By Henry M. Holden
Bringing his entrepreneurial spirit to the states, Avinode co-founder and CEO Niklas Berg was the special guest speaker at the fall meeting of the Aviation Professionals Sharing Information (APSI),held on Nov. 13, 2008, at The Air Group/Jet Direct/Signature East Hangar at Teterboro Airport.
Berg started Avinode, a booking system for private jets, in 2001 as a project during the final year of his master’s program at Chalmers University of Technology in Gothenburg, Sweden.
“Within the university was a branch called the Chalmers School of Entrepreneurship,” Berg said. “The idea behind the program was to create a business out of a research project. I applied and was accepted. I knew another person in the program, Niclas Wennerholm. We had a common friend; Max Liebermann, who worked at Volvo Aero in the aircraft engine division. Max was working in e-commerce and learning how it could benefit Volvo Aero.”
Looking for a business idea
Very light jets seemed to be the wave of the future. “Max heard we were looking for a business idea,
so we talked about the possibilities surrounding very light jets,” Berg said. “Our first idea was to buy 100 Eclipse jets and put them into an air taxi model. This is what we pitched to the professors and it was, against all odds, accepted!”
Each team at the school consisted of three students, and the two blossoming entrepreneurs needed one more person. They knew specialty software was needed, but they knew little about software development.
“We met Per Marthinsson, a computer science major. He was brilliant with any Windows application. Per had previous start-up experience, and he was a great match for our project. We got him interested and had our team.”
The trio started working on a business plan. They were young, naïve and thought they couldn’t fail. They needed capital for the business, but realized they probably wouldn’t be able to find the money to buy 100 Eclipse jets.
“We started focusing on the Web part of the idea, thinking if all of these small jets are going to fly around, we’d need a system to keep track of them, one that makes it easy to book them,” Berg said.
They discovered that a business case couldn’t be built for an aircraft would be launched five years into the future, but thought perhaps they could apply this idea to existing private jets, and be well positioned if the very light jet market took off.
They registered Avinode.com, a combination of two words—aviation and node, a point in a network. They also needed about $15 million to get their idea off the ground in true dot-com style. However, they never felt funding was a problem. They reasoned that there’s always money for a good idea, and the capital investment was small in relation to the growth potential. Everyone should be able to book a private jet online, just as you buy groceries or clothes online, they thought.
The dot-com bubble bursts
The three men were positioning their business plan just as the dot-com surge was coming to an end. “The long story short, there was no capital available anymore, especially for companies related to the Internet,” Berg explained. Berg quickly removed the dot-com from the name. Avinode was now a logistic system for business aviation and no longer an e-commerce site.
“We reworked the business plan and came up with a new one that only required $1 million, but it was impossible to find investors,” Berg said. “We were actually starting to get a good response from the market. We were driving around Europe with a PowerPoint presentation trying to get operators to give us their support. The idea had evolved—Avinode was not for end clients, but rather a system for the industry. We understood from our numerous road shows that this system was going to work better with the industry, not for the public.”
Berg remembers that back then in Europe, mostly old pilots knew which aircraft was where and how to reserve them. Avinode was making the location and reservation process more transparent, and the operators saw potential in making their aircraft more available. Berg’s team got Jet Aviation of Zurich, one of the industry leaders in Europe, to sign a letter of intent. “However, there was still no money available,” he said.
Back to the drawing board, again
Berg reworked the plan again. He thought they could make it through the first year if they used their student loans and gave company shares to software developers instead of a salary.
“We had a solution where we only needed $150,000. Finally we found one investor, a big media group in Sweden, where the owner loved to fly private and understood the business. They invested, and we were able to create the first prototype,” said Berg. From here on,Avinode grew quickly in popularity. Their final business idea was to establish a marketplace to buy and sell charter flights efficiently, but only for the industry.
“We understood the importance of working with the industry and creating a tool for the professional user,” Berg said. “Avinode grew its infrastructure in Europe, eastward into Russia and the Middle East, with over 85 percent of the operators as members. I think one of the success factors was that we decided only to work with the industry. By not opening up Avinode to the public, the system worked efficiently and was supported by most big charter operators and brokers.”
Today the industry leaders in Europe use Avinode as their online platform for charter bookings, and the Avinode marketplace is considered an industry standard.
Avinode comes to the U.S.
