... Sheila Kahyaoglu with the Jefferies Aerospace Defense and Airlines Equity Research team. Thanks so much for being here today. We have Wheels Up. This has been a long road in the making, but if you don't know George Mattson yet, you should get to know him. He's CEO of Wheels Up, and he got there through being on Delta's board and a longtime banker at Goldman Sachs, and he's transforming the way Wheels Up is going to fly us around. So with that, George, if you don't mind, just to give us a little bit of background of what you've been doing over the last few years quietly behind the scenes.
Sure. Thank you. Thank you for having me, Sheila. We're in the midst of a pretty significant transformation. Wheels Up started about 11 or 12 years ago, really focused on a membership-centric, turboprop-centric King Air platform here in the U.S., and grew very quickly, heading into the pandemic and then through the pandemic, into one of the largest providers and most recognized brands, but one of the largest providers of private aviation in the industry. Delta became involved, and I became involved as a board member with Wheels Up when Delta sold Delta Private Jets to Wheels Up in early 2020 , as it turned out, a month before the pandemic. On the back of that, obviously, there was an intention to cooperate, collaborate with Wheels Up.
On the Delta side, the pandemic obviously changed all that, and for the ensuing couple of years, Delta was quite focused on its own challenges, as were all the other large commercial airlines. Wheels Up grew very quickly through the pandemic as a bunch of people who had never flown private started flying private. And on the back of that, ran into some operational and liquidity challenges, growth-related challenges, and financial challenges as demand for private aviation kind of normalized back to a higher new normal post-pandemic, but a new normal after that pandemic bubble.
Delta made a decision in late 2023 to invest into Wheels Up, and really to make Wheels Up, as Delta had gone on its premium journey, an integrated extension of its premium strategy and really extending into private aviation, and I came off the board of Delta Air Lines to run the company. If you think about private aviation, or if you think about aviation, private and commercial aviation have really existed in two entirely separate ecosystems, sort of since the beginning of time. What we're doing, which is, I think, very different, innovative, and will be transformational, is integrating commercial and private aviation solutions into one seamless offering for our customers.
In doing so, we are gaining access to a very unique addressable market of Delta customers, so Delta's 45,000 corporate customers, serviced by close to 1,000 salespeople. You know, the portion of the Delta 20 million active SkyMiles members, so if that's 0.5% or 1% of that, it's still 50,000 or 100,000 potential customers. Most folks who fly private also fly commercial, and so this idea of creating aviation solutions that span across, and then a breadth of aviation solutions within private, within our own company, was really a key part of the strategic focus. Very early on in the post-investment period when I came here, we really focused on a couple of things.
One, you can't be a successful private aviation company if you're not operationally excellent, and so we moved the headquarters of the company from here in New York, the sales office, if you will, to the operations center in Atlanta that we had just built, really mirrored after the Delta Ops center. I was successful in getting the former head of the OCC at Delta to be my chief operating officer and to really start a journey of continuous operational improvement with a goal of being the best-run private aviation company and, and leveraging the Delta playbook to do it. We started disclosing our operational statistics, even though in private aviation, unlike commercial aviation, you don't have to, and encouraged our competitors to do the same.
Haven't seen that happen yet, but really started to measure ourselves against operational excellence as the foundation of everything we were going to do. We also realized that if we were going to compete with the best-in-class private jet providers, we needed a new fleet. And so we announced in October of 2023 , 2024, that we were going to be replacing every jet in our fleet, four jet fleet types with two jet fleet types: the Phenom 300, manufactured by Embraer, and the Challenger 300, 350, manufactured by Bombardier.
We were gonna gain a tremendous amount of benefit from those being the best-in-class aircraft in their respective classes, the most preferred, the mainstays of corporate aviation fleets, the mainstays of our primary competitors' fleets, such that we could start to focus customers on the customer centricity and flexibility of our model as compared to the predominant timeshare fractional model that exists in the marketplace. It's pretty rigid. It's kind of a hammer, everything's a nail approach. We're trying to take a aviation solutions toolkit approach. And we started that in October of 2024 with the acquisition of a company called GrandView Aviation, brought on onto the fleet 17 Phenoms right away, and we've been building that fleet ever since as we walk down the legacy fleets.
Yesterday was an important day and an important milestone in that regard, in that we announced for the first time a programmatic membership we call the Signature Membership, focused on that Phenom and Challenger, offering nationwide access, back, Sheila, to covering the whole country, not just the eastern and western portions of it. We're very excited about what we think that's going to do to demand for that new fleet and that transition over the coming months.
