Surf Air Acquisition of RISE Kicks Off Big Expansion Plans

There was a big merger announcement last week, though admittedly it’s one you might have missed. Caifornia-based Surf Air came to an agreement to acquire RISE, a similar operation in Texas. There’s a good chance you still have no idea what I’m talking about. These aren’t large companies, and unless you’re in a specific demographic, you wouldn’t have likely ever needed their services. But they’re both doing interesting things, and there’s more to come. According to Surf CEO Sudhin Shahani, there’s a lot more expansion on the way.

Surf Air was created as a membership club. It has a bunch of scheduled routes around California on Pilatus PC-12 aircraft with 8 seats. Most of these touch smaller airports like Hawthorne (near LAX), San Carlos (south of San Francisco) and Carlsbad (north San Diego County). With few exceptions, the only way you can fly is if you’re a member that pays the monthly fee. Right now, that begins at $1,950 a person (or $1,250 a person for corporates with at least 4 people). For that amount, you can reserve two flights at any one time. If you pay more, you can have more flights reserved at the same time. This model is squarely targeted at the business traveler who needs to fly 2 to 3 times a month and wants a more convenient experience without TSA hassle and often using more convenient airports.

This model seems to have worked well for Surf, though the way it’s delivered has changed over time. Most notably, Surf used to acquire and operate its own aircraft. It has now decided to shift the operation to a third party. In California, that’s a company called Encompass. Why? It’s easier to scale quickly, and that’s what Surf is about to do.

In Texas, RISE was building something similar, as I wrote last year. The biggest difference is that RISE didn’t consider itself an airline at all. It was just a platform to allow various operators to provide services under the RISE brand. It didn’t acquire any airplanes on its own. After speaking to Surf’s CEO, it sounds like while no final decision has yet been made, it’s likely that Texas will end up transitioning to one operator like Surf has done in California. It won’t necessarily be the same operator in every market, and that’s the point. Surf can easily expand around the world by using operators who know each local market, and there will likely be only one in each market.

With that mindset, this merger is about bolting two separate geographies together under the same banner. Over time, they do hope to connect the two regions. Those are longer flights of course, and Surf is looking into small jets that would allow the airline to comfortably fly those and other longer routes. But the core will likely always be people who need to fly within each region. The larger footprint is more about company growth and the potential for snagging larger corporate partners.

This does make for a somewhat more complicated model. Jet markets would of course be more costly than prop markets. So if someone has a California membership and needed to go to Texas, there would be an additional charge. But the bread-and-butter client today is usually flying a single route more often than not. So the complexity won’t be as obvious to the average client who generally only cares about the local market’s pricing. That being said, the broadened network makes it more attractive so if a traveler needs to fly in a different, more expensive market, he or she won’t have to turn to a commercial airline or private jet operator. Having clients that need to fly into other markets will only help the company grow. Arizona, for example, is on the roadmap, and it probably makes more sense if Surf can get people from there to California and in to Texas.

You might think the Northeast would be high on the list, but Sudhin says he’s “measured” on that possibility. There is high demand but there are operational issues in that crowded airspace. There’s also a whole lot more competition (think trains) and the airports they might use are further out than they are elsewhere. This doesn’t mean the Northeast isn’t on the list. It’s just not at the top.

What is at the top is Europe. Surf announced a jet division in Europe awhile ago. That will soft launch this summer with a full launch later in the year.

The Surf model is still a bit tough to wrap my head around. As an airline person, I’m used to trying to get maximum aircraft utilization, and that can mean schedules that don’t run exactly when people want them. But for Surf, it’s different. It does have high utilization for private aircraft with each flying about 200 hours a month. That’s still half what a productive airline would usually do. Part of the issue is that it needs to fly when its clientele wants to fly: in the morning and evening, Monday through Friday.

That means the company has to think whether it can profitably run flights in the middle of the day and on weekends in order to get even high utilization. It has been exploring leisure markets for for awhile to fill those gaps. Flights from the Bay Area to Truckee near Lake Tahoe, for example, have been popular. And with its growth into larger aircraft, Surf is now mentioning places like Cabo.

Surf thinks there’s opportunity in dozens of markets around the world for this kind of service. It’s tweaked its model in a way that should now allow it to expand more rapidly, and it’s about to put its foot on the accelerator. There is certainly risk involved, and more cash is bound to be required to acquire all those new airplanes, even if they are far less expensive than a commercial jet. But if all goes right, then you can look for Surf to end up in a market near you. If you’re a business traveler flying a shorter route at least 2 to 3 times a month, then you’re the target. (Ok, if you live in the middle of North Dakota, maybe not, but you get the point….)