What XOJet has—and hasn’t—accomplished

In early 2009 XOJet upended the charter industry when it introduced all-inclusive one-way transcontinental U.S. rates of $19,000 aboard its owned and operated fleet of new Cessna Citation Xs (later joined by Bombardier Challenger 300s). Not bad for a company whose majority investor, Lehman Brothers, had gone bankrupt just months before.

And not bad for you, the charter customer, given that you had been routinely paying roundtrip rates whether you needed both legs or not and were accustomed to stepping onboard a chartered aircraft without knowing the flight’s exact cost. Now you could simply roll your cursor over a U.S. map on XOJet’s website and see firm, relatively inexpensive prices not only for transcontinental trips but for routes linking more than 4,000 city pairs. And the prices included ground transportation, catering, and, later, an all-Wi-Fi-equipped fleet.

The Brisbane, California-based company claimed it could offer its low rates because it owned and operated its aircraft and used proprietary software to maximize utilization. XOJet said these factors gave it an advantage over charter companies with managed fleets, which were saddled with scheduling restrictions and owner-approval requirements.

“A year and a half ago, people said, ‘There’s no way they can do this,’” then CEO Blair LaCorte commented in 2011. He agreed that XOJet’s pricing would be “impossible” for a fractional or aircraft-management company, but added, “We’re neither, so we do things other people never thought of.”

XOJet expanded rapidly, fueled by $2.5 billion in financing from its new owner, U.S. investment firm TPG Capital. Meanwhile, competitors grumbled that the company had to be selling its flights below cost, even as many slashed margins to remain competitive. “A Gulfstream operator on the West Coast was offering a GIV-SP [for transcontinental flights] for the low $20,000s,” recalls Joe Moeggenberg, president and CEO of Cincinnati-based Argus International, which tracks charter activity. But these competitors “realized very quickly it just couldn’t work,” he notes.

It took XOJet longer to bow to economic reality. Early this year current CEO Bradley Stewart admitted that until about 2013—around the time the company promoted him from president—“our pricing was below cost, and that wasn’t sustainable in the long run.” Today he adds, “Looking back, we can safely say we bought too many airplanes relative to our customers. We were growing and doing more business but were not profitable.”

Industry insiders can point to charter operators that didn’t survive the price-wars era, whether because of brutal rate slashing or larger economic issues of the post-2008-crash years. But what has been the impact and legacy of XOJet’s pricing model on you, the charter customer?

First, note that many operators stuck to their traditional playbooks during the U.S. economy’s downturn, so a large pool of customers never came to expect what turned out to be below-market rates. “XOJet employed a different model then we do, so from a pricing perspective, we have not been terribly influenced,” says Andy Priester, president and CEO of Chicago-based Priester Aviation.

Veriar Collins-Jenkins, vice president for charter and management of Clay Lacy Aviation in Los Angeles, speaks similarly. “The fares made quite a splash when they first came out,” he says, “but XOJet was focused on one-way flights, and that’s not our core, so there wasn’t a huge impact on our business.”

Meanwhile, though XOJet has raised its rates (now about $29,000 to $34,000 plus taxes and fees for its transcontinental ad hoc flights), “pressure on charter pricing is and will remain a constant,” says Priester.

The reasons are manifold. Owners hungry for revenue continue to offer their aircraft at bargain rates. Moreover, many management companies have always sold charter below its cost, explaining to owners that they should view the income as a way to subsidize ownership rather than make a profit. Current low fuel prices have also helped hold the line on charter rates, as operating costs have declined. (“We reduced our prices based on the cost of fuel,” says Collins-Jenkins.) Additionally, charter brokers, whose share of bookings has risen sharply in recent years according to anecdotal evidence, remain aggressive about negotiating low rates for their clients. Yet even now some operators are looking into ways to increase prices.

“Charter pricing is still in my opinion nowhere near where it should be,” says Moeggenberg, who notes nascent efforts to boost rates by bringing “surge” pricing and airline-style yield-management practices to the business. “If you book a charter 30 days out, you actually pay a premium. If you wait until the day before the trip [to book], you can save money. It’s completely the opposite of the way it should be. The air-charter industry needs to completely revamp its pricing model.”

For now, though XOJet’s bargain-basement fares have disappeared, many in the industry say its transparent pricing and point-to-point fares changed charter to the customer’s benefit forever. “The industry now realizes customers want a very simple transaction,” says Moeggenberg. “They want to know the flight is going to cost X amount, period, with no sudden surprises in terms of landing fees, catering, and all the other costs. XOJet simplified the decision for the end user. That really did change the industry.”