... Maybe if you could talk about Q2, some sense of progress starting, whether it's sustainable growth and profitability. What are some of the KPIs you're looking for to measure yourself against?
Yeah. So I'll start with, I think some key operational KPIs. So we look every quarter and disclose every quarter, and we look every day at our operational performance. We focus on completion rate, where we run in the sort of 98%-99% range now. I'll come back to that in a second. We look at on time, we run in the high 80%-90%. We look at three-hour delays. We've started to look, actually borrowing a page out of the Delta playbook, at brand days, which are basically days with zero cancellations. The operation's never run better than it's running now. We had 14 brand days in August, and so about half the time we're operating with no cancellations, which seemed like an impossibility two years ago.
That's on the operations side. On the financial side, that obviously supports the ability to financially improve. We stabilized seven sequential quarters of revenue decline on the back of COVID. We're now basically running, you know, quarter- over- quarter flat on revenues, and starting to see those arrows turn in the right direction. We have driven utilization of aircraft up about 30%. Basically, we're running the same operation with 25% less aircraft than we were a year ago. We've seen contribution margins, flight margin, go from basically low single digits, 0%, 1%, 2%, to mid-high, mid-teens. We hit 19% in the fourth quarter. I think we were 12% or 13% in Q2.
So we're in the kind of mid to high teens on contribution margin, and that is in the midst of this fleet transition. Look, this fleet transition has a lot of headwinds and complexity associated with it. As my operations people love to remind me, on the way from four aircraft types to two, we have six. So it gets more complicated before it gets simpler, and so we're managing through some of those near-term transitory challenges and headwinds as well. But, you know, we've seen continuous quarter-over-quarter progress. Sheila, you know, we were, you know, kind of losing $48-$50 million of EBITDA quarter when we started. We were in the single digits in Q4. I think we were in the high twenties in Q2.
But we're seeing continued progress, and we expect to continue to see that, particularly as these fleets now... We get to the tipping point where the new fleets, which are economically profitable, are becoming larger than the legacy fleets that we're transitioning out of.
Can you just elaborate, George, on what brand days are? You said you're looking at 14 brand days in August.
Those are days with no cancellations.
Okay, got it.
100% completion rate.
Just on the fleet modernization, you've talked about what drove that decision, but how do we think about fleet simplification as benefiting your business? My head goes to MRO spend, but it must be just more than that.
Yeah, so look, the fewer fleet types, and this is a little bit of the sort of JetBlue, Southwest model, right? The fewer fleet types, that's a tongue twister, that you are operating, the more scale you have, the more network density you have, the larger pilot groups and maintenance groups you have, the better, you know, economic deals you can, you can get on that maintenance, the more efficient you get, basically, and so you think about simplification of fleet as driving a lot of operational efficiencies, and then if you select the right fleet types, ones that have higher operational reliability, higher maintenance and dispatch availability, the operational KPI that really drives the most unit economics, there really are two. One is utilization, how many revenue hours per month am I putting on the aircraft?
The second is efficiency, how much of the plane's flying around empty? If you have highly reliable aircraft, and the Phenoms and Challengers in our fleet are operating at meaningfully higher maintenance and dispatch availability than any other aircraft in our fleet, which drives higher utilization. Then if you have larger fleets, you have higher efficiency, shorter repos, quicker recoveries. You get this benefit where a little more yield, a little lower operating cost, higher availability, driving higher utilization, drives more revenue and less empty legs. You get not really percentage changes in gross profit per tail, but you get kind of multiples of gross profit per tail versus the legacy.
Got it. Maybe can you talk about the strategic partnership you have with Delta?
Yeah. So look, really unique, a one-of-a-kind partnership. Nothing like it exists in aviation or in private aviation. You know, the way I would most simply describe it is, we are going to market together, and this is an integrated part of Delta's premium commercial offering. So when you think about, as I mentioned earlier, Delta's 45,000 corporate customers, we are going to those customers together. When you think about the members of Delta's SkyMiles program, they're, you know, regular or frequent leisure flyers who can and do probably already fly private, you know, we're addressing that market together. This is viewed as complementary and in no way competing with Delta, right? The way Ed describes it is this is an extension of Delta's premium offering into a category they're not in before.
It's gaining a greater share of wallet and brand value as Delta tries to continue to drive more premium into their brand identity, and so we are working together. We have a couple of dozen Delta people working in the operation, in sales, in finance, in different parts of the company, and look, it's very similar. I had a chance, being on the Delta board, to really understand what a partnership means at Delta, and so it's being managed the same way as Delta's partnership with Air France, KLM, or Virgin, or Aeroméxico, or Korean, or LATAM. How can we make the collective pie bigger together? How can we share resources and ideas and capabilities to make things better, and that's what we're doing.
