Private Aviation as Economic Stimulator

If you’ve tuned into your local news broadcast, or read any article pertaining to the economic recession and financial bailout packages, you’ve more than likely heard some sort of criticism about executive private jet travel.

A simple search of the term “private jet” through yahoo news yields articles of shame for General Motors, JP Morgan Chase, Ford Motor Co, and hundreds of additional household corporate names; all for their use of private aircraft services. We’re all familiar with the scalding of the big three automakers by Congress for their use of private jets to visit Washington pleading for bailout money.

There are those who have mislead the public perception into thinking that private jet travel is nothing but an excessive waste of money with no benefit aside from exorbitant luxury. The fact of the matter is, none of those who scrutinize private air travel have taken but a single moment to understand its benefits. None of the critics have grasped the understanding of how the costs vested in private aviation are actually an investment in the American product, with a timelessly proven lofty ROI. 

Today I write to you as a private air professional who has personally seen the benefits of private aviation from the side of the corporate aviation business of over 1.2 million hard working Americans, the corporations that use private aviation, and the direct and indirect impact on the American economy. 

Private Aviation grants corporate leaders and employees the ability to conduct a business day in a way that without our industry would be absolutely infeasible. In one single day, multiple meetings can be held across the nation—discreetly, quickly, and efficiently. Many times, the hourly cost of the aircraft is less than the hourly cost of compensation to just one of the multiple travelers, thus saving corporate dollars. Further, the opportunity cost of those traveling privately is significantly reduced as a result of simply spending fewer hours on the road. Corporate leaders, whose every hour is shadowed by a high opportunity cost vastly exceeding their compensation, have more time to conduct work. Money, and lots of it, is saved by shareholders through the tool of business aviation. This is why so many public companies, whose legal and moral responsibility is to protect the shareholders, have vested interest in private aviation for decades.

I’ve personally stood present as corporate leaders acknowledged nine figure deals at the doors of our aircraft. These are deals that have huge impacts on the public good both financially and through the products rendered; this is American economic flow. I’ve seen those who are normally hounded by the media escape to work without any public hassle, saving hours in opportunity cost. 

Business Aviation directly contributes approximately $150 billion annually to the US Economic output and employees 1.2 million hardworking Americans. Of the 1.2 million employees are pilots, caterers, baggage loaders, mechanics, accountants, concierges, janitors, advertisers, fabric manufactures, drivers, salespeople, dispatchers, and so many more -- millions of hardworking middle-class Americans. The industry as a whole is predominantly local to the United States. Not only does the United States use more private aviation services than any other nation, but the majority of private jets and private jet components are manufactured right here in the USA. Half of these aircraft are sold abroad, bringing foreign revenues into the country. Even the handful of manufactures outside of the U.S. “complete” their aircraft here in America, adding avionics, engines, interiors, etc. which are all manufactured in the U.S, as explained by the NBAA’s (National Business Aviation Association) “No Plane No Gain” campaign. 

With all this in mind, I implore you to take a closer look into the facts of private aviation and how it is necessary for the prolonged growth of the American economic product. The private jet has not been coined the “business jet” arbitrarily. Private Aviation is an artery of large-scale world commerce; it must be supported for the benefit of all Americans.

Written By:

Alex M. Early
Founder & CEO
The Early Air Way, LLC
www.theEarlyAirWay.com
(800) 783-2970

Hotel Occupancy in Today's Economy

The DOW is at its lowest point since ’03 and further decline seems nearly inevitable. The Big 3 automakers are sprinting from bankruptcy with three broken legs. The US unemployment rate is growing with great momentum. Alas, we are in the midst of a recession.

What has happened to hotel occupancy rates? Being a resident of New York City, the land of high hotel demand and low supply, I’m used to 95% occupancies, high turn-away rates [people denied a room], and unusually high rates. In today’s market however, I believe that hotel occupancy rates across the nation are suffering far greater than any brands would lead you or the media to believe.

