Forbes Magazine - Aug. 13, 07 DAYJET

Companies, People, IdeasA Bus In The CloudsMark Tatge 08.13.07
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Ed Iacobucci's DayJet wants to push private jet service beyond fat cats to serve the middle class. Flights on demand and fewer hassles, at the price of full-fare coach or less.
Edward Iacobucci is a renegade. In the 1990s the ex-IBM software engineer created software to let many computers share a single application, founding Citrix Systems (nasdaq: CTXS - news - people ) and sparking a new generation of client-server apps. Seven years ago he quit Citrix and went into seclusion. Since then he has spent five years sequestered inside a dingy bank building in Delray Beach, Fla., eating bad takeout and plotting his next challenge.

Iacobucci, 53, wants to rock the world of private jets and commercial air travel. His new company, DayJet, is set to start flights in late August, offering an affordable, on-demand airborne shuttle service to white-collar professionals weary of the airlines' overnight-stay requirements, incessant delays and security hassles. "I like shaking things up. DayJet is a constructive form of rebelliousness," he says. "You might think I am crazy, but I Iike doing things that seem impossible."

He vows to have 30 to 40 aircraft and 170 pilots serving up to 10 stops in Florida and Georgia by year-end. DayJet aims to have 60 planes, 275 pilots and 15 destinations across the Southeast 12 months after it starts flying. Two years out Iacobucci hopes to have 300 jets ferrying 2,700 people daily among 70 cities across the Southeast.
To bankroll this expansionism, he has raised $68 million, much of it from hedge funds, private equity firms and individuals; $10 million of it came from his own bank account. He is lining up more than $100 million in debt to start the fleet. He and his wife, Nancy Lee Iacobucci, own just over 20%.

Some detractors, however, question the rosy forecast Iacobucci is peddling and say DayJet will run up huge losses. "He is greatly underestimating the risks," says Vaughn Cordle of AirlineForecasts, a consulting firm. "It's going to take a lot of money, and even when he gets to a very large scale, he may not have a viable business model." Richard Aboulafia, an aviation analyst with Teal Group, adds: "There's an awful lot here that doesn't make sense. The one thing that is certain is that this is going to lose a lot of money."

For years upstarts have tried to launch short-hop air taxis, but they have found little success. American Airlines (nyse: AMR - news - people )' retired chief, Robert Crandall, formed Pogo Jet three years ago (see " Sky Kings," FORBES, Aug. 16, 2004) with Donald Burr, who had run now defunct People Express in the 1980s. That effort remains embryonic. So far no one comes close to what Iacobucci proposes.

DayJet isn't an airline outright--it has no regularly scheduled flights, and you can order up a trip as late as four hours before takeoff. But DayJet isn't really a charter, either: Individual seats are sold, and renting an entire plane will be a rarity. A dozen Eclipse Aviation planes--lightweight, five-seat turbofan jets--soon will begin ferrying passengers in short hops among five backwater cities in Florida, including Tallahassee, Gainesville and Pensacola. The trips, taking an hour or less to cover 350 to 600 miles, will cost $700 to $1,200 a seat, on par with full-fare coach but sans long lines and crowded terminals. DayJet will use sleepy airfields outside major cities.

A total of 800 travelers have signed up to become members of DayJet, agreeing to pay a $250 fee to "join" the carrier. Only members can order DayJet flights once the site opens for business. In addition to wooing weary commercial fliers, Iacobucci will target drivers--business travelers who make frequent trips of several hundred miles in their cars. Getting from Boca Raton to Pensacola requires a backbreaking nine hours behind the wheel (635 miles), while most flights require a change of plane in Atlanta. DayJet could cut that to two hours tops.

Iacobucci counts 52 million business trips in the Southeast and says only 15% of these trips are made by plane. His target customers spend $500 to $1,000 for one day of travel, without an overnight stay. The rest are car trips, and the drivers are college-educated salesmen, accountants, consultants and managers, whose average age is 42 and whose average income is $100,000 a year. He argues he can turn a profit if he can fly 30 jets carrying 150 passengers daily. On a 300-mile flight he'll need to collect $780 in revenues to break even.

DayJet has ordered 700 planes, $1 billion worth, with an option for 700 more, in a new class of aircraft manufactured by Eclipse Aviation, called very light jets, or VLJs. He plans to marry the technical advances of Eclipse with complex logistical software that will manage DayJet's passenger flow, moving empty jets to where they are needed most.

The Eclipse jet is the first VLJ to be certified by the FAA. It costs $1.5 million and $425 an hour to run, burning 55 gallons of fuel per hour; by contrast, an eight-passenger Learjet costs $11.5 million plus $1,424 per hour to fly, burning 180 gallons an hour.

That is because the Eclipse weighs only 3 tons, roughly the scale of a sport utility vehicle; several adults can push it into a hangar. It seats three passengers and two pilots, with room for luggage (but no toilet). Its ability to land on and take off from shorter airstrips makes it ideal for secondary, uncongested airfields. "Florida is filled with these airports," Iacobucci says. So is much of the U.S. The FAA counts 5,000 small general aviation airports, and most see a handful of flights a day.

A short drive from Iacobucci's office in Delray Beach, an Eclipse, newly painted with the DayJet logo's blue-and-yellow stripes, purrs on the tarmac, awaiting passengers. Pratt & Whitney engines not much bigger than a pair of toaster ovens hang on the back of the fuselage. Iacobucci lumbers up the tiny stairs and ducks inside, his curly salt-and-pepper hair poking out from under a dusty Eclipse Aviation cap.

"If you normally fly a Gulfstream, you won't like this," he says, hunching beneath low headroom. Inside, the cabin is roomy and comfortable--so long as you stay seated. The door closes and moments later Iacobucci surfs the clouds 5,000 feet above Florida's Atlantic coastline (top altitude is 41,000 feet).

Back at DayJet mission control in Delray Beach, programmers feed thousands of simulations into a bank of computers that search for any holes in millions of interlocking flight plans, aiming to plug them before they occur. As customers book flights online, the system forwards electronic flight plans to DayJet pilots, who will carry tablet PCs.

Iacobucci spent years developing the software, hiring programmers who'd worked for the Soviet Union's space program in the Cold War. "The reasons the Russians are so good at algorithms is because their computers were so crummy," he says. "We have some very smart people working here."

But will their math work? DayJet expects revenue of $111 million after its first full year and an operating loss of $15 million, it says in a June 2006 prospectus. The average fare would be $859 for a 291-mile trip. Iacobucci says DayJet needs 1.3 passengers generating revenues of $2 per mile flown to break even.

But consultants who have seen Eclipse's business plan say DayJet's costs will likely be three times as high--more like $2,400 per flight, given labor and pilot costs. "People say a lot of stuff--I don't know where they get their data," Iacobucci counters. DayJet also must minimize empty return trips (deadheading). Most small operators fly up to half of their trips without revenue to position aircraft; DayJet aims for 10% to 20%.

The bigger question is whether the air taxi market is big enough. "Once we launch we will know if the dogs are going to eat the dog food. I am just as skeptical as anyone else," he says. "Just about everyone is watching us and wondering if we are going to make it."