Can you talk about the go-to-market for the platform? How does it work? Is it through Delta One only? What cities are you operating in? How do you think about expanding that?
Yeah. So we have a corporate sales initiative where we have dedicated resources and so our semi-dedicated resources around the Delta sales system that we're going to market with on the corporate side. We're working very closely with the loyalty team as well on co-marketing to those. If you think about that 20 million active SkyMiles member database, a slice of that, a small slice of that is sort of our common customers, so we're thinking about going to that common customer. You know, on the leisure side, we ran an interesting kind of program pilot this summer in that we identified five cities, frequent travel, high-volume Delta cities in Europe: Athens, Rome, Barcelona, Nice, and Naples.
When you went onto Delta.com and bought a Delta One itinerary, and you got that purchase confirmation, the confirmation said, "If Athens isn't your final destination and you want to fly private to that final destination, click here." Many, many tens of thousands of people flew in Delta One this summer to those five cities. Thousands of people clicked, asked questions. Really, if you think about it, we're re-educating or rewiring the way people think about travel. No one's ever thought about, "Well, wait, I could fly on Delta to there, and then last mile to some place I can't really easily get to, Montenegro, somewhere in Northern Africa, wherever, fly on Wheels Up." It kind of opens up an infinite set of possibilities that people hadn't really had in their frame of reference, and so we're really re-educating the market.
Look, the end state is all of this is gonna be integrated together digitally. It's gonna take us some time to get there, but ultimately, if you're one of those customers that's been identified, corporate or leisure, as a common customer, and you type in a city pair into Delta.com or Wheelsup.com, you'll get choices. You know, you'll get a commercial option with two or three stops and maybe a couple of different carriers. You'll get a hybrid option, you know, private to the long- haul, commercial to private. You'll get options, and ultimately, we want to give customers choice. I think, you know, this industry, I think, has been a bit guilty of companies selling what they wanted to sell, not necessarily what customers wanted to buy.
And, you know, if you subscribe to the theory that a lot of people who can afford to fly private have never flown private, and you ask yourself why, I think the answer lies somewhere in the fact that it's been confusing. It's been a bit hard to understand for people. Am I really a private aviation customer? Is it all or nothing? Can I try this? What are the barriers to entry? Am I working with a trusted brand? You know, when you step back and look at how the industry is constructed, the vast majority of aircraft, private jet aircraft, are still wholly owned. And this piece that, you know, we and VistaJet and NetJets and Flexjet compete in is a fraction of the market. I think over time, there will be fewer wholly owned aircraft and more aircraft operated by operators.
When you look within the piece that's operated by operators, the dominant model is this fractional model, where basically it's a timeshare. You buy a piece of an airplane, and then that is what you have. You have a set number of hours for multiple years, same number of hours for every year, on the same type of aircraft. That's not really how people select travel. You know, what we're trying to do is offer this aviation toolkit of solutions. You know, maybe you're flying Delta out and Wheels Up back. Maybe you're flying a turboprop on a short-distance flight tomorrow, but next week you've got to go to California on a Challenger. Maybe you're taking Delta to Africa, but then you want a way to get to your final destination that's not a commercial aircraft operator in Africa.
Maybe it's Delta on the long haul and us on the short. So we're trying to put all of those tools and really take the barriers to entry down. This Signature Membership that we announced yesterday, Sheila, which focuses exclusively on the new aircraft, you know, represents programmatically the lowest entry point, the fewest set of rules, the most access to the most variety of aircraft types, the most customer-friendly rule set, and the lowest price. So I'm not sure which box we're not checking, but we're very excited to be in the marketplace with that, with that offering we announced yesterday.
How do we think about those 20 million SkyMiles members, and what percentage would be Wheels Up eligible? Or would it be-
Yeah
... would it be open to all customers?
It would be open to all customers, but look, we have to acknowledge, obviously, from an economic point of view, private aviation is only really accessible to a small fraction. But, you know, what I keep coming back to is, and we've done some work with Delta, really looking at that database and understanding travel patterns and looking at personal card spend and other indicators of private aviation capability, how often you fly. If 0.5% of 20 million people is the market, that's 50,000 people, right? If it's 0.25%, if it's 0.5%, it's 100,000 people. Those folks are already flying private, right? There are people spending hundreds of thousands of dollars a year on Delta tickets.
Maybe they're flying 20 times a year, but there are three trips out of those 20 where it just makes so much more sense to fly private. And so we're trying to, again, put those options in front of customers and let them select based on their kind of time value parameters and what the particular sort of elements of that trip might be.