I was prompted to write this entry when this morning I received an offer from my favorite Las Vegas hotel, The Wynn. Wynn Resorts Ltd. is opening their newest product, Encore, in Las Vegas on December 22nd. Encore boasts an impressive 2,034 suites to Wynn’s Las Vegas portfolio. Of course, this is in addition to Wynn Las Vegas’ 2,700 original rooms and suites. The result? Wynn Resorts now has nearly 5,000 rooms per night to sell during a recession! Who would have predicted this when the plans for Encore were approved? Sadly, no one. Anyway, my offer was for weekday nights in January for the following:

Wynn Resort Room: $129.00
Encore Resort Suite: $149.00

Bear in mind that these are special targeted rates, though the hotel is retailing these rooms for $174.00 and $199.00, respectively.

Not too long ago, Wynn was able to charge north of $500/night for their standard Resort Rooms. Right now, they are selling their brand new, week old 5-star luxury product for just $149.00 ($174.00 retail)! Although Wynn Resorts may say that they are running near full occupancies, I say no way... Encore, being the latest luxury product on the strip, should be able to open at rates 3-fold at the very least. Occupancy outlooks must be quite grim across the strip. Wynn is a great hotel, and I’d recommend it to all of my readers. I’ll be touring Encore shortly and will report on it.

Here in New York, I believe occupancy rates are even more deceiving. I see this through Opaque booking such as Priceline and Hotwire that have been mentioned in previous articles. Hotels only sell rooms through the opaque systems that they believe won’t sell at the standard rates. The opaque rates are extra low and help the hotel in the sense that the brand name is hidden until after purchase in order to allow the hotel to retail rooms at much higher prices.

One can snag a 4-star hotel room in Manhattan right now for about $100 excluding tax on the peak days. Less than a year ago, the opaque price was more than twice this! The same hotel will have retail rates of about $400/night as opposed to the $600 of a year ago. I believe that the retail rates for Manhattan should be far lower right now, but hotels are afraid to lower their prices too much fearing that they may never again be able to revert back to the $600/night rates. With that in mind, the big 5-star hotels are still floating around $1,000/night -- though they cater to a very different demand segment.

I recently spoke with the Front Office Manager of a luxury boutique 4-star property in SoHo (name to be withheld). I was told that occupancy rates are absolutely solid and the hotel is always packed. When I asked if they participated in opaque booking, I was told that they had just started a week prior to my interview. For your information -- hotels use opaque booking when they will have a lot of empty rooms. Thus, this hotel was not always full like I was led to believe.

Next, last week I purchased a room at a major 4-star midtown hotel for $100 on Priceline. I then called up a manager to inquire about occupancy rates on the very given day and was told that the hotel was “full as always.” The fact is... the hotel must have been pretty vacant for me to get the $100 opaque inventory.

Long story short, I believe that hotels are making a conscious effort to lead people to believe that they are full, though occupancy rates are severely hurt by the economy. With this in mind, there are some great deals out there IF YOU DO YOUR RESEARCH. As stated, there are many hotels that are keeping their rates up and assumable trying to ride out the recession in my opinion.

My assumption is that the true numbers are far more grim than the public actually believes. After all, travel is one of the first dispensable expenditures during a budget cut of personal or corporate proportion.


Written By:

Alex Early
Founder & President
The Early Air Way, LLC

Eclipse Aviation... Is it Over?

Launched only a few years ago, Eclipse Aviation promised to change the world of private air travel with its affordable “Very Light Jet.” The Eclipse aircraft, coined the Eclipse 500 would start at a cost of just about $1.2 million. Personally, I believed that the sky would be filled with the attractive Eclipse 500 in only a few years time. Let’s face it... the Eclipse 500, brand new, is about a third the cost of many used King Air Turboprops! The Eclipse 500 introduced the fiscal possibility of jet ownership to a whole new economic bracket. Further down the line, with its low operating cost, the 500 subsequently created a whole new price category for air charter as well.

Unfortunately however, Eclipse Aviation is currently suffering serious hardship. Employees of Eclipse Aviation have not received a paycheck in the past two weeks and were told on Saturday morning that they should not expect those paychecks to come. It is clear and obvious what will be happening.

