Is Jetsmarter a Ponzi Scheme? (Part 2)
This group is made up of numerous private investors who have been literally pouring hundreds of millions of dollars into the “concept” with the hope of soon cashing in on a Jetsmarter IPO. Unfortunately, for this group of investors that day will never come. JetSmarter will never be allowed to trade on a public exchange because it is without a doubt nothing more than a Ponzi scheme of epic proportion.
How angry will these investors be once they realize they were actually subsidizing thousands of corporate jet flights for complete strangers?
I’m sure the company’s executives are well aware of this fraud and some have likely been aware since the company’s inception. Whether or not Barsky set out to defraud investors from the beginning will remain to be seen, but one thing is for certain, their company’s inevitable demise will undoubtedly result in a pile lawsuits.
To gain a perception of legitimacy, JetSmarter is even dragging people such as Former United States Secretary of Homeland Security, Tom Ridge and Florida Governor, Rick Scott, into its dealings. Tom Ridge was added to the company’s Board of Directors in March of 2016. Governor Scott visited the company’s headquarters in South Florida and congratulated Jetsmarter’s CEO, Sergey Petrossov, on creating so many new jobs. I’m sure if Mr. Scott was aware of what is really happening at JetSmarter, he would not risk his reputation with these people.
There are a few reasons my curiosity was sparked with the JetSmarter story. Some of which include my friend being a member, the perception of success, the fast-paced growth, the hype, and the investor capital pouring in. But, most of all I just found it strange how JetSmarter’s core product could be experiencing such wild success with a concept which has been explored in many various ways, yet has failed miserably in each and every case.
One name in particular that comes to mind is “Avion Private Jet Club” which closed its doors nearly a decade ago and was based in Southern California. Before they ceased operations, it seemed Avion was having some success with the per-seat concept and carving out a niche for a boutique shuttle service between Los Angeles and New York on G-IV’s. They seemed to have the right idea by keeping overhead low and focusing on a specific market and route. Their annual membership fee was $6,250 with a one-time initiation fee of $20,000. The per-seat cost between New York and L.A. was $7,700 one-way.
So, the question I have for the folks at JetSmarter is, if Avion couldn’t make it work with their steep membership costs and a $7,700 per seat fare, then how on earth is your company able to turn a profit by charging customers solely for the membership and giving away seats free? Where is the money coming from to offset the losses incurred on each flight? As it turns out, the answer to that question is simple and very obvious. JetSmarter is just burning through massive amounts of investor cash to cover its losses on the flights. To make matters worse, these losses are before the company’s fixed overhead, which includes over 250 employees and its monster marketing and PR budget are even factored into the calculation!
For Petrossov and Barsky it is undoubtedly going to unravel in the near future. They need to keep bringing in new members and those huge chunks of new investor capital to cover the losses. However, if any aspect of the scheme slows, even for just awhile, JetSmarter will find itself unable to cover operating costs.
JetSmarter claims to be the “Uber of Private Jets”, but in reality, it’s nothing like the Uber concept. Uber provides a platform via mobile app which essentially allows users to contract directly with other individuals who drive a car. When you purchase a seat on the JetSmarter app you’re buying the seat from JetSmarter who is nothing more than a broker and organizer in this scheme. The only real value for travelers is that Jetsmarter is selling seats at a massive loss, and doing it intentionally, because a higher membership cost would shrink their target market to the point where the scheme is no longer viable.
Putting a multi-million dollar aircraft of any size into motion requires a tremendous amount of skill, time and resources on various levels. That is why it is expensive. How can a few young guys, who have no background in the Aviation Industry, enter this complex market and start giving away things for free?
To counter questions regarding profitability JetSmarter will undoubtedly claim they have a dynamic pricing strategy that involves “other revenue sources”, and the utilization of “empty legs”. However, the problem with this argument is the vast majority, and core focus, of their business is their jet-sharing “shuttles”. Aircraft tracking data shows these shuttles are not empty legs, but even if they were empties the cost would be about the same as what they are paying for the dedicated aircraft at wholesale rates. Thus, the losses incurred on the shuttles are simply too large and too much ground to make up from revenue through “other sources”.
I’m sure many experienced business aviation professionals will agree that the JetSmarter business model is not viable, but not many have the time, info or interest required to analyze what is really going on here. Yet, I felt it was important to investigate this company because the Business Aviation Industry and the honest professionals it employs do not want to see this industry with yet another black eye.
According to Petrossov, JetSmarter has already expanded its scheduled routes from 17 at the start of 2016 to 46 now, just a year later, and is hoping to triple that number this year. In addition, membership grew in 2016 from 1,000 to more than 7,000 members currently. This pace of growth combined with the massive losses occurring leaves me with little doubt the situation for JetSmarter has already become explosive thanks to its massive operating scale within a very small market.
For Barsky and Petrossov, the real problem they have is the velocity of some key aspects of their scheme. These core aspects need to keep increasing at an exponential rate, because in order to keep attracting the new investor capital necessary to keep the scheme afloat, they must keep increasing the number of active members. However, the more members JetSmarter signs up, the faster they burn through their investment capital to cover ever increasing losses resulting from more flights.
Who knows how long Barsky and Petrossov can keep this thing going, could be a couple of months or it could be another few years, but it does not look good.
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