Prior to the analysis and the implementation of potential solutions, it is vital to assess the underlying issues that are contributing to the current excessive costs of travel. Currently, the total expenses of seven executives contribute to $75,000 in ticket costs and $15,000 in additional fees for services such as hotels, food, and other necessities. Overall, this has resulted in a total expenditure of $90,000 per month, or approximately $12,857 per person a month. Understandably, such expenditures are too costly to maintain in the long term. The CEO of the firm has outlined some primary issues that contribute to the price including airport connections, the inability to travel out on the same day, and a decrease in productivity. As such, it can be understood that scheduling, cost of tickets, and additional expenditure are the main contributing factors to the excessive spending that occurs due to the currently employed travel model at the firm.
Underlying Issues
The inability to make return flights on the same day and airport connections are the central factors that impact scheduling. Flight plans must be made in ways that mitigate or remove potential connections, transfers, and travel at hours that do not make travel back trips possible. As such, it is vital for the firm to observe days and times that allow for highly manageable flight plans. This would require contact with a selected airline industry in order to acquire all travel times and compare them with meeting and working hours. In the case that a firm is able to purchase on-demand air travel, the scheduling should consider adequate times at selected airports in order to reduce traffic and wait time. Prior planning will help executives seamlessly travel between satellite locations, airports, and their hometowns can remove additional costs as well as waiting time and contribute to productivity.
The current price tickets contribute the majority of the travel spending the firm has taken on. As such, it is crucial for the firm to obtain alternative means of travel that can drastically reduce costs. While it may initially be logical to change the tickets from the costly first-class pricing to economy class, this may interfere with the scheduling component and do little to reduce overall costs. The employment of a company that provides charter or private flights may be integral to keeping costs lower and consistent. Similarly, such a flight plan directly allows for flexible scheduling, no airport connections, and return flights. However, private charters have usually been known to cost between $2000 and $10,000 hours which would result in the payment of $160,000-$800,00 per 80 hours a month. As such, the firm would require specialized services at a lower price. Since the current tickets cost $75,000 per month, an hour of air travel currently costs approximately $937. While the CEO had not specified the exact reduction percentage to achieve, it may be sensible to aim at a price range within $500-$600 per hour, or $40,000-$48,000. When considering that additional costs are also likely to decrease, this allows for a substantial improvement in overall expenses.
Additional costs include an overnight stay, food, and on-the-ground traveling expenses. While a private or charter service can remove the need for hotels and other overnight stay services, food and other travel will likely continue to be necessary. As such, it is vital for the firm to observe the ways in which their employees travel during their business meetings and their needs. Prior planning and hiring of appropriate services can contribute to substantial cost reductions. For instance, an airline service may provide food for a reasonable price in the case of long-term agreements and cooperation. This may reduce additional management and costs. Due to how frequently the executives travel, it may also be beneficial to acquire adequate access to on-the-ground travel. This can include public transport packages, the hiring of vehicles, or other means of travel for appropriate prices and the consideration of the comfort and convenience of the executives.
Potential Alternatives
Because the firm only requires the travel of only seven individuals monthly, not at the same time, a smaller commercial plane model would be appropriate. Very light jets, or VLJs, are applicable in the case of short-distance trips regionally. Light business jets are sturdier and are appropriate for longer flights, more comfort, and the ability to provide transcontinental flights. They are characterized by a maximum takeoff weight of 20,000 lbs (Wyndham, 2020). Much like large commercial planes, they can reach speeds of 500 miles per hour but can also land on smaller landing strips and can provide private travel. Middle-sized business jets perform similarly to light business jets but allow for 10 passengers instead of the usual 6. However, due to the fact that there are only seven frequent travelers that do not require the jet at the same time, it may be unnecessary to consider a middle-sized jet. In order to keep expenses low, it is vital that the firm appropriately select the kind of jet that would not require unnecessary costs.
The modern or Uber-led approach to on-demand aviation is primarily defined by its replication of currently existing business models within the field of air travel. It is a modern practice, and many of the firms that are currently active are only introducing experimental features and processes that may become accessible to clients in the near future. However, an on-demand model for air travel is beneficial for frequent passengers as it mitigates issues such as surge pricing, road congestion, and the uncertainty of arrival time. These issues can be seen within the factors that currently affect the firm, with delays and inconsistent schedules often contributing to additional costs. As seen in Figure 1, the current firms which are currently making an expansion into on-demand flights include Uber, Airbus, Aurora, and a number of firms specializing in related projects (Gupta, 2021). The on-demand flight involves four stakeholder groups that are vital for the success of the business model. These include the pilots, which usually provide seat availability information. A substantial customer population is also required for on-demand travel to be profitable and effective. Airports, both commercial and private, must be willing to cooperate with on-demand flight firms in order to better serve the customers. Fixed base operators, or FBOs, will perform roles that are currently available for other private flyers.
Presumed and Estimated Costs
The costs of the overall process of a new model would include some ongoing and primary purchases. In case the firm buys a plane, jet acquisition and crew training would be the only primary purchase. The hiring of a small to medium-sized crew can cost between $500 to $700 a night, which adds up to $41.6 to $62.5 an hour (Wyndham, 2020). A jet may also be rented or leased from a specialized company along with the crew and other necessities. However, in the case that all other purchases are made separately, the hangar lease, maintenance fees, crew salaries, insurance costs, and fuel would be paid for over later periods of time. Training of a crew may cost up to $1800 without the inclusion of accommodation and other costs (AeroProfessional, n.d.). The renting of hangar space for a private jet may reach a monthly cost of $500. Fuel, maintenance, and parts may cost up to $2600 collectively (Wyndham, 2020). The minimal cost of private jet insurance can be met at $10,000 annually or approximately $833 monthly.
The lease of a private jet is expensive and is usually not lower than $1300 an hour, which would cost $104,000 for the 80 hours that are required monthly. As such, the purchase of a jet may be more beneficial in the long run. It is possible to purchase a light jet plane for between $1 and $3 million that has a legal lifespan of five years. As such, the actual cost on a monthly basis would be between $16,000 and $50,000. The total known costs of such a plan would likely be around $21,733 and $55,733, depending on certain purchasing choices. Though the end price may fluctuate due to additional factors as well as some initial purchases, the monthly rate, when considering the total of 80 hours, is significantly lower than the current price paid by the firm. In comparison to the current airline costs, the offered business plan could reduce costs by nearly half. It is beneficial for the firm to consider the advantages of an initial purchase of a light jet plane and the training of the crew. Following this, the monthly expenditure is significantly lower and provides the executives with improved experiences and services.
References
AeroProfessional. (n.d.). The real cost of training. AeroProfessional. Web.
Gupta, D. (2021). On demand aircraft: The future of aviation industry. Appinventiv.
Wyndham, D. (2020). What does it cost to operate a medium jet? AV Buyer. Web.