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OneJet: The Airline Industry’s Newest Entrant

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OneJet: The Airline Industry’s Newest Entrant

OneJet: The Airline Industry’s Newest Entrant
October 08
07:25 2015

MIAMI— It’s more than fair to say that the number of airlines in the playing field has dwindled over the past several years. Look out the window on your next flight, and you’re likely to notice a thinner variety of tailfins out on the tarmac. As dragging economic conditions largely brought about by the 9/11 terror attacks combined with undisciplined business practices forced many into the bankruptcy door, several carriers merged with other major players, leading to a landscape dominated primarily by the “Big Four” today. As Northwest, Continental, AirTran, and soon-to-be-history US Airways exited the scene, they took with them a number of non-stop routes.

But for those in the Midwest, there’s a new guy in town named “OneJet” looking to spice up the competition and replenish some of those non-stop options. OneJet initiated operations fairly recently on April 6 and serves four cities from its Indianapolis hub – Pittsburgh, Milwaukee, Memphis, and Nashville. Given the rarity of new entrants into the market these days, OneJet, armed with a rather unique business model, is quickly making some waves.

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Contrary to most other airlines, OneJet set out almost exclusively targeting the business traveler, with the goal of reintroducing non-stop service that corporate fliers have sorely missed across suffering markets. In an interview with Airways, OneJet’s CEO Matt Maguire spoke to the sharp reduction of “non-stop service options, particularly for regional travel,” resulting from industry consolidation. Maguire believes this gap opened the door for him and his team as they battle to lure “the mainstream corporate traveler” from the grips of their competitors.

On each of the four routes the company currently operates, it represents the only non-stop option available. A quick search on Expedia reveals that OneJet concentrates its flights during the early morning and late afternoon, times that would appeal best to your average-Joe business flier.

Maguire explains the strategy centers around flying “routes of about 500 miles in stage length,” naturally placing the company in the eastern side of the United States. He also identified “former hub markets that had non-stop service before” as a common thread. According to Maguire, the introduction of non-stop service will stimulate “a market to grow about 25-30%,” mainly attributed to the “ease of travel” factor. The loss of prior service not only left the markets thirsty as larger airlines dialed back operations, but also laid a template for his team from which to draw.

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Maguire, only 29, described the process of assembling OneJet’s leadership: “It really started out with me cold-calling retired industry executives,” valuing the seasoned experience they could bring to the table. “It took awhile for the [Department of Transportation] to let us go and do this,” but he says eventually the crew of coworkers he assembled won approval to fly.

But for such an aged bunch, OneJet’s business model relies upon some pretty atypical practices. For one, travelers might find some difficulty even spotting their jets. These birds, Beechjet 400 aircraft, feature only seven seats, vastly different from the planes most commercial airliners employ. The industry as a whole currently trends more toward upgauging, or leaning toward larger and larger models to spread costs more thinly among passengers. Certainly, flying a jet with room for just seven signifies a rather stark deviation from this pattern.

Additionally, in an era of an increasingly more stingy in-flight product, OneJet shoots to provide a more premium experience, offering complimentary Evian bottled water and laying out a selection of newspapers for its passengers to browse on each flight. Its planes sport a “beautiful, all-leather seating interior” that Maguire compares to a premium economy or even first class experience on other carriers. In fact, when asked how his model fits with Virgin America’s, he found that “a really great comparison,” endorsing the idea of “starting with something that is fundamentally very good mixed with relatively competitive fares and a consistent but simple on-board experience.”

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OneJet’s pricing scheme also deviates significantly from the norm. Conventionally, airlines price their cheapest tickets months in advance, and escalate prices as the date approaches under the assumption that those booking so closely to departure are less sensitive to cost. Maguire confirmed that OneJet deploys an inverse strategy, one that charges the most for the first couple of tickets and then downgrades the price from there. He mainly attributes this to the small amount of capacity on each plane: “if we sell, we’re committed, we have to go,” he explains, leading the company to price the initial sale at a bit of a “hurdle rate” to decrease the downside if few other tickets are sold.

