Charter provider XOJet believes it has turned the corner on loss-making operations, having met breakeven last year with double-digit growth in its customer base. The privately owned group, which does not take account of the capital cost of its 42-aircraft fleet when assessing profitability, reported that earnings before interest, taxes, depreciation and amortization (Ebitda) rose by 33 percent last year.

XOJet CEO Brad Stewart told AIN that at just under $45 million, the company’s earnings for last year fell within the breakeven range of $45 million to $50 million. The company reported approximately $30 million Ebitda in 2013 and $10 million in 2012. “I came in as a turnaround CEO [in February 2013, having been president since 2010] and focused on getting us to a profitable state,” he said. “Over the last six to twelve months, our priorities have shifted to a more client-centered approach and on developing more of an enduring business model.”

According to XO Jet, sales for its charter programs were up by 56 percent last year and the company added approximately 200 new customers. Client retention rates stood at 95 percent.

“Until about a year ago our pricing was below cost and that wasn’t sustainable in the long run,” Stewart admitted. He believes profitability will further improve this year as the customer base continues to grow. “There is tons of need [for charter flights] that is not being met in our space today,” he added. “We believe we can double the size of our business again if we stick to our current plan.”

At the same time, XOJet is looking beyond organic growth. “The biggest players will win in this market because there is so much fixed cost involved,” said Stewart. “So we are actively looking for opportunities to acquire or merge with other players.”

Asked whether current cash flow could support such merger and acquisition activity, Stewart said that XOJet continues to enjoy the strong support of its private equity group, TPG Capital, and minority shareholder Aabar Investments (part of Abu Dhabi’s International Petroleum Investments).

Fleet Organization and Offerings

XOJet’s fleet consists of 25 Cessna Citation Xs and 17 Bombardier Challenger 300s. With an average age of just over six years, the aircraft are covered by finance or lease terms of between seven and 10 years. “For now, these aircraft are OK in terms of being safe and appreciated by our customers, but over time we do need to rethink whether they fit our brand. We are considering whether the Citation X is the right aircraft for our future plans,” said Stewart. The San Francisco-based company has spent approximately $5 million renovating cabin interiors, and its crews are authorized to remove an aircraft from service for interior repairs if they find excessive wear and tear.

On average, the Citation Xs are logging some 85 flight hours per month (just over 1,000 hours per year, including positioning flights). The Challenger 300s are flying closer to 95 hours each month.

XOJet also provides lift to customers through its network of preferred charter providers, its main partner being the Travel Management Company. The network offers more than 900 jets, and XOJet says it vets operators to standards that exceed the Argus Platinum audit requirements for safety, security and insurance. One requirement is that operators’ crews are checked out on a trip by XOJet before they are allowed to fly its customers.

“We are far more rigorous than a broker would be and we have a lot of leverage with these operators,” said Stewart. XOJet reserves a pool of jets to help cover high demand at peak times.

Stewart argued that those in the industry who have questioned the viability of XOJet’s pricing have not taken sufficient account of the fact that its average flight length is around three hours and that this provides a markedly better yield than sectors of one to two hours. Another difference from traditional fractional ownership operations, according to XOJet, is that it has a lower proportion of dead-head flights (in the low-20-percent range, versus the low-30-percent range).

XOJet characterizes its Preferred Access program as something of a combination between a debit card and a loyalty card. Customers deposit at least $200,000 to cover flights and earn a 4-percent reward on what they spend to be allocated toward future trips in the company’s Challengers and Citation Xs. Its Elite Access program requires a deposit of at least $100,000.

XOJet also offers a service called Enterprise Solutions through which it works with companies to provide tailor-made packages of corporate lift. “Companies treat us like their personal flight department and with the return of the [U.S.] economy we are seeing more of them wanting and needing to fly more,” said Stewart.

According to Stewart, what he characterized as entry-level charter providers such as Wheels Up do not pose much threat to XOJet, which he said had abandoned this market sector two years ago. His team is more focused on convincing customers to abandon the fractional ownership model provide by NetJets and Flexjet.