments Henry Schubach, 54, founder and president of Schubach Aviation, “I think 2009 is going to be a tough year; it’s going to shake a lot of people out of this business that don’t have the resources to stick it out. Most guys if they break even will be doing really well. Personally, I think things will start to turn around in the third quarter. California in some respects will lag behind that because real estate here was so vastly overinflated. There’s like a year’s worth of unsold inventory.

“On the other hand, in Southern California, while things may not be rosy, it’s not pork and beans at their house every night. These are people who are financially sound.”
Schubach, who is type rated in most of the 24 turboprops and pure turbines that the company operates primarily under aircraft management contracts, is an owner who likes to fly. However, he says the current downturn will result in him spending more time in the office.

“We can become a very small company in very short order, and I will if I have to,” he says. “I’ve determined that this is probably not a good year for me to be gone a lot.”

Two years ago, Schubach Aviation moved into a 3,000-square foot office facility and 30,000 square feet of hangar space under a ten-year lease with newcomer Premier Jet. The company has two sister operations, Hangar One for maintenance and Hangar One Avionics. Schubach reports that the three companies recorded some $20 million in sales in 2008. However, he’s not as optimistic about 2009.

Says Schubach, “I don’t know what we’ll do in ’09; I don’t have a feel for what’s going to happen this year.

“One of the interesting things about this job in terms of our clientele, you get some quality face time with some pretty smart people — some heavy-hitters. And when you ask them, what’s going to happen, you get very articulate, reasoned, linear discussions that when you take out all the words kind of sound like ‘I don’t know.’

“I think people are going to keep their heads down at least until maybe 30 to 60 days into the Obama presidency. If he hits the ground running and starts doing stuff, even if it’s wrong, people want to see that somebody’s doing something. I don’t think that impression has been delivered to the general public. There’s $350 billion that’s been spent and nobody seems to know where it went.

“We’re looking for ways to save. We’re literally going through every bill, everything that we’re spending, everything that we’re buying. We’ve cut a lot of overhead costs.

“When business is good, it doesn’t matter — do the trip. Sometimes your cost and your operating overhead just sort of gets out of mind. So, in some respects, adjustments like this are good for you, if you have the resources to survive it, which we do. It enables you to look at your business and see what you can live without.”

As an example, Schubach has changed the way he’s paying most of his pilots. The company has moved away from base salaries, focusing more on a day rate. “To a person they’ve all understood,” he says.

Selling retail
Unlike many charter operators in today’s market, Schubach has opted to steer away from fractionals and seeking business from other Part 135s. It’s all about establishing a company’s own retail customer base, he says, not one reliant on or susceptible to others.

“The majority of our customers are just that — our customers,” says Schubach. “We do primarily what I call retail business. A lot of companies out there do a lot of broker business, they do a lot of overflow from other operators, but they don’t have their own customer base.

“Years ago during the dot-com boom, we had one customer who just kept us hopping. I remember talking to staff and saying, if this lady ever gets mad at us we’ve got a problem. It’s a nice business, but we really need to develop a diverse base.”

Schubach Aviation spends much of its marketing dollars on local high-end print advertising with publications like San Diego magazine. Interestingly, Schubach says that in recent months his business has been positively impacted by leisure versus business travel.

The company recently hired a cabin services specialist to ensure customer service standards across the board, which Schubach says can be a differentiator in difficult times.

“She has standardized everything in all the airplanes, produced wonderful menus, and it makes a difference,” he relates. “What we sell is premium — it just has to be.”