Taking a look at Kenny Dichter, CEO of Wheels Up
What do T-shirt printing, tequilla distribution, sports music CDs, gyms and executive jet travel have in common? The answer? They all presented Kenny Dichter, entrepreneur extraordinaire, with highly profitable business opportunities which he seized and exploited to the full. Dichter revolutionised the fractional ownership of executive jets with the introduction of the Marquis jet card, which offered a 25-hour share of an executive jet for $8,000 dollars an hour, instead of the $300,000 dollar price for a 1/16th share of a jet, plus the far from insignificant hourly per-flight charges, required by a fractional ownership provider like Netjets or Flexjet. That innovation brought executive jet travel within the reach of large numbers of smaller businesses and individuals. Now Dichter has done it again. Having sold Marquis to Warren Buffet’s Netjets, his latest business, Wheels Up, which has its formal launch in New York on 17 December 2013, offers Wheels Up members 25 hours in a King Air 350i, configured internally to rival any business jet, for under $4,000 an hour.
The basic idea is to have a national fleet of King Air 350i aircraft located at up to seven regional centres, providing plenty of capacity for an ‘on-demand’ service for Wheels Up members. While the precise charges have still to be announced, media speculation suggests that the initial joining fee for members will be around $15,750, with an annual fee of under $10,000 plus hourly flight charges. Dichter anticipates members spending around $100,000 to $200,000 a year on trips totalling between 25 and 50 hours.
The beauty of the Wheels Up concept is that it repeats, in some ways, the proven formula embodied in the Marquis Jet Card that worked so well for Dichter and his partners. And once again it does so by broadening the base of executive jet travel by lowering the entry price – this time significantly below the Marquis entry level price. Does it matter that the ‘jet’ in question is a turboprop aircraft rather than a jet? Dichter believes not. The King Air 350i interior design used by Wheels Up is a match for any of the narrow cabin light jets, while the aircraft has more baggage capacity, at 1,150lb, than an equivalent light jet. The 19 foot six inch cabin is a tad more spacious than most light jets, with a height of four foot nine inches and a width of four foot six. The King Air has a range of over 1,700 nautical miles with four passengers, and in its Wheels Up seating configuration, can take a maximum of nine passengers.
Take-off field length is just 3,300 feet with a landing length of just under 2,700 feet, bringing a vast range of short field gravel strip airports into play. The product, in other words, is the equivalent of a business jet in terms of comfort and styling, at a substantially lower cost, and travel times are pretty equivalent to that achieved by light jets over the same routes.
My history in business really started to take shape in my student days. I was always starting businesses, mostly in the services sector, and I’ve stayed with that
The truly audacious thing about the whole Wheels Up concept is the scale that Dichter has gone for from the outset. Launching a new venture with a potential $1.4 billion price tag (the cost of the proposed King Air fleet of 105 aircraft plus maintenance and support infrastructure) requires considerable business acumen to bring off. Dichter’s track record shows he has that in spades. “My history in business really started to take shape in my student days. I was always starting businesses, mostly in the services sector, and I’ve stayed with that. I never really had an official job that I didn’t create,” he commented to EVA. As a student he started a T-shirt printing business, a venture that taught him several very important lessons, not least of which was the power and excitement that comes from upsizing a venture and really letting it acquire some scale.
Around two decades later, already deep in the Marquis Jet Card venture, Dichter reminisced about his college business and the route to Marquis Jets, for the benefit of a group of MBA students at Baruch College, trying to sketch out for them the entrepreneurial lessons and skills he’s picked up along the way. (This really is a ‘must see’ presentation – to find it search on ‘Dichter’ and ‘Baruch College’!) His t-shirt printing business began back in the days when you could use school names without a licence. He’d print up the college name and sell the T-shirts door to door through the dorms. The shirts and printing would cost him $3.50 and he’d sell them for $10. The first and major lesson he learned was how to upscale his distribution capabilities through a network of resellers. Then he used the 70,000 seater college football stadium and college football games as an occasion, selling off tables to the crowds coming in for the game.
