Flexjet CEO Mike Silvestro Talks Private Aviation

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Tomorrow, Carol, I'm going to do what millions of other people are going to be doing. Lucky you are going to wake up in the middle of the night. I'm going to struggle to install some car seats in the uber to get to the airport at four am. Fly with the entire family somewhere for the holidays. In my case, we're have a little layover in Denver before we make our way to a much warmer part of the country.

No complaints, but you're crossing your fingers that everything goes well.

Crossing my fingers that everything goes well. I'm not alone. The trade group Airlines for America says that a record fifty four million passengers will fly on airlines in the US between December nineteenth and January sixth. You know it would be nicer than doing that, Uh yeah, flying on a private jet.

Well, we've got a perfect person to ask about that. Michael Silvestro is chief executive officer of the fractional private jet firm flex Jet. They own and operate and maintain some three hundred aircraft, and he joins us here in our Bloomberg Interactive Broker studio. He's also a former football player, which is really kind of cool.

Yes, good, good, good research for you.

Really impressed tonight, Gars, exactly. Welcome, welcome, How are you?

Thank you, thank you for having me. I'm great, thank.

You, well, it's great to have you here.

We have spent a lot of time talking about private aviation over the last I want to say, especially kind of the pandemic.

It just felt like all of a sudden it took off.

Nobody wanted to be Those who could afford it would tap into it in a big way and really saw it take off.

Tell us where we are in this marketplace right now.

So just like everyone else, that pandemic brought travel to a halt. But coming out of the pandemic, we've seen a couple of macro trends. First of all, people who had the ability financial wherewithal to fly privately before the pandemic who chose not to are all in now convenience.

They started it and they've stayed with it.

Absolutely.

Our retention rates of those that have come in after COVID are running ninety seven ninety eight percent. So if you have a sense just to give your sets of metrics, we were on a very very strong run pre COVID coming out of the pandemic. Like if you look at our book of business today from where we were five years ago, it's up sixty percent. Wow.

When do we talk who is flying? I know, democrats. Demographics have shifted quite a bit for you guys in recent years. You're seeing more and more young people. Yeah, now become part of the program. People in their forties. What's the demographic looking mind.

Yeah, timm so coming the last The macro trend is younger, bigger, and longer. So a generation ago, a man or a woman would wait till maybe late fifties sixties to start flying privately. Today young men and women in their forties are all in. Secondly, they're not starting with small airplanes, you know, they're not starting small and moving their way up the food chain. They're in on mid supermd and

Remind us and our pursuits team often taps into this, but remind us kind of the financials in order to do to be a customer on one of your jets.

Sure, well, depends upon it really all depends upon your missions, which can be easily defined as where do you go off and with how many people, and that kind of helps us create a profile of you and what airplane

So when you say fractional jet, you're actually owning a piece of the jet. Yeah, you know, Timo's that's different than other firms.

It is, and the model for us is is that we own and operate over three hundred airplanes. But when you buy a ship, you're actually purchasing an undivided interest of a serial numbered aircraft that is part of our fleet. So as an individual owner. You can depreciate it, you can finance it, but then you allow other flexjet owners to fly on your plane and vice versa. So the master Interchange agreement allows the operating metrics to work.

So let's go with that. With that embryer two and a half million dollars buy in, and then operating costs that are associated with it, what are those typically?

Usually well, for one hundred hours a year, it's you know, by the time you do a management fee in an hourly rate, it ends up to be about eight to nine thousand dollars an hour.

So to make this it's you know, it's some people would say it's it's hard to make it worth it. You know, no matter how much you fly, it's about convenience, it's about comfort. It's about time not spent at you know, Newark Airport, yeah or whatever. Who's the typical profile in terms of like net worth that that make this choice.

Yeah, So there's really two i'd say major constitution tints that fly ultra high networth individuals that are using it for a combination of business and pleasure.

These are people thirty million dollars and above. Typically networks think network that's a good benchmark. And then what we've seen recently is a lot of corporate flight departments are using fractional flexjet to supplement their own airplanes. So they're

All right, so who's using your jet card?

The jet card?

So we have a very robust business that we own in the family of companies called Cention Jet. So you buy a block of twenty five hours, it's like a big gift card in the sky. And so and you buy them in a category of an airplane, not necessarily a specific aircraft type. So that would just be for someone who's an occasional user. That would average only about twenty to twenty five hours a year.

