This article is a web adaptation of a fragment of my class paper that I took during my third year when I was studying Aviation Management. The course was taught by a distinguished professor who recently started an own private jet charter company. It is always great to learn from the industry leaders who can share with you their professional experience and insights into the real world business process in addition to making you accountable for knowing the required course curriculum materials. Because this class was extremely helpful for me in terms of understanding why corporations choose to use business aviation fleets for its executive even though it is not very well received by the company’s stakeholders, shareholders, and tax payers (in case of bailouts), I wanted to share my knowledge with you to help you better understand why corporate aviation should be considered an essential tool for many corporations.
BACKGROUND (CAN BE SKIPPED IF YOU’RE FAMILIAR WITH STURBUCKS’ OPERATIONS)
Starbucks Present and Future Target Markets
At the very beginning of its existence, Starbucks targeted the young college students whose income was slightly higher than average income levels. However, at some point the company came to realization that they could find their customers in different neighborhoods and social classes and they can started to target much broader markets. Nowadays, since the economy has recovered from its downturn in 2008 and continues to remain strong, consumers are willing to pay for luxury goods more than ever before. Therefore Starbucks launched aggressive expansion by targeting almost every demographic group.
Future Financial Growth
For fiscal 2010 year, Starbucks saw revenue growth compared to fiscal 2009, driven by positive comparable store sales. The company opened approximately 100 stores in the States and 200 stores internationally. Starbucks achieved a significant improvement in its consolidated operating margin in fiscal 2010. Operating cash flow for fiscal 2010 reached approximately $1.4 billion and capital expenditures ranged from $500 million to $550 million.
Starbucks’ major competitors were Dunkin’ Brands Inc., McDonald’s Corp., Nestle and specialty eateries.
Product Volatility to Market Demands
Starbucks constantly works on improving their store inventory. They add variety to their product line almost every quarter. Starbucks company was founded to roast and sell coffee beans, but after the company was bought by Schultz, it started to serve freshly brewed coffee, tea and espresso based drinks. Nowadays, Starbucks sell many different products from coffees and pastries to espresso machines and mugs.
Executives’ Travel Needs
Taking into account that Starbucks currently has thousands of stores worldwide and they going to open additional hundreds of location on an annual basis, it’s not going to be wrong to say that the company leadership really has to travel a lot to keep their business operating smoothly. The Starbucks company takes a great pride in its own corporate culture and they work hard on ensuring that every new store will adopt it as well. Therefore they often have to visit new locations to train people to conduct business the way Starbucks’s been doing it for decades.
Forecast Predictions for the Industry
The specialty eatery industry has been demonstrated continuous growth over the past several years and there is no significant premises to believe that the situation will get dramatically changed in the nearest future. In addition to the positive market dynamic, Starbucks operates Farmer Support Centers in Costa Rica and Rwanda. The Farmer Support Centers are staffed with agronomists and sustainability experts who work with coffee farming communities to secure an adequate supply of quality green coffee.
THE MAIN PART
Corporate Aircraft and Financial Performance
In the modern high – paced business world, mobility is the key to success. The global economy rewards knowledge integration, customer relationships, organizational agility, information and speed. To achieve these, a company needs mobility – of executives, customers, suppliers, and specialists teams. Majority of successful businesses realizes the impact of employing private jets on performance of an organization and shareholder value. Therefore corporate aviation is a tool that provides a unique competitive benefit to America’s businesses.
For companies experiencing rapid growth, there are no ready substitutes for business aircraft without diminishing performance or opportunity. The growing Starbucks company running thousands of stores around the world, undoubtedly faces all the hardships known to the largest and most successful companies in the world.
It’s not a surprise that Starbucks realizes the benefits that can be obtained through the usage of a corporate aviation. In 2009, the company’s officials didn’t find it inappropriate to add additional Gulfstream G550 to their fleet consisted of three jets even though it was a very tough time of recession when they had to close hundreds of locations and cut thousands of jobs. When company was criticized by public for spending too much funds on the new jet, company’s spokeswoman Deb Trevino said that the jets are important to Sturbucks’ business which includes thousands of stores in 49 countries, a multinational business and relationships with coffee growers around the world. Its employees often take commercial flights, but “in some instances it makes more sense, from a time and economic standpoint, to use the corporate plane.”
Some specialists as well as National Business Aviation Association, also argue that corporate jets are extensions of executive offices. For example, Bob Zuskin, a consultant at Jet Perspectives in the Washington, D.C., said, “Leadership can be in back of the airplane productively working as opposed to sitting in row 23F.”
It’s worth mentioning that some CEO make $2000 – $10,000 per hour of their time, so it is definitely more economically reasonable for entire company that their executive don’t waste their time idle on waiting for their airline flights or baggage claim in airports.
Through giving its employees the access to private jets companies can improve their personnel retention. Shorter travel schedules as well as greater family time may help to create a better work environment for employees and increase their overall satisfaction with a company which, in its turn, will result in reducing costs of turnover and retraining of new personnel. In addition, it will also may make the company be more attractive for new professional and experienced hires who can bring significant contribution to the company.
Increased productivity results in better opportunities to complete important business tasks more quickly and at lower unit costs of sales and improving time to market. In the current highly competitive environment, it’s vital for business to be able to respond to strategic opportunities quickly because it helps to foster more trustful relationships with customers and consequently close more sales transactions.
Another significant reason for big companies to employ corporate aviation is the security issue. On a corporate jet, executives can have meetings or prepare for the meeting without being concerned about who can hear them which is nearly impossible on an airliner. In many cases ability to travel privately can help to execute important transactions, such as a merger, acquisition or high-value sale.
Starbucks needs to transport enormous amounts supplies, machinery and products between customers, suppliers and stores every day. Using business aircraft to handle these volumes of goods may help to reduce alternative transportation costs. The direct shipment of parts to remote locations, or the delivery of emergency components are only two of many ways in which private jets may benefit the company.
Since Starbucks owns four jets, they can rent it to third-parties which will help them to save some money they usually spend on keeping own fleet. This may result in maintaining highly efficient aircraft-utilization rates and reduce certain ownership costs in progress.
Even though it is not always apparent to the public, corporate aviation can bring plenty of financial and non-financial benefits to its users. For instance, flying own jets gives companies the mobility which is one of the key elements of business success in the current high-paced environment. By being able to have good trustful relationships with customers and suppliers, companies can increase speed and value of transaction which, in the long term, leads to higher enterprise value. Thus I may conclude that private jets for companies like Starbucks is not just a luxury accessory, but an essential business tool that, if used wisely, can bring them a great gain.
- Starbucks Coffee Company
- Starbucks: Our Company
- Our Starbucks Mission Statement
- 2009 Starbucks Annual Report
- Starbucks – Wikipedia, the free encyclopedia
- Business Aviation. An Enterprise Value Perspective
- The Seattle Times. “As stores close, Starbucks buys a jet”
- It’s Not About the Coffee: Lessons on Putting People First from a Life at Starbucks