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Legal threats and disgruntled clients: inside the ‘Uber for private jets’

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Tim Martz made his fortune in broadcast radio, but even as a wealthy man, the price of chartering a private jet always stung a bit. So when Martz joined JetSmarter in February 2015, the service seemed like a steal. In return for a $7,000 annual membership fee, plus a $2,000 initiation charge, he could use the company’s mobile app to reserve flights on a private jet as often as he wanted. “You got the whole plane to yourself, which is great,” recalls Martz. He flew a half-dozen times in his first six months, taking trips from his Denver home to Los Angeles, Las Vegas, and various vacation paradises. “I’m paying this amount of money and getting $15,000 flights for free, that’s a good deal.”

Over the last two years, JetSmarter has earned a reputation as a fast-growing startup with a luxury product and investors to match. In December 2016, Shawn “Jay Z” Carter and the Saudi royal family led a $105 million round of funding that valued the company at $1.5 billion, putting it in the coveted Unicorn Club. Kim Kardashian declared she was obsessed” with the service, and rapper Rick Ross worked the company into his lyrics. JetSmarter added big names like Tom Ridge, a former director of Homeland Security, to its board. Florida governor Rick Scott was on hand to dedicate its new office in downtown Fort Lauderdale.

Kim Kardashian declared she was “obsessed” with the service, and rapper Rick Ross worked the company into his lyrics

“Our aim is to make flying private accessible to the masses,” said CEO Sergey Petrossov in an interview with Haute Living. Or at least that portion of the masses for whom business class was not enough but owning a Gulfstream was out of reach. The company’s marketing materials held out the promise that the moderately wealthy could mingle with celebrities and titans of industry. “Among the handful of people flying with you – this month alone flyers have included Jaime Foxx, mega-model Emily Ratajkowski (who flew from NY-LA), Super model Irina Shayk, SI model Chanel Iman, athletes, moguls and more,” read one pitch to potential members. “Network with other members and make friendships that matter.” The media took to calling it the “Uber for private jets.”

But while the company was accumulating the trappings of success, members began experiencing increasing turbulence. Starting in 2016, the benefits and costs associated with the membership began to change rapidly. Perks like free helicopter rides to the airport were removed from the membership offering. Meals, which had been free, started to cost hundreds of dollars, and travel around the holidays cost extra, too. Members lost the ability to reserve the entire plane without paying more. Martz decided not to renew: “As my wife says, well if I have to share the plane, it’s not really private, is it?”

In a WhatsApp group created by members to converse, customers complained about the cutbacks. “We know we get great value and we also know that the company has to grow, but to continually change the deliverables during our paid membership is unfair,” wrote one member who is still with the service. “Bottom line you can’t change what I paid for, period,” wrote another member. “If I pay again and renew, I’m not guaranteed for what I paid? That’s wild.”

Many speculated that the tweaks to the service were symptoms of larger struggles at the business. “Ride it while you can. When it implodes we all got our money’s worth,” wrote one member. “I'm starting to feel like I'm involved in an elaborate private jet ponzi scheme, where instead of money, I receive flights,” wrote another.

In other circumstances, JetSmarter’s well-heeled clientele might be quick to complain publicly about perceived shortcomings. But the JetSmarter membership agreement includes a non-disparagement clause that allows JetSmarter to terminate anyone who makes negative or disparaging comments about the company or its employees. The Verge spoke with more than two dozen current and former customers and reviewed chat logs of conversations between another two dozen members. Some members claimed that their memberships were not renewed because they complained publicly about the service, and many others said they were afraid to voice their honest opinion, even in private chat rooms.

Effortless effervescence. | 📷: @abunin

A post shared by JetSmarter (@jetsmarter) on

One member contacted The Verge with a story about a legal battle that broke out when JetSmarter tried to raise their membership fees. “They were pushing us around. It felt like I was dealing with the mafia,” the member said. The member was initially on the record, but reached out a day later to say they had changed their mind. “I don't wanna mess with JetSmarter, they have a big reach.” The company’s reputation took a hit last month, when its President, Edward Barsky, was arrested on charges of embezzlement. JetSmarter says the case stems from a previous job and is unrelated to its business.

The non-disparagement clause isn’t the only example of aggressive image control from the company. Earlier this month, JetSmarter pitched The Verge on a demonstration of their service, with the condition that if a positive report wasn’t published within five business days, the reporter would be charged $2,000.