Eclipse offered a promising product with real potential to change the world of business aviation; the airplanes were launched into service too soon, however. Mechanical defaults amongst operational aircraft became extremely high, and subsequently the list of systemwide recalls became quite substantial. Eclipse can’t afford to keep up with the “progressive design” that is necessary for the 500; the aircraft really was never completed and is still a work in progress. Owners keep having to send their planes back to the factory to have the squawks worked out of them. Basically, the owners are having to bring their planes back in order to finish their completion.

Eclipse was the real frontrunner in the Very Light Jet (VLJ) market, but they have been followed by more financially stable companies such as Cessna with the Citation Mustang. Cessna will be able to cope with the financial implementations of a new aircraft category much better than Eclipse. With that said, I firmly believe that the Citation Mustang project has potential for success.

As far as the success of the Eclipse 500... I’d argue that the time to scrap the program is near. Had the aircraft been mechanically flawless, the outcome may have been different. I’m only sorry for those who purchased the plane who will inevitably find themselves owning an unfinished airplane with uncertain recourse. My prediction is that in only a few years from now, one will be able to pick up a used Eclipse 500 for just a couple hundred thousand dollars (if that).

There is always a cost associated with being the first on the block with the new toy. Remember... Caveat emptor: Buyer beware.

Written By:

Alex Early
Founder & President
The Early Air Way, LLC

Behind Priceline

After having received quite a bit of positive feedback on “The Best Hotel Deals...” which was posted on September 15th, 2008, I decided to elaborate a bit further on Priceline and the “opaque” booking process. In preparation for this blog posting, I spoke with Revenue Managers at multiple brand-name hotels that participate in the opaque (blind) booking process and did some further research into the method.

First of all, many revenue management departments consider participation in such programs to be taboo, since they don’t want to associate their products with such low prices. It is for that reason that you see very few five-star properties participating with the program; to them, devaluing their name isn’t worth the additional revenue. On the contrary, some Starwood hotels like to offer a lot of Priceline rooms because when their hotels show occupancy, the individual hotel gets a bonus from Starwood, regardless of the room rate. This poses a dilemma to revenue managers who care significantly about brand integrity. Of course, Starwood doesn’t approve of mass allocation of rooms to Priceline either.

How It Works:

The revenue manager begins by analyzing a series of dates in the computer (PMS or Property Management System). When he/she sees dates that he/she believes will have empty rooms, he/she will allocate a specific quantity of rooms to “opaque inventory.” Those rooms are tagged with a particular price by the revenue manager that the general public will never see.

For Example:

Hotel A has 200 rooms which have a lowest available rate of $225. For December 12th, it is predicted that at least 50 rooms will be empty. The Revenue Manager may drop 20 rooms into the “opaque” booking inventory and tag them with a price of $50. Priceline can then buy those rooms for $50/night -- nothing more, and nothing less.

When you log onto Priceline and place your bid, priceline IS NOT haggling with the hotel as it says it is. Priceline instantly knows what it has to pay for the given hotel room. As long as your bid offers Priceline a decent mark-up, it will be accepted. Priceline keeps everything above the set price by the hotel. Say your bid was $75. Priceline will keep $25; it’s that simple.

When speaking with a Revenue Manager in a large sized (600-1,000 room) Manhattan 4-Star hotel (name to be kept anonymous), I learned that on the emptiest of weekend nights, when Priceline bookings are at their highest, you nearly never see more than 15 Priceline bookings.

Another notable fact is that Priceline will ONLY sell the room of the lowest bidding hotel in a category. For example, if Hotel A offered $50 for the opaque rooms, but Hotel B offered $55, then Hotel B won’t sell even a single room. I was told that the burden of having to make sure you aren’t undercut rules out some hotels from participating in the Priceline system.

One hotel Revenue Manager I spoke with explained to me that they would soon likely pull out of opaque booking because the new management thinks the low rates devalue the brand too much.