He found himself grossing $500 to $800 per table or around $5,000 a game. That alerted him to the fact that he was on to a real market, but he needed a workshop and office. This was his second lesson in business. He signed the lease on some office premises without really grasping that he had just committed himself to paying $2,000 a month for five years. If the T-shirt business had faltered, he would have been in deep trouble! “We had quite thin margins so you needed high velocity to make the business work. We ended up opening two or three other locations and I operated them in addition to being a full-time student,” he recalls.
The college authorities were worried about poor attendances at games and since Dichter’s business at the games gave him a high profile, they asked him if he could come up with something to boost attendances. “I didn’t have an idea to start with, but one of my mottos at the time was ‘fake it till you make it’, so I told them I’d give it some thought,” he said. Dichter came up with the idea of a sports marketing plan. This was a pre-paid card, which gave students entry to a whole range of college sporting events for a set fee. Attendances shot up, but more to the point, the seed of the idea of a card based membership service had been sown.
Dichter looked into getting sponsors for the ‘Bleacher Creature Card’ as he called it and found a number of local businesses who were interested and who became sponsors. “People, successful entrepreneurs, generally want to help others. If you have a good idea and good energy, they will see you, but when you get in the door, you have to realise that you probably have only that one shot and you need to make it count and put the best case you can,” he advises. That operation was pro bono and didn’t net him a dime, but it taught him a lot. “It showed me that if you have a good idea and go at it with incredible energy, you can get anything done,” he recalls. The Bleacher Creature Card is still running at the University of Wisconsin.
The T-shirt business took another onward leap when he met the father of one of his friends, who happened to run a US$25 million clothing business. “He was 10 levels above where I was and he showed me how do take my concept to retail outlets. We went into the mass market with two new lines printed on the T-shirts. One was ‘Why work?’, which we thought was a nice twist on over-working America, and the other was ‘Street Buzz’. That saw us to US$5 million in sales, which was a nice business for a young man, but not much as businesses go,” he comments.
Serendipity, inevitably, has a role to play in business. Opportunity wanders past. If you have vision, you see it, if you lack that eye for the half chance the moment is gone and your star don’t shine! Dichter’s next business venture came when he met Jesse Itzler, who was a minor celebrity, having written the theme song for the New York Knicks. “We talked and I pointed out to him that his business was not monetising the popularity of his theme song. So we came up with the idea of a sports CD, back when people actually paid for music. We took all the team songs, with great highlights from the games,” he comments. He and Itzler took the Knicks CD and bargained for the rights to do an exclusive retail distribution deal. “We did 40,000 CDs at $7.50 each, a $300,000 order. So I said let’s do the same thing in Chicago with the Bulls,” Dichter remembers.
The exclusive order this time, as stipulated by the two sports CD entrepreneurs, was 150,000 copies. Then they went back to New York and negotiated an exclusive distribution with a nationwide retailer and this time round got a contract for $1 million. “We were dancing around waving this cheque for $1 million and I said to Jesse, “No way are we distributing this to ourselves. We’re going to find a way of taking this money to the next level’,” Dichter says. They then looked to get exclusivity with the NFL and with major league baseball and their sports music CD business was really off and running. The $1 million order quickly turned into a $7 million business.
They got a call from Bob Sillerman, who was then building a conglomerate targeting companies in the live entertainment and sports business who had a good product but no national chain or efficiencies of scale. “Bob had bought up some 74 companies, spending around $1 billion between 1998 and 2000, so once we’d done our due diligence it was clear that SFX would be good for us,” Dichter said. The lesson here is, be pragmatic about your business. Sell when the time is right.