Over the phone, JetSmarter CEO Petrossov and Ronn Torossian, the company’s chief business officer, acknowledged that the service was rapidly evolving. “It’s a fast-growing technology company that makes changes,” said Torossian. “There are some people, primarily those who joined two years ago, who might not be a fit for the company today.” The challenge, said Petrossov, is “how do we pair luxury exclusivity with the sharing economy? There are growing pains and it’s not right for everybody, I agree.”

Torossian, a famously rough-and-tumble PR executive whose reputation as the bad boy of buzz previously earned him regular coverage on Gawker and elsewhere, was dismissive of the complaints. “These are wealthy people, this isn’t some mass-market gym you’re paying $12 a month for,” said Torossian. “Millionaires and wealthy people can’t bring food on the plane or pay for food on the plane? It’s a little bit insane.”

The private airline industry presents a tempting target for entrepreneurs and investors. “It’s a really beguiling market, because there is just so much waste,” says Bill Gurley, a veteran tech investor who backed Uber and sits on its board. “For a startup, that is a huge opportunity.” Many private jets fly just 200 to 300 hours a year, while commercial airlines can fly well over 2,000. And according to Clive Jackson, the CEO and founder of global charter startup Victor, “A significant percentage of private jets in the air are flying empty.”

A plane chartered from New York to Miami, for example, will often need to head back to base or relocate for its next pickup. This trip — known in the industry as the empty leg, deadhead, or repo — still requires an expensive amount of fuel, crew, and maintenance. “Many in the world of private aviation are fixated by how best to utilize these empty legs,” says Jackson. The dream is to build a marketplace to match empty legs with consumer demand.

JetSmarter launched in 2012, and in its early days its business was built around these empty legs. JetSmarter got paid by its members, its members got a deal on a flight, and the charter operator had a passenger to defray the cost of its deadhead. But while empty legs were a bargain, they had limited appeal. You needed a very specific kind of customer, one who would decide on short notice to drop everything and jet off to a destination without knowing exactly how they would get back. What’s more, JetSmarter had little control over the plane’s itinerary. If the jet’s owner decided to delay their flight for an extra day of golf, then JetSmarter’s members would also be delayed. “If he’s gonna make money as a business, it’s not going to be by monetizing empty legs,” says Bradley Stewart, CEO of XOJet, which sells this type of flight to JetSmarter.

So beginning in 2015, the company started adding some reliable inventory of its own. JetSmarter created a shuttle service between hot spots like New York, Los Angeles, and Miami, on which members could book seats for free. Members can also pay to create a shuttle at the date and time of their choosing. They get a seat on a luxury jet, on their schedule, but at a fraction of the cost of renting the whole plane or buying an ownership stake. The only catch is they have to share: once a member creates a shuttle, the remainder of the seats are offered free to other members.

A lot of JetSmarter members loved the new offering. Steven Budker, an entrepreneur running a medical device company, says he flies over 100 times a year, and estimates he’s paying about $450 a trip, a great price for a seat on a fancy jet. He also gets to skip the hassle of jostling among a crowd of strangers working their way through security, baggage claim, and boarding. Budker liked the service so much he purchased additional memberships as gifts for his father, daughter, even the designer helping to remodel his house. The company says the average member spends $29,000 a year on the service, and claims it has 8,000 members, figures that add up to $232 million in annual revenue.

Adding shuttle service, however, dramatically changed the company’s cost structure. Unlike empty legs, JetSmarter had to rent these planes at a price not very different from an ordinary customer chartering a private jet. While it could secure empty legs for as little as $300 an hour, the cost to rent scheduled charter service on a jet runs between $5,000 and $15,000 an hour. JetSmarter says it now runs over 200 shuttle flights a week. If the average flight was two and half hours and cost $10,000 an hour, JetSmarter’s shuttle program would cost $260 million a year.

The company claims that it has been able to secure jets at a price dramatically lower than its competitors. “We’ve really cracked the code as to how to optimize usage, build up demand quickly, and aggregate supply very cost-efficiently,” says Petrossov. But JetSmarter’s own suppliers seem to contradict that claim.

