Operations

Luxury Business That's Built To Last

Posted on April 3, 2015 by - Also by this author

The biggest perk of being editor of LCT Magazine is hearing all kinds of advice and tips on how to succeed in business — and many other areas of life. Trying to choose just the top five tips over my last seven years of countless conversations, speaker sessions and panel discussions would be near impossible.

However, I can pick a few best practices along the way at particular points in time for specific purposes. In the last few months, I heard of two approaches to chauffeured operations that make sense in the unsettled competitive environment of 2015. Call it the tale of frugality and first class.

Frugality
Frugal does not describe our present culture. Debt, demand and diversion define the consumer mindset. My grandparents of the Great Depression generation would find today’s financial dramas unnecessary and quite silly, frankly. Married 64 years, they delayed material gratification for decades — not days — and yet led lives that were joyful and rewarding in every respect. They chose cash over credit.

I was reminded of this approach while talking to a Houston operator, Erich Reindl of Avanti Transportation, for an article that appeared in last month’s issue on fleet profitability (pp. 32-33). To achieve the right cash flow and purchasing power, Reindl practiced a strong sense of financial discipline, both for his business and his personal expenses. In the first 12 years of operations, he put as much money as he could back into his business and gradually shored up cash reserves. He lived in apartments from 1994 to 2003 so he could keep his personal income modest. Even when buying a home, he opted for a townhouse until his business gained in revenues and he could get to a cash-heavy financial position.

Reindl recalls how Avanti was leveraged in its early years, starting with nothing. He and a partner bought an eight-year-old limousine for $8,000, and each partner sunk in $15,000. They had to rely on credit cards more than they liked while Reindl worked as a chauffeur. The company bought older, used vehicles at first, but then switched to newer ones that it financed to accommodate growing business.

“Don’t think that because you make $10,000, you can take $5,000 for yourself,” Reindl says. “You can take only $1,200 and put the rest back into your business. It’s a financial sacrifice you have to make and it will pay off down the road.”

Reindl reached a point in 2006 when he could exclusively buy newer pre-owned sedans and SUVs with cash and then flip them at the right resale moments in the vehicle lifecycle. His company now takes in about $5 million in revenue per year.

“I can’t complain how I lived,” he recalls. “I lived good but not extravagant. You have to set limits. The more revenue you make, the more stays in the kitty, proportionately. You have to have certain reserves to withstand a downturn. You can only build that in relation to the revenues.”

In the Great Recession of 2007-2009, Reindl says he survived without layoffs or catastrophic cuts. “You have to be comfortable that you can service your debt even if your revenue goes down. It has to be in proportion so you can pay easily and not be in trouble.”

First Class
If you can combine frugality with full rates and full service, you have what is called a winning combination.
I heard of the full-service-full-rate part of the equation at a Greater California Livery Association meeting in February, where Joey Phelps, executive vice president of Empire CLS Worldwide Chauffeured Services, appeared on a panel on how to withstand the onslaught of transportation network companies such as Uber. Empire CLS specializes in five-star clients, providing luxury transportation among private jets, corporations, five-star hotels, resorts and private homes.

The company held firm on rates and quality service throughout the recession and beyond, Phelps told me in a follow-up interview. Clients kept booking despite the allures of Uber. As a result, Empire CLS saw its largest year-over-year percentage growth in since 2005: 13% in 2014 and 10% in 2012, Phelps reports. “Our average ticket price went up slightly, but our blend of work remained consistent overall.”

The limousine services hurt the most by Uber are those that try to compete with lower or discounted pricing, Phelps says. “Which means their quality of chauffeurs and service was lower, too, and close to that of Uber’s.” Guests who pay $1,500 a night at the Four Seasons are looking for service and attention, and not thinking about pushing a button for a vehicle to show up, he says. “People in TNC cars find they are giving drivers directions because they are not qualified.”

Luxury transportation should live up to its high-end practices and hold the line on price integrity, Phelps says. “We get the money we deserve for the service we provide. You won’t beat Uber convenience or price. If you try, your lifespan is limited.”
 
His comments remind me of a reality I see every time I walk through an airport, which can be applied to chauffeured transportation. Southwest, Spirit Airlines and Jet Blue may do a bang-up discount business. But if you sit for any other airline’s flight before boarding, chances are you’ll see a long wait list for upgrades to first and business classes. Much of the traveling public still craves — and pays for — luxury and comfort. Those are services worth providing, and waiting for.

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