“Bob made us an offer that we couldn’t refuse so we joined SFX. Straight away we were meeting people with vastly more business experience than we had so we double timed our efforts and went out of our way to get to know the management inside SFX and to learn from them. This was also when we first got exposed to private aviation as the team were jetting about all over the place looking at prospects and doing deals. If we heard someone was flying to Detroit, say, we’d say, ‘hey, we’re going there anyway’ – even if we weren’t – just to get exposure to the business guys on the jet,” he laughs.
The jets, too, won him over. “I was with guys going from the car park to the plane and taking five hours to get to California, door to door, instead of the nine hours by scheduled commercial carrier and I said: This is the real deal. This is a must have in today’s business climate.” Dichter did his due diligence and rapidly discovered that there were just three options: own your own plane, charter a plane as needed, or buy a fractional share in a jet. He also discovered Richard Santulli, the man who pioneered the fractional jet market with Netjets and Warren Buffet.
“Fractional ownership was a fantastic concept. There are 8760 hours in a year and you’re selling just 100 of those hours in a fractional share, using the jet just 1% of the time. Santulli is a math professor from Brooklyn so he worked out the numbers beautifully. Itzler and me worked out a new idea. Why not bring fractional ownership within reach of a hugely larger market by offering just 25 hours at a time, but selling the jet to a much larger number of owners?” he recalls.
They took the idea to Santulli, who gave them four minutes of his time and then showed them the door. “Not interested,” he said. That might well have been that, and the Marquis Jet Card and Dichter’s latest Wheels Up venture might have never been, but Santulli’s partner, Jim Jacobs, gave them a call a week later. “He told us to re-pitch: if Rich had really not been interested he’d have slung you out after thirty seconds, not four minutes,” Jacobs told them. They got 12 minutes from Santulli for their second pitch before they were once again shown the door with a ‘Not interested’ from Santulli. Jacobs phoned them back two weeks later. “Change a few things in your presentation and have another shot,” he said. This time Santulli showed interest. After a few more meetings he said: “OK, we’ll give it a shot, we’ll test this idea with you.” This was in February 2001. Dichter and Itzer had to invest $500,000 each of their own money into the new venture. Santulli wanted to make sure they had some ‘skin in the game’, but with that $1 million plus $5 million investment from friends and family, they were in the card fractional jet business.
It took six months to get FAA approval for the idea. Another stumbling block was how to pay for the first aircraft. In the end Santulli ‘spotted’ them the first plane, taking the leasing paper onto his books. “Between June 2001 and December 2001 we sold 27 cards, or US$3 million of sales, all by working our own contacts network. Then it went to 360 cards or $45 million of sales and in 2002 we opened a London office, which did another $15 million in sales. By 2003 we were selling 850 cards, or US$150 million in sales. By 2004 they were selling 1600 cards with an aggressive sales target of 2,500 for the next year. “The key to success in America is to go at your idea hard, make good decisions and have honesty and energy – and then build fantastic customer relationships. You also need to have a business model that puts the odds of success on your side. There are 400,000 households in America with net worth of $10 million or more. Less than 1% penetration of that with Marquis gives us a half billion dollar business. Now, with Wheels Up, we have hugely increased that base of potential members and we are going to be going after that base with maximum energy,” he comments.
Already, with Wheels Up still to launch, Dichter has a second string to the Wheels Up bow, namely Wheels Down, a ‘concierge’ type service for Wheels Up members that will add value to the brand and to the members by putting together a programme of great sporting and cultural events through the year, plus exclusive breaks, golfing holidays in exotic locations and basically anything the programme managers can think of that really will add appeal and open up new prospects for enjoyment for the Wheels Up membership.
Dichter’s most recent announcement is a deal with fractional jet provider VistaJet, which will see VistaJet providing 12 of its Global 5000 and 6000 jets to Wheels Up for members who want to fly domestic and/or intercontinental flights between the US and Europe. The operator for the Vistajet contingent will be Jet Aviation and GAMA will be the operator for Wheels Up’s US national fleet of King Air 350i aircraft. 2014 is shaping up to be a very interesting year as we all get to see how fast and fluently Dichter’s latest venture spreads its wings.