Further differentiating it from the pack, OneJet sells its tickets almost exclusively through corporate or third-party vendors, which greatly counters the industry movement to guide consumers to buy directly from the airline. Maguire very honestly admitted this might have been somewhat of a misstep. The company initially anticipated that nearly all of its sales would result from corporate travelers and “did not expect a huge amount of leisure travel,” which proved “not really to be the case.” He claimed that about 30% of its bookings originate from Expedia, its primary third-party vendor. Given that Expedia normally supports about a “10% organic market share,” he reasons that the remaining 20% might prefer booking directly with the company. OneJet like other airlines pays a small commission with each sale made externally, diminishing the amount of revenue it realizes each time customers utilize a third party.

Ironically enough for a company expecting to be so “built around corporate travel,” OneJet owes its first ever ticket sale to an “83 year old grandmother” on her way to visit family. How’s that for an unexpected twist?

But for all of its unique flavorings, OneJet still maintains some similarities with mainline carriers. In particular, the company works hard to “keep the experience side perfectly normalized for the traveler.” Maguire believes society finds the idea of traveling on a small, corporate jet for typical business travel “socially impermissible.” As somewhat of a remedy, OneJet uses airport terminal facilities and gate space, equipped with conventional ticket counters. Before a passenger steps aboard the small plane, the flying experience might seem not wildly different from that on any other carrier.

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Maguire ties most of this decision to the need to “build credibility,” leading him to accept some excess level of cost from “the visibility of being in a terminal.” Renting terminal space in a traditional sense piles on some significant fixed costs, which with only seven seats available cannot be spread very thinly across fliers. But despite the inefficiencies from bearing these overhead costs, he thinks overall the benefits “outweigh the costs,” although he cautions that calculation might change as the concept gains some more traction.

He also mentions that some airports understood especially well that “a traditional cost model for a seven-seat aircraft” would not work, and that others “are having difficulty with that.” Flexibility on the behalf of airports will function as a key ingredient as OneJet continues to expand and adds more destination cities to its map – a central goal in its short-term outlook.

In terms of its future ambitions, OneJet envisions some fairly robust growth beginning next year, planning to add a new aircraft and destination city on about a monthly basis. At the same time, Maguire emphasized the need to remain “disciplined,” even with a number of enticing opportunities lurking in the wings – a pretty common sentiment in an industry proclaiming a commitment to capacity discipline. “There’s so much demand out there right now,” he claims, and one of the company’s primary obstacles looking forward will be finding a healthy balance of growth and restraint, in addition to continually garnering more credibility.

He would not yet reveal any cities specifically that will gain service, but advises consumers to stay posted as the company announces more flights in the coming months.

OneJet’s concept has clearly proven successful so far, with the company already having roped in ten Fortune 500 companies. Whether the company can generate a profit over the long-term remains a lingering question. Warren Buffett famously remarked that “if you want to be a millionaire, start with a billion dollars and launch a new airline,” speaking to the dangerous volatility characteristic of the industry. Betting on virtually anything in the sky, let alone a new upstart, is not for the faint of heart. And who’s really going to argue with Warren Buffett?

But Maguire and OneJet just might be onto something. While unquestionably price functions as the most important variable for much of the flying population, there just might be a traveler segment reliably willing to eschew, for a bit of a premium, the typically dreaded airline experience for a more personalized, comfortable, and convenient approach. Objectively, they’ve got a long way to go, but OneJet could just make an inroad in the industry by combating one-stop itineraries.

I asked Matt Maguire if he would aliken himself to any historical figure or pioneer within the industry. He graciously declined to draw any grand comparisons. But don’t be surprised if his name surfaces more and more in the next several years.

 

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About Author

Alex McIntyre

Alex McIntyre

Texan. Airways Business Analyst. Emory University student, and lifelong AvGeek. Favorite airport and aircraft are: Dallas/Fort Worth International Airport and the Boeing 787. Passionate about all things commercial in the airline business, including route networks and hub operations. I love the window seat.

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