Okay, so not too much.

And would you see but would you see it? The person the profile of that person is not an ultra high net worth individual. Maybe they have many millions of dollars, but they're not actually buying a two and a half million dollars share right in an aircraft.

They would be I would give you two examples. The difference would be perhaps they don't have the financial wherewithal or the net worth that a fractional customer would, But they might and they would just only buy a jet card because of their frequency of use. So you could be very, very wealthy. But you just hey, I have two or three trips a year, so it's not worth me investing in a fractional share and make that commitment.

You just do a jet guard.

What's the biggest business for you, guys? Where do you make the most money?

Oh, fractional so flexjets model, which is very you know, there's all these ways.

To get on board.

But the beauty of the fractional model is our recurring revenue. So once you're in the family, once you've bought or leashed your share, you're paying a management fee. Just like belonging to a country club, whether you go for dinner or play golf, you still expect a level of service when you show up. You want the greens mode, You want a wonderful menu. Same thing for us to deploy and to have on the ready three hundred airplanes around the world. That takes a significant infrastructure.

It also takes pilots.

And one of the things that we've talked about a lot I feel like tim with people in the aviation industry is the.

Shortage of pilots. How are you dealing with that? And tell us what color you can give us?

All, Well, that's a wonderful question. I would tell you that. One of the things I'm the most proud of is that the Flexjet pilots on their own voted they when we bought the business, they were unionized, and they voted to have an at WEILL relationship with senior management as opposed to being represented by a union. So we have from the get go. Well that was about six or seven years ago. Okay, so we have a wonderful relationship with our pilots.

A couple things.

Number One, we are committed to having the highest paid pilots in the sky.

We also have.

We're very we really try to operate on a familial culture and so we end up treating people with great respect and care and we just we just we just we just know how to treat people.

Where do your pilots come from?

All over them? A lot out of the military.

So those are on the younger side. Do you have folks who retired from the big airlines?

We do, not a lot, but you know, because.

There's mandatary sixty five.

So I just flew with a guy that had been with us less than a year. He was sixty six years old, incredibly fit and competent, and so we're happy to have them.

Is it hard to find them though? That's what I just kind of go next to the defanse apply.

Well, here's something else we did.

You know, we were noticing what our attrition rates were, and we noticed a couple of years ago. Because one of the things that speaks to our culture is we don't have a train contract, so we take you at your word. So if you apply and get accepted as a job as a pilot for Flexjet, we don't we train you. We invest them money in you, and you are not obligated at all.

There's no there's no.

Payback in case you leave us. So a lot of people were negatively profiling in US, coming, getting trained, and then leaving after about two years or so. So one of the counter intuitive things we did was we raised our minimums.

So while everybody was in.

The face of a pilot shortage, you would think, well, you'd lower your minimum.

Tract more people.

We would raised ours.

To three thousand hours as a minimum.

So that's what you need to have under your belt in order to become.

A flexjet pilot.

Only fifteen hundred hours, so twice as much as what the industry calls for and what we have attracted in the last two or three years since we've done this is someone who's more career minded that they want to come to Flexjet because they appreciate the culture, the compensation, the work rules, the environment, and our retention rates had plummeted.

Where were they going when they were leaving to the airlines. What do you find when somebody who owns a fraction of a jet wants to use that jet, but then somebody else is using it.

Well, that's the beauty of the model. That's not their problem, that's my problem.

Does it happen a lot?

No, No, we end up having this the model. So we as a company, we own about twenty percent of our fleet ourselves.

It's called core.

Fleet, so we don't commit out about one out of every five planes, and that's what we need to avoid.

What you just asked me, can you use data AI or something to help you figure out kind of what we're just curious.

Yeah, you know, we're still We have a very sophisticated scheduling program that we created ourselves, but then we also add very experienced schedulers that look at the board and say how we move things around to make sure that we take care of our customers.

I can only imagine there must be like a room.

How it is so Actually, no, it is a room.

It's a beautiful, brand new, just year old global command center that we built in Cleveland, Ohio, which is our headquarters where we have visibility into our entire fleet around the world.

Pretty cool stuff. Mike, thank you so much.

Thank you for having me very much, very Christmas.

To both here.

Yeah, look forward to talking again in the new year.

Thank you.

Mike Selvestro, Chief Executive Officer.

A flex jet joining us right here at our Bloomberg Interactive Brokers studio