Wheels Up is Hoping for a Dramatic Turnaround

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Written By Dean McHugh

Wheels Up is a private aviation company that revolutionized the industry by introducing a subscription/membership model, making private jet travel accessible beyond the uber-rich.

However, since its IPO in 2021, the company has faced significant challenges, resulting in a drastic decline in market value. With new management, investors, and a turnaround plan, the question remains: can Wheels Up successfully navigate these turbulent skies?

Recent Performance and Strategic Moves

Credits: DepositPhotos

Wheels Up has seen its market cap plummet, reflecting the difficulties faced in the private aviation market post-pandemic. The company’s strategic turnaround involves a significant partnership with Delta Air Lines (DAL), providing $490 million in liquidity through new credit facilities.

This move was not just a financial lifeline but also a confidence booster for investors, signaling that a major airline sees potential in Wheels Up.

Corporate Sales and Operational Adjustments

A critical aspect of the turnaround plan is leveraging Delta’s business network to boost corporate sales through prepaid block sales. Corporate sales offer several advantages, including increased weekday travel, which balances the traditionally high weekend usage and typically higher spending by corporate customers.

The company is also focusing on cost-efficiency by trimming unprofitable routes and concentrating on regions with profitable flight segments.

Q1 2024 Performance Analysis

Despite these efforts, Q1 2024 results indicate that Wheels Up is still struggling. The company reported a significant 44% year-over-year decline in revenue, partly due to its exit from aircraft management and sales. However, even flight revenue, its core business, saw a 35% decrease. The total private jet flight transaction value dropped 26% to $192 million.

The bright spot in the earnings report was the growth in charter services, which increased by 25% year-over-year. CEO George Mattson highlighted the progress in corporate block sales, which grew by over 30%, and block purchases exceeding $1 million, which increased by 40% year-over-year. This indicates that the strategic shift towards corporate clients is beginning to pay off.

Financial Challenges and Liquidity Concerns

Profitability remains a significant issue. Wheels Up reported an adjusted EBITDA loss of $49 million, unchanged from the previous year but on a lower revenue base. The adjusted contribution margin declined slightly to 1.0%. While fleet reductions improved contribution margins by the end of Q1, the company’s liquidity is under pressure.

As of the latest quarter, Wheels Up had $301 million in total liquidity, including undrawn revolvers, with only $180.9 million in cash against $222.8 million in drawn debt. The company burned through $77.7 million in free cash flow in Q1, indicating that at this rate, its available liquidity will not last long.

Key Takeaways

Credits: DepositPhotos

Wheels Up faces significant risks as it attempts to turn its business around. Trading at a market cap of just $2 billion, investor confidence remains low. Success hinges on increasing corporate block sales and improving contribution margins to achieve positive adjusted EBITDA and reduce cash burn. Until these factors show sustained improvement, caution is advised.

In summary, while Wheels Up has made strategic moves to address its challenges, including a critical partnership with Delta Air Lines, the company must demonstrate tangible progress in revenue growth and profitability. Investors may want to watch closely for signs of successful execution of the turnaround plan before considering taking a position.


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