Surf Air gets three new aircraft and $2.6 million for Christmas

By Michael Carney , written on December 31, 2012

From The News Desk

If you think developing a mobile app is difficult, try building an airline from the ground up. That’s the mountain Los Angeles startup Surf Air is hoping to summit. The company announced their plans for an all-you-can-fly, membership-based service to enormous fanfare this summer, and raised $3.76 million in VC and angel funding upon graduating from Santa Monica’s MuckerLab accelerator. Now it’s slowly checking “to do” items off its long and ambitious list.

The Surf Air team has been relatively quiet in recent months, focusing on obtaining final regulatory clearance for their ambitious project. But they came to the surface over the holidays to announce a few significant milestones. First and foremost, the company took delivery of three single-engine turboprop Pilatus PC-12 aircraft. Each aircraft can accommodate up to nine passengers plus a three person crew.

While details remain scarce with regard to the company’s regulatory status, the fact that it’s shelling out cash to lease its own aircraft is a strong sign that things are moving forward as planned. One investor in the company who spoke on the condition of anonymity said, “If you had asked me three or four months ago, I would have been significantly skeptical that they were going to be able to pull it off. Today things are looking far more promising.”

The grand plan is to offer $1,000 per month unlimited flight memberships, initially between regional airports in Los Angeles and the San Francisco Bay Area. According to co-founder Wade Eyerly, the goal is to prove the model in a single route and then expand to 25 strategic markets nationwide with up to six aircraft per market. Members will all be pre-screened, not unlike the line-busting system offered in major airports by Clear, allowing the passengers to avoid lengthy security procedures and instead drive up, hand their keys to a valet, and board their plane.

As I wrote when I first saw the company at their demo day:

For those questioning security and the ability to operate this ambitious plan, the company is founded by two brothers who consist of a pilot and a former member of the Department of Homeland Security, who personally flew an average of 27-days per month for years. To say they understand the market would be a dramatic understatement.

In addition to making room in its hangar for these new toys, Surf Air added an additional $2.6 million in funding to its bank account. The corresponding SEC filing paints the financing as part of an ongoing, planned $7 million funding round. The company’s earlier round was led by Anthem Venture Partners with participation from NEA, Siemer Ventures, Baroda Ventures, TriplePoint Capital, and several notable angels including Gil and Eytan Elbaz, Paige Craig, Bill Woodward, Rick Caruso, Jeffrey Stibel, Mike Walsh, and Aviv Grill.

Despite its notable progress, Surf Air still has enormous challenges standing between it and a sustainable business.

First, the company is said to be having difficulty finalizing an airport in its home market of Los Angeles. Regional options include Santa Monica and Burbank, but each presents its own regulatory and logistical challenge. Burbank is too far from the the Westside technorati that the company is targeting, while the sleepy Santa Monica airport is supposedly reticent to see the volume of traffic that Surf Air hopes to generate. If the company can’t solve this problem in its own backyard with the enormous goodwill of its well-heeled local investors, the viability of the whole nationwide plan must be questioned.

More concerning still is the onslaught of competition from dramatically larger players the company is sure to face, should this model gain any sort of traction. Air travel has been sliced and diced in every conceivable manner over the last five decades. Commercial has coach, premium coach, business, and first class in all their various incarnations. And private has seen countless flavors of charter, leasing, fractional, and full ownership. Surf Air’s model is new, at least in the current market, but to think that they’re the first to think of it is naive.

There are surely reasons why Richard Branson’s Virgin, Warren Buffett’s NetJets, and others haven’t previously offered all-you-can-fly, semi-commercial memberships. But if they see Surf Air successfully siphoning off their most lucrative business flyers, expect these titans to unleash the full weight of their financial and industry muscle to unseat the relatively under-capitalized challenger.

Surf Air has generated significant buzz and good will amid the VC and startup crowd for its travel-hacking model. Assuming it can successfully navigate the regulatory quagmire, expect it to see a good level of adoption in its “Silicon Valley to Silicon Beach” route. The good news is that according to the company, it can be profitable on a single route basis. If this initial rollout goes as planned, that’s when things will get interesting.

I know plenty of people who travel the LA to SF route the minimum of three times monthly as to make the plan economically beneficial. There are plenty of others still who travel less frequently, but would gladly pay a premium for the added convenience. In each camp, people are standing by, waiting for the company to cut the velvet ropes and see if this concept has wings.

[Image courtesy x-ray delta one]