Maybe if you could update us on Delta's majority stake in Wheels Up, what percentage it is, and how they're thinking about it going forward?
Yeah. So Delta owns... is our largest shareholder. They own just under 40% of the company. I have four Delta executives on our board. And look, they view this, as I've said, as a long-term strategic partnership. I think it's in a pool of kind of capital and investment that's no different than their joint ventures around the world with their joint venture airline partners. There's no timeline to it. It really wasn't...
You know, Delta investing $150 million into Wheels Up, along with a bank facility for another $100 million, you know, wasn't an investment they would've made if it didn't have long-term strategic relevance in their long-term strategy, and we wouldn't be putting ourselves together in front of their biggest and most important customers if this were sort of a short-term investment horizon or an experiment.
... Can we talk about corporate memberships as your fastest growing channel? Why is it growing so quickly? How are you engaging with that corporate members?
Yeah. So look, Wheels Up's history started as basically a 100% leisure company. As you mentioned, Sheila, the corporate segment is our fastest growing segment. It grew 25% in the second quarter. Our corporate customers now represent just under 40%, kind of starting from a very low number a few years ago, of our total customer base. And as you mentioned, it's the fastest growing segment. I think it's the fastest growing segment for two or three reasons. One, obviously, we were underrepresented, so there's a bigger opportunity. Two, we have a unique asset and advantage in going to market in partnership with Delta, right? Delta is the biggest airline provider to many of these customers, and so we're sort of going in the front door with a combined offering that our private aviation competitors really can't replicate.
Third, we now have an offering in the Challenger and Phenom platforms we're transitioning into, that we didn't select those aircraft sort of, you know, haphazardly. Those are the mainstay aircraft of many, many corporate travel private aviation travelers, and those are many of the aircraft that they have in their own fleets. So we're there with a product they want to buy, with a partner who is their biggest airline provider in many cases, and in a market segment where we've been underrepresented, so there's kind of more opportunity for us.
Maybe if we could talk about activities needed to drive annual cash savings in the next several quarters. Can you just update us on your progress with the balance sheet?
Yeah, sure, so we announced. I said in our last quarterly update, in the second quarter, that we were looking to drive $50 million of cost savings, in the short to medium term here. We're on track to do that, and frankly, view that as a goal we'd like to exceed, and there's lots of opportunities here. I think, as I mentioned on the operation, as we simplify the fleet and deliver a fleet that is more reliable and more efficient, we're gonna drive operational efficiencies through that process. On the commercial side, we actually, and I should take a half a step back and explain or describe this. There really are two parts to our business.
You asked earlier in the very beginning, kind of, you know, what Wheels Up was and what it is. It started as I described it. Today, we are not only the membership business that we've spent a lot of the time thus far talking about, but we have an equal-sized global charter business. So three years ago, we acquired a company called Air Partner, which is a 65-year-old London Stock Exchange-traded global charter broker. We think the largest in the world, maybe. Certainly one of the top two or three. So when you look at our business today, it's half this on-fleet membership US business, which we're in the process of transforming, as we've described, and it's half a global charter business.
And so, you know, the combination of those two businesses, the integration of those businesses into one seamless offering, is still in process. Today, we're operating two sales forces, two sales service delivery functions, and so as we come to market as one, there are gonna be significant opportunities there, as well as just across the board. So we're looking at cost efficiencies across the board and are very excited about the opportunity to just do what we've been doing more efficiently. And that $50 million target is something we're out there publicly with and hope to do better.
How do we think about where the model is more preferable, the asset-light Air Partner versus the owned up fleet?
I think, yeah, look, there's a lot of discussion and debate about this, and everybody has their own view, but I think that a mix is really where you optimally want to be. I think there are markets in which capacity is tight, where you're really happy to have your own aircraft. I think there are markets where, you know, conditions are more less supply constrained, and you're happy to not have everything on fleet, and owned assets, and so I think this optimal mix, and look, right now, it's interesting, you know, we started this, I was looking at these numbers just earlier. When we started this journey, we were about two-thirds, one-third, asset-heavy or on-fleet, off-fleet.
We're now 50/50, so literally, our charter business is the same size as our, on a gross bookings basis, programmatic fleet. And I think that's a good place to be. The charter business is profitable and growing. The membership business, as I mentioned, is improving quickly, and on the back of this fleet modernization, it is expected to continue to improve quickly. But I think an optimal mix would be somewhere in the 50/50 range for us.
We talked about this back in April, too, George, but just on the membership business, can you talk about how you're simplifying the model and making it more user-friendly?