Jet Linx, a fleet operator that charters planes to JetSmarter, is a big fan of the company. “I think it’s fantastic,” said CEO Jamie Walker. “We’re bullish to see them continue to improve and gain more marketshare.” But for shuttle rentals, Walker says, “They pay us just like a jet card client calling us and booking the flight.” XOJet told the same story. “He pays full rate for shuttle,” said the CEO, though he added that XOJet would work with JetSmarter “on the margin, maybe 10–15 percent.” None of the suppliers contacted by The Verge suggested they were offering JetSmarter regular, deeply discounted fares on shuttle flights. And all agreed that very few of their empty legs, if any, could be used for shuttle service.

The rising costs of running the service were reflected in the membership pricing. Though the company continues to offer an empty-legs-only membership for $5,000, between 2015 and 2017, the cost of an all-inclusive annual membership went from $7,000 to $15,000. The company also introduced an upper tier with extra benefits for $45,000 per year. JetSmarter projected the lifestyle of a country club, but their shifting price and perk structure moved with the speed of a Silicon Valley startup.

There are plenty of successful tech companies that haven’t achieved profitability: Uber has achieved a tremendous valuation despite its huge losses, and Snapchat just went public with a balance sheet that sports more red ink each quarter. “They’re the digital online airplane version of Uber. A lot of these high-growth, concept business backed by venture capital are certainly burning cash,” said XOJet’s Stewart. “There is no doubt JetSmarter is one of them. The question is do they get to profitability within six months, 12 months, 18 months, 24 months? If so, they’re off to the races. If not, who knows what happens.”

“They are trying to get to some light at the end of the tunnel in terms of profitability, but it’s not going to happen.”

JetSmarter’s competitors paint a darker picture. They say that its claims on cost are ludicrous, that the company must be sustaining heavy losses, and is staying aloft through a combination of new members and venture capital. The recent cutbacks and changes to the service, they argue, are an effort to control costs. “They are trying to get to some light at the end of the tunnel in terms of profitability, but it’s not going to happen,” argues Peter Maestrales, the founder of Airstream Jets, a private charter company.

On his company blog, Maestrales published a pair of articles arguing that JetSmarter was a “ponzi scheme.” In response, JetSmarter threatened him with a defamation lawsuit, claiming it would file in three days if he didn’t take the post down. Three weeks later, the company still hadn’t filed suit. Instead, Maestrales says Petrossov called him repeatedly, begging him to take down the blog post, and offering up the potential of a business partnership.

He is not the only person the company has attempted to silence through its legal department.  

A former JetSmarter member, who asked The Verge not to use his name, signed up for the service in the fall of 2015. He travels frequently for business, and felt it “was a great deal.” But from the very start, he was bothered by the ever-changing terms. “I’m one of those guys, if I spend the money for a membership, I don’t like the bait and switch.”

As he considered whether or not to renew his membership, he joined a private chat room where JetSmarter members exchanged travel tips and coordinated around shared charter bookings. “I was bitching. Some members private messaged me saying they feel the same way,” he said with a laugh. “One of my buddies said, ‘Be careful in that chat room.’ I didn’t know what he was talking about.”

“One of my buddies said, ‘Be careful in that chat room.’ I didn’t know what he was talking about.”

When the member tried to renew his membership a few days later, he was denied. The company offered him no explanation for this decision. A second member shared a similar experience about losing their membership after complaining publicly. JetSmarter declined to share any details on the record about the decision to reject members.

Other cases demonstrated the challenges of balancing the entitlement of JetSmarter’s clients, and their sometimes boorish behavior, with effectively running a shared consumer service. Two members say they were unjustly kicked off for complaining about the company, though they committed offenses that would’ve drawn censure anywhere. One source says he was booted for a critical Instagram post made by his brother on a flight they took together, though the company’s termination letter says that the post was racially tinged and invaded the privacy of other passengers. Another member initially said he was kicked out for complaining about the service, but later acknowledged that someone at the company told him the reason for his cancellation was lewd comments he’d made on a flight. “They are using the excuse that my problem is I was talking too loud about fucking some girls,” he complained bitterly. “It’s a private jet. I can say whatever I want.” JetSmarter declined to comment to The Verge on revoking his membership.

In a WhatsApp group chat, one person offered counsel to members, and a warning. “If you don’t like them, don’t renew with them... by the way, if management would see what you guys write here… you would not be renewed. FYI.” People in the group half-joked that they would be reported as the top “complainers.”

Several members said that they believed JetSmarter employees, masquerading as customers, were reporting on users, forcing customers to abandon the chat rooms and create new ones. One of the most vocal defenders of the company in the group chat had an area code from South Florida, where JetSmarter is based. As one person in the group put it in an interview, many worried that someone was “just going to take notes and turn you in.”