There is one notion that every Revenue Manager I spoke with agreed upon, and that is that Priceline is the single smartest way to buy a hotel room if good value is your goal. You are essentially getting rates that some hotels feel are a slap in the face!

Written By:

Alex Early
Founder & President
The Early Air Way, LLC

American Airlines' New Product: Nothing New!

“American Airlines, under fire for poor customer-satisfaction ratings, said Monday it will add check-in and boarding services for top customers including those traveling in first-class or business-class”... Business Week Sep 22, 2008

American Airlines has purportedly just launched a new service, Priority AAcess, that will benefit:

•AAdvantage Gold, Platinum, and Executive Platinum members
•First and Business Class passengers
•Full Fare passengers
•AAirpass Passengers

Priority AAcess, which is set to begin this month, will provide guests with a special check-in gate, a special security line, and a priority “red” lane to board the aircraft ahead of everyone else. Further, if a priority guest arrives at the boarding gate during general boarding, he/she will still be able to cut the general boarding line.

Sounds great, right? The fact of the matter is... this is nothing new! The travelers whom Priority AAccess will benefit have received ALL of the perks of the program for years, EXCEPT the ability to cut the line if you arrive after boarding starts.

This program is great for American in that it makes them sound like they are doing something good for their guests, thereby potentially boosting their customer satisfaction rating and attracting positive press... even though they [American] really just added a name to existing services!

The next reason I feel they did this is that I can see this being used as a potential revenue generator in the new future. I’m going to predict that American begins charging for Priority AAccess in the near future; whether per flight, an annual subscription, or both. The airline industry is all about revenue generators in the current market, and this is just one more possibility in the making.

To make a long story short, there is absolutely nothing new about Priority AAcess. It’s a gimick that has got a fair amount of attention in the airline industry this week. Kudos to American.

Oh well, I’ll still be flying them 5 times next month!

Written By:

Alex Early
Founder & President
The Early Air Way, LLC

Where Are The New Hotels?

Look around, do you see many new hotels? Sure there are some, but look for new constructions as of the past 6 months, there are very few. Las Vegas for example, where hotels are built like water flows, has shown a significant slowdown. The largest project in Vegas history, City Center, is nearly frozen. City Center is actually said to be the single most expensive private construction in the history of the United States at an estimated $9.2 billion. Well, the money isn’t flowing in as easily as developers had hoped, and thats true for the entire industry.

Only about three years ago, a hotelier could build a hotel by financing only about 10% of the project personally. The remaining 90% could be financed by bank loans (funded by CMBCs [Commercial Mortgage Back Securities], and mezzanine debt lenders. That is no longer the case.

To understand this, lets take a quick look into the current economic crisis. Because of the real estate (particularly housing) crash, there was a lot of mortgage default. Because of the mortgage default, banks were unwilling to buy CMBCs from your personal banks, the product that makes mortgages possible. With so much less money to give, loans became ever more difficult to get. Because of this, in today’s market, a hotelier needs to front about 40% of the entire construction cost of his/her property in cash!

It makes simply sense. If hoteliers would finance 90% of their project, then there are many more who could afford the project. Financing 40% of projects that can jump into nine and sometimes ten figures is very, very difficult. So you see, there are few hotels being built.

Amazingly, in markets like New York City, this has caused room rates to skyrocket! There are too few rooms to meet the demand, yet its too expensive to build more rooms!

Luckily for City Center, and many of the new hotel projects in this country today, there is foreign money coming in. Dubai hotel companies are at an advantage, and now Indian hotel companies are stepping in as well.

With the Bush administration’s proposed $700 billion Wall Street bailout, the hope is that mortgages will begin to flow again, loans will be attainable, and you will once again see hotels. More importantly, homes will be affordable to more people, very quickly.

Written By:

Alex Early
Founder & President
The Early Air Way, LLC

The Best Hotel Deals...

If you’ve spent a day in hotel school, then the terms “RevPar,” “ADR,” and “% Occupancy” all sound familiar to you. For those of you who don’t know, the terms mentioned are relevant to the practice of Revenue Management.

