On air taxis, carbon, and how markets can save the world…
…and make money (?)
Here at Esther Dyson’s Release 1.0 Flight School 06 learning about the emergence of an exciting new market in air taxis and VLJ’s (very light jets.)
Ed Iacobucci of DayJet pointed out that they were essentially in the business of saving time with the challenge being able to provide a service that meets a price point (per hour) that people are willing to pay (for their time.) From their website:
What is DayJet all about? It’s about flexibility, convenience and control. But most of all, it’s about time. Your time. DayJet gives you back the valuable time you need to become more productive in business, while enjoying a better balance between work and your personal life. With DayJet, more timely and efficient business travel is just on the horizon.
I’m no expert – in fact I know very little about this space (I’ll know a little more by this evening) – but unless I’m mistaken, advancing aircraft and engine technology leading to less expensive (to buy and to run) and more reliable small aircraft are key facilitators for this emerging market. But having read the recent report in the Economist on the challenges that CO2 emissions might pose to the global commercial air travel business over the coming decades, I have to wonder if this might not be a key success factor in the medium to long term for air taxis.
I asked the question as to how the President Gore (!)) there was and emmissions trading system in the US and carbon had a price?
The honest answer was that nobody really seemed to have looked at this before. Vern Raburn of Eclipse Aviation made the point that there actually wasn’t any data on this as engines below a certain size are not even required to be tested for CO2 emissions, but that said he made the point that an Eclipse 500 burns approximately the same amount of fuel climbing to cruising altitude as a 737 does in 10 minutes sitting on the stand …
Now I understand that this is not relevant in the short term (both because of the scale of the market size and the initial market opportunity and obviously because the US does not – and will not conceivably under a Bush administration – have a carbon trading regime) but it would seem to me that there may well be an environmental advantage (carbon footprint per passenger kilometer) to the air taxi (point to point.) In the short term, maybe it’s (just) a marketing/pr advantage. But in the longer term it could be a real economic advantage (in a world where CO2 costs $50+ per tonne to (have the right to) produce…)
And imagine if you marry a real market for carbon, jet fuel, seats from point to point (Slipstream Air? OneSky? LinearAir?)- and you have a dynamic (quasi real time) pricing in air travel that can compete with the rest of the transportation complex – not only on price – but on mass customization. Maybe this market (in flight hours?) will be traded on AmazonBay! A real Priceline; the granularity of this network is what would lend itself to a true market approach. Imagine leaving a limit order at $2650 for 4 people from Calgary to Kelowna on a Friday after 5 pm. Imagine traders and algorithms entering this market speculatively, adding even more liquidity and driving the optimal price points (arbitraging with fuel, carbon, weather, etc. prices) doing what markets do best. 2015? 2020? sooner? never? Is this good material for a long bet?
The consensus at the conference seemed to be that the market (for VLJ’s in the US) may ultimately be measured in tens of thousands, perhaps hundreds of thousands of units. Also the obvious point was made that volume would be the biggest driver (along with improving technologies) in bringing price points down (to $500,000, why not $250,000 per plane.) This seems low to me. 16 million cars are sold in the US every year. Ok, not a fair comparison but how many $100,000+ cars are sold each year? How many of these cars are on the road (ie what is the size of the existing US fleet of these cars?) How many people’s time (either professional or personal or both) is worth more than $1000/hour? $500/hour? Could there be a market for a million of these aircraft? And what if there were a million of these aircraft flying each day to 10,000+ small airports? Wouldn’t that in itself fundamentally transform not only the economics but the underlying conception of what is normal? (Will Generation M be followed by Generation F(light)? The ramifications in the long term are pretty substantial. Think of how the car (and the interstate highway system) transformed how and where we live and work. How many people living in increasingly giant and congested urban conurbations would rather live elsewhere? The internet has made it possible for many people to work remotely. (Think about how ‘remotely’ in this context assumes implicitly that outside a major population centre is ‘remote…what about everyone working in the city being ‘remote’ from nature, space and congestion?) But this is potentially the other shoe dropping. The real end of distance. Talk about the world is flat. Or big parts of it.
The last panel of the morning discussed the ability to finance this new industry. Paul Maeder of Highland Capital Partners did a good job of explaining why this industry was not (quite) ready for mainstream institutional private equity/venture capital, but that this would change probably over the next 1 to 3 years as the planes start getting delivered and the (expected) return/liquidity timelines drop a bit more (currently probably 10+ years.) I am actually surprised that there seems to be such difficulty in raising finance although clearly the capital intensity and minimum investment thresholds are challenges especially in the start-up phase, there are two sources of capital that would seem to be ideal: very high net worth private money (not concerned with liquidity and income, but chance of very high exit multiples) and pension plans (who are structurally short duration and so looking for multi-decade forward payoff investments, or should be…) Now I happen to know that there is not exactly a lack of funds available from either of these two investor classes so the rational conclusion is either the market / intermediaries are doing a bad job of connecting the money with the opportunity or the business is doing a poor job of selling their story or (most likely) a combination of the two.
Finally if you had a prediction market in the number of VLJ’s sold in 2010, 2011, etc. these (and other investors) could dynamically ‘manage’ their investment in the industry by trading forward sales numbers. Of course for US investors this might be construed as betting by the government so that could be problematic…
So I talked about air taxis and carbon, as for how this saves the world…? Well let’s just say – read between the lines! (btw this is just one more small piece in the whole save-the-world-thing, not the whole enchilada 
)