Berg moved to Miami in 2006 to establish U.S. business. “We began seeing that many of our brokers were looking for U.S. trips, but we didn’t have any content over here,” Berg said. “We traveled to New York, Florida and California to get more U.S. operators involved. About this time, we came in touch with Executive Jet Management (EJM). It was looking for an effective solution when subcontracting aircraft outside its own fleet. Based on our marketplace technology, we built a customized vendor management application for them. In return, they helped us sign operators to the application, and we could then show the operators the advantages of our industry marketplace.”
Berg also noticed the U.S. market didn’t have a trusted system for the industry.
“There are lots of directories and Web sites out there where you can see who has a Falcon 50 in Texas, but no solid system that you could trust to get an instant accurate online quote, an indication of availability and actually save time in your sourcing process,” Berg said.
With its expansion to the U.S., Avinode is now a global leader for buying and selling charter flights online, and over 900 companies worldwide use it, including clients like EJM and Sentient Flight Group.
“In the last two years, Avinode has added almost 250 charter operators as members and through the support of EJM, and Sentient, Avinode has become a cornerstone in the online arena,” Berg said. “Globally, our system can quote charter flights for over 3,000 aircraft in almost 100 different countries. In the U.S. alone, we have 1,600 aircraft listed. Companies like Delta Air Elite and Sentient Flight Group are relying completely on Avinode information when deciding which aircraft to use for which trip.”
In the last 12 months, most of Avinode’s growth has been in the Middle East. Many aircraft that were privately owned are now entering Avinode’s system with 135 certificates. To Avinode, Europe, Russia and the Middle East are growing into one market. They have seen very little movement in Asia.
“In the last eight years, Europe has become a real market for us,” Berg said. “Last year there were more aircraft sold outside the U.S. than within. Our experience is that the European charter market has grown about 15 percent each year (over the last three years). About four years ago, things started to happen over in Russia. Russia is probably the market that has grown the most for us in the last four years.”
Today Avinode has as many requests out of Moscow as it does out of London.
Champagne and caviar flights in Europe
Berg said that when he moved to the U.S., it was hard not to compare the different markets and how they work. “My experience is that flying private in the European Union (EU) is more of a luxury.
Most flying is leisure flying there. The high season is the summer, where everyone wants to fly to Nice to board their yachts. The clients in general are very demanding. One could say it is a more a champagne and caviar business in Europe.”
Berg has learned that flying private is a corporate necessity in the U.S.”European operators also have higher margins; the market is still growing and not as competitive as the one in the U.S.,” said Berg. “At the same time, it is more expensive to operate in Europe and less standardized. We also see that the one-way pricing trend in the U.S.— with operators like XOJET and Segrave offering only a one-way price—has not yet happened in the EU. You normally have to pay for a round trip even though you may only fly one way.”
Though Avinode has its roots in Europe, the company is now larger in terms of content in the U.S. than in European nations, and the U.S. provides superior quality of data.
How the financial downturn impacts Avinode
Berg said that his company has felt the impact of today’s global economy. “I don’t think Avinode has faced the full extent of the downturn yet,” Berg said. “We see operators who have more availability and are keener on marketing their capacity. We also have operators who have serious financial problems and can’t pay their bills. In the U.S., our marketplace activity has increased, but that’s also because we continue to add users. We’ve seen about a 20 percent drop in the last two months in Europe. This economic climate is not only a problem in the U.S.— it is spreading throughout the world. We can see that operators are a lot more responsive to charter requests. I think it is easier today to get a quote than it was six months ago.”
In a normal month, Avinode handles about 60,000 charter requests through their marketplace sites. The sites provide real-time availability, instant pricing and flight time calculation for over 2,600 charter aircraft worldwide.
For more information about Avinode, visit [http://www.avinode.com].
APSI announces new president
The meeting also welcomed Omar Diaz, vice president and co-founder of Emreair Solutions, as the new president of APSI. Diaz is stepping into the position recently held by Ron Muller, director of charter sales for the Infinity Aviation Group. Muller’s two-year term expired this fall.
APSI promotes continuing education for business aviation professionals and enthusiasts by providing valuable information, which will enhance the business aviation community.
“APSI is about six years old,” Diaz said. “The president’s term is usually one year, and then you elect to add additional years to it. Since APSI is a networking platform, it takes about a year to settle in and grow your roots. I’m just at the beginning stages of growing mine. It’s kind of like getting married and not being able to enjoy your own reception.”
Diaz sees potential for growth
“I want to be able to not only network the northeast region, but I’d like to see ASPI grow nationwide and build other chapters around the country,” said Diaz. You see the turnout we had here today—the weather was bad, but we had a great crowd. I think there is that same growth potential elsewhere.”
For more information about ASPI, contact Omar Diaz at firstname.lastname@example.org.