In interviews, members specifically cited the non-disparagement clause as a source of concern. One former customer told The Verge that if he hadn't already declined to renew his membership, "essentially, I wouldn’t have this conversation with you.” One member believed the clause might not be legal, but decided not to bring it up with JetSmarter, as he worried he wouldn’t be renewed if the company thought he was “a troublemaker.” In a separate chat thread, a current member who has renewed the service and purchased memberships for friends wrote, “I’ve been a silent contributor to the group out of fear of similar action. I’ve not been terminated but I’ve been pissed about them removing features under the guise of ‘we can change the memberships as they’re not guaranteed.’”

“The second they see members saying bad things they cancel your membership and don't give you your money back.”

Others said they were waiting until their membership expired to voice an honest opinion. “Unfortunately I can't go on the record because it seems like, the second they see members saying bad things they cancel your membership and don't give you your money back,” wrote one current member in a text to The Verge. “But the second my membership is over I plan on writing a scathing review so people don't have to get conned by these people.”

JetSmarter’s aggressive image maintenance seems to be working, at least according to the members who expressed fear about voicing complaints. But the non-disparagement clause may be unenforceable. Late last year, the US passed the Consumer Review Fairness Act, which prohibits companies from writing gag clauses into contracts or terms of service that prohibit negative reviews. The act, says Eric Goldman, a law professor at Santa Clara University School of Law, “was clearly meant to pick up quote-unquote ‘non disparagement’ clauses.” The law, parts of which went into effect this month, would seem to cover JetSmarter’s non-disparagement terms. “That clause [in JetSmarter’s member agreement] almost certainly runs afoul of the Consumer Review Fairness Act,” he says. The FTC and state attorneys general will be vested with enforcement power under the act, although it’s yet to be seen how often they bring legal action.

JetSmarter told The Verge that any member who says they were thrown out for speaking ill of the company isn't telling the truth and they were rejected for valid reasons, though the company declined to provide details. But Petrossov was blunt about policing the JetSmarter community and removing anyone who caused issues with other customers. “I’ll be frank with you, there are certain people who don’t mesh with our community. And we take a very strict stance toward the type of people we bring in,” said Petrossov. “You’re in a tube, you’re in a small airplane and we are trying to create a group of people that are like-minded, that are respectful to each other. It’s very difficult. This has not been an easy thing to do.”

JetSmarter is trying to pull off a delicate balancing act. It offers its members privacy, while offering up the prospect of mingling with the wealthy and famous as an enticement to new members. The company’s executives talk constantly about bringing the benefits of private air travel to a new class of people. “It would not be an understatement to say we have changed many people’s lives,” says Torossian. But when members complain, the response from the company has been to blame the entitlement of the rich. “What you’re talking about is somebody won’t pay a few hundreds dollars to take a helicopter, to get on a private plane?” asked Torossian. “It sounds to me like very wealthy people, most of whom are very happy with the company, who might feel like the company should be subsidizing everything they do.”

Petrossov agreed. “It’s kind of trivial, you have wealthy people complaining about private jets. It’s a bit crazy in the whole scheme of things. It is painful to us when certain members really think they are not getting enough value.” He argued every tweak to the service had only improved the offering. “We’ve given people 10,000 times more than what they were buying into back then.” Still, he conceded, JetSmarter had a role to play as well. “At the end of the day a lot of this is about managing expectations.”

“It’s kind of trivial, you have wealthy people complaining about private jets.”

A current member agreed with that assessment: “What they are projecting, it’s luxury, it’s like nothing you’ve experienced before, private jet travel but much cheaper. Anyone who has some common sense realizes it’s not really all those things.” The problem, he felt, was that members were promised the moon before they signed up. “Nothing will ever cost you anything, we won’t nickel and dime you, luxury white glove service.” The value of the flights was good, but he felt the actual experience was a letdown. “With great expectations come great disappointments.”  

For now, this member was on the fence about renewing. It used to be easy to get a flight on a week’s notice. Now, “I have to book a month out, which isn’t great with my travel patterns. So the value kind of diminishes.” He felt JetSmarter had transformed from a romantic adventure to an unpredictable headache. “They are going through the same thing the airlines went through, except in two years instead of 40.”

Additional reporting by Nikki Erlick and Stephan Kozub