Revenue Management is a strategy used by providers of perishable products in tourism to maximize revenues. Effective revenue management requires accurate forecasting of demand and a keen knowledge of current costs published by the competition. When looking to buy a hotel room, Revenue Management is on your side through two vendors.

Hotwire, Inc. (www.hotwire.com)
Priceline.com, Inc. (www.priceline.com)

Hotwire and Priceline are unlike all other travel booking sites. Although both sites offer generic hotel booking capabilities that disclose the hotel brand, they offer something far more unique... the “brand blind” booking capability.

When participating hotels forecast empty rooms on a given date, they will allocate those rooms to brand-blind vendors such as Priceline and Hotwire. A brand-name hotel with a solid revenue management department will know almost undoubtably that those rooms WON’T SELL, and otherwise will represent revenue lost forever since a room night is perishable and can be sold just once. The hotel WON’T just drop the prices of its rooms however, because advertising such low rates could potentially bring down the public image of the hotel. If you saw $50/night rooms advertised for a particular 4-star Marriott for example, you might question the quality of the product; hotels know this. I’m here to tell you however that such rates do exist and can be obtained by anyone.

Revenues earned from bookings on Priceline and Hotwire are seen as extra revenue by the hotels as they know they that the rooms really should be empty. The cost MUST cover the housekeeping cost of course, which averages between $10 - $20 per day, per room.

Hotwire

Enter your reservation details into the hotwire system, and you are then presented with various options. The options will display the price, star level, amenities, and general location of the hotel. Remember, they CAN’T display the hotel names in order to protect brand integrity.

There is a secret to hotwire however that a client of The Early Air Way actually pointed out to us... YOU CAN REVEAL THE HOTEL BRAND! Basically, open up hotwire in a second window, and re-sumbit your search as a package “including airfare.” The departure city you select is irrelevant. On this page, you’ll see the names of the hotels. Compare the amenities of the hotels on both pages as well as the star levels and locations. When you have a match of all components, then you will have revealed the brand! Shhh... this is a secret.

Priceline

Priceline will generally get you rates about 20% less than Hotwire, but 50% to 65% less than ALL conventional booking methods. This is only the “Name Your Own Price” function, by the way.

When you name your own price, a good place to start is the hotwire price for a similar hotel category, but discounted by 20%. Another good tool for deciding on a price is the website www.biddingfortravel.com On Bidding For Travel, members post what prices Priceline accepted for each city and which hotels they were assigned. Most likely, you will get placed at one of the same hotels the members of the website were placed in.

You’re technically only allowed to make one Priceline request in a 24 hour period, but the secret to getting around this is just using a different e-mail address for each request.

We use Priceline all the time, and routinely get the following rates just as a few examples:

Westin Downtown Los Angeles: $75/night
Century Plaza Los Angeles: $120/night
Westin New York Times Square: $125/night
Hilton Disneyworld: $65/night

By comparison, here are the discounted Expedia rates for the above hotels:

Westin Downtown Los Angeles: $249/night
Century Plaza Los Angeles: $279/night
Westin New York Times Square: $649/night
Hilton Disneyworld: $174/night

Many people worry about the quality of hotel they will get with Priceline since they can’t reverse the transaction once its done. The fact is, you are able to select the star level and location. If you MUST chose the exact hotel, then Priceline may not be for you. A good review of www.biddingfortravel.com will give you a good foresight of what to expect, however.

Priceline has rates just as spectacular across the globe. For me, it’s a personal favorite when looking for a 4-star hotel. When looking for a 5-star luxury hotel, I’ll either try the Hotwire trick posted above, or will just book the room directly through the hotel at the standard rate.

Trust me, the methods above are THE best ways for getting the cheapest hotel rates. Forget shopping around, and stick with the method given to us by the science of Revenue Management.

The reason it exists may sound complicated, but its going to get you a 4-star hotel room for $50!

Written By:

Alex Early
Founder & President
The Early Air Way, LLC