Yeah. So, you know, the membership model of Wheels Up has evolved a lot. I think there was a big focus initially on, "How can I attract the largest number of members?" as opposed to really thinking about quality of membership, members, or profitability of members. We shed a lot of unprofitable flying. We shed a number of membership categories that kind of evolved out of COVID, that were folks that wanted to be part of the community, frankly, you know, buying $995 memberships. They may or may not have ever flown. Maybe they flew once, but they weren't really private aviation customers. And we've focused that down to people who are regularly. The membership is for people who are, you know, consistently flying private. We're happy to fly people once or twice a year, too.
They're gonna be charter customers, typically, not member customers. And so we've really, Sheila, tried to take all the barriers out. So basically, the way the membership works is it's a monthly, you know, $500 a month membership fee. People in this room living in New York might have spent more going to dinner last night. And then it's a non-expiring deposit. Basically, you deposit funds, and then you use those funds to fly your membership flights, your charter flights. You can buy Delta tickets with it. And we really try to remove all these barriers: barriers around restriction to aircraft types, barriers around using your funds by a certain time or losing them, and really trying to focus on access and customer centricity in the model.
And I think those are places where there's lots of low-hanging fruit to differentiate yourself in this industry relative to what else is out there.
Maybe, one on, reliability as being key in aviation. How do you think about reliability? You talked about more, focusing on the brand days than just, your operational KPIs.
Yeah. As Wheels Up grew, it did so through the pandemic by acquiring a number of small operators, and then really had trouble integrating them. When I got in here in October of 2023, we had just consolidated multiple operating centers around the country into Atlanta. We still had either seven or eight, I think it was seven, different operating certificates, which is basically running seven different airlines inside the airline. So we immediately got to work on consolidating that into a single operating certificate, and really starting to measure and drive operational improvement.
I remember one of those early meetings in those early days saying: "Listen, I think we should disclose our operating performance because, we should be transparent about it, and we should own the numbers, and we should go on a journey with our customers, very openly on that." And also, frankly, I thought we had already improved enough that perception of our prior operational challenges was lagging in reality. And so we made this decision to start disclosing, completion rate, on time, and we're also talking about brand days. And I remember having to discuss: Well, what about if it's not as good as everybody else? What about if, you know, it's a disadvantage? No one else has disclosed what they do, so I don't know what everyone else is doing.
But I know that it's enabled us to go on this journey of being able to measure kind of day- by- day, week- by- week, month- by- month, quarter- by- quarter improvement, and being able to share it with customers. And frankly, it's a very valuable asset as you talk to customers, right? When you're talking to a customer who says, "Gosh, I'm so frustrated. My last couple of flights have been delayed or canceled," you can say, "Okay, but here's the aggregate data," right? "Here's how we're doing for everyone. We're sorry that your experience has been less than average the last couple of times." But it gives you an anchoring point where everybody doesn't have their own version of truth, and it's been really important. And the operations team has really rallied around this idea of continuous improvement. And we're excited about it.
We love the fact that we're, you know, an operation-centric company, and when you operate well, and I think Delta's proven this, when you operate well, customers start to prefer you. And so that's kind of our strategy.
As we think about the next 12- 24 months, just to wrap up.
Yeah.
What are the key priorities for Wheels Up?
Yeah. So the most important priority is to continue doing what we've already set out to do over the last couple of years. We need to continue to drive operational performance. We need to execute flawlessly this fleet transition. We need to continue to improve and strengthen our charter business while turning our membership business to consistent profitability on the back of our new fleet. We need to continue to strengthen and drive our opportunities in our commercial partnership with Delta. And I would say, listen, our partnership with Delta, we're still in the really early innings.
You know, as I was sitting with the Delta team a few weeks ago, and we were you know, everyone was happy that we were beating plan, and we were growing 25%, you know, my comment back was, "Okay, but what's our market share of the private aviation market for all of Delta's customers?" It's single digits, and no one at Delta's happy about, or Wheels Up, happy about single digits. If Delta's 35% of the commercial aviation market, why should we be single digits in the private aviation market with the same customers? So we have a long runway to go. We haven't integrated the tech yet. We haven't really gotten to engaging with all of Delta's JV partners around the world, right?
For all the private aviation customers, corporate and leisure, that Delta has, Air France, KLM, Virgin, Aeroméxico, LAT, they all have private aviation customers also. So we look forward to taking what we're doing here around the world over time and see a lot of long-term catalysts for growth.
Great. Thank you so much, George.
Thanks, Sheila.
Thanks, guys.
Appreciate it. Thank you.