In her 2-star review entitled “Business Model Resembles the Hindenburg“, Amy Z (level of expertise: Brainiac) applauds Airship Ventures‘ intriguing product, but doubts the company’s ability to become profitable in the long term.  Amy cites a high cost structure, limited capacity and uncertain operating conditions as the company’s primary challenges:

The company has 30 employees and loses $1.3 million in revenue for the 1 month per annum that the FAA needs to do its inspection. That’s not good. They charge $1500 per seat but it can only hold 12 passengers. Also not good. Then there is the issue of wind and weather which make flying the Zeppelin difficult in virtually any mildly inclement weather. Yet another not good factor.

One of the primary reasons we believe allowing our community to offer insights and their perspective of startups is that it will engender debate and discussion.  As a result, we were glad to receive an email from Alex Hall, the CEO of Airship Ventures, who sought to offer some more information and included a third-party piece that rebuts some of Amy’s points.

We are glad to offer up this piece forwarded by Alex below, and we also applaud her for her willingness to address Amy’s critique and more generally for engaging in a dialogue about her venture.  The piece in its entirety is below:

Airship Ventures discusses their story on their website, blog and in many editorials that have been written about them. Taking a profitable business that is operating in Germany and Japan for a number of years and translating that to a market that is arguably far stronger in terms of revenue generation potential than the proof of concept, seems to be their stated basis for success.

Their three stated revenue streams are the sightseeing passenger revenue, advertising and media coverage (which is what traditional blimps like MetLife, Fuji and Goodyear do) plus something they describe as ’special missions’. From press releases about their relationship with NASA, this would be appear to be hinting at a consumer technology with government/research spin offs - something that could give this company a potentially lucrative long term future.

Why are they ’stronger’ than the other Zeppelin operations? From the German website, it seems that this Zeppelin is in the hangar for several months of the year due to weather. Airship Ventures states that the weather in California enables it to fly all year round. The Zeppelin operation in Germany is not flying over major metropolitan areas, and hence has low advertising revenue potential. The Japanese operation supported itself with just advertising for several years prior to getting its passenger license (articles show the airship was moved to Japan in 2003 and the license acquired in 2007) and it would be a reasonable assumption that the advertising market for Airship Ventures is more similar to Japan than Germany. Finally, Airship Ventures is based at NASA and near many universities, which would put them in a good position to be seeking out mission opportunities.

Airship Ventures is a unique business with no obvious competitors. While helicopters and balloons can do sightseeing, neither offers the volume or luxury of the Zeppelin. While blimps can also do advertising, the Zeppelin is 50ft larger than any of them and can provide unique promotional opportunities (as articles regarding the Disney brand illustrate). Information from the German Zeppelin website points to the airship as being a unique research platform. Recent releases by Lockheed and Boeing pointing to large government contracts for experimental airship technologies also point to the potential here for Airship Ventures.

So in principle, things do look good for success - an existing business model with all upside and few, if any, competitors. But there have been some negative press articles recently, suggesting not all is well. Airship Ventures acknowledges in a number of recent articles that the economy impacted their passenger business take up. However passengers are being flown and the company has just landed a major contract with Disney-Pixar.

It’s possible to do some speculating about revenues and costs from the various articles about Airship Ventures, recognizing that not all sources may be accurate. In addition, a search on blimp advertising pulls up quotes of monthly rates from other airship companies.

Other blimps seem to charge anything from $200k-$350k per month. While this is probably impacted by the current economy, it would seem that some seven figure sum could be possible per year from this revenue stream.

The airship carries 12 people. Articles quote that they won’t fly in over 20knot winds and one states that there are more than 150 perfect days per year in the Bay Area. So if we assume that they only fly 150 days per year for say, 8 hours, and that not all 12 seats are full, they perhaps have 12,000-15,000 tickets per year.

That’s not a great deal in an area that gets more than 16 million tourists every year and has over 8 million residents. There would seem to be a lot of market opportunity.

Their website quotes a $495 per person price, but they have specials going on, so lets assume they’re actually doing closer to $400 per person then whichever way you look at it, they have the potential to bring in $4.5-$6 million per year on passenger ticket sales.

Are they doing that? One Mountain View Voice article mentioned that they’ve flown over 2000 people, but were down for a month for annual maintenance. 2000 in five months doesn’t look like they’re going to hit 12,000 for the year, although they presumably planned a ramp up and the better weather has yet to happen.

There is no data about the Disney contract that I can find but a more recent Forbes piece quotes the rates as being from $100k-$750k for exclusive full charter. One would assume that the latter figure is their monthly costs plus some profit, so I would bet that this is a $5-6million a year operating cost biz. A number pretty close to what they’d be generating if they got advertising and passengers according to the speculation above. Although it would seem that there’s a great deal of upside. If they fly 200 days per year instead of 150 then they generate a further seven figures of cash.

So what’s the reason to invest? There’s no obvious exit strategy here. No IPO, a remote possibility of an M&A perhaps with a tour operator or similar. Definitely not VC funding territory. One assumes they will provide dividends if they generate profits by flying far more than they need to in order to cover costs. And its undeniably cool, like owning a piece of a football team or something. Which is perhaps why they state frequently in interviews that its a few private investors backing this. Presumably people who don’t need to make quick and massive returns and are considering the value of being involved with something this unusual as part of their return.

Airship Ventures has been successful in selling its concept to others. A series A at $8.5million in 2007 and then a further round in 2009 in this tough economy which is reported to be $2.5million. The reason for the second round explicitly stated as providing for a longer ramp up and the website ‘people’ section has undergone a few changes and they were recently looking for a Marketing Director. So it seems they’ve been restructuring and are still building the management team.

In summary, this is a very tough business to rate. The previous reviewer makes valid points about this being a lousy money making opportunity and if you’re looking at it like a tech company, it would be. But Airship Ventures doesn’t seem to be presenting itself as a VC funded entity and making promises of 10x etc! From the available information, it would appear to be a well thought out and sound concept that has had the misfortune to launch at about the worst possible time. The good news is that if they survive this tough time, then as both tourism and local spend increase and companies start advertising again, they could see their profits take off. I suspect we’ll see them looking for more financing before the end of the year because everyone is more optimistic in projections than they should be! If you have money for cool and interesting things that you can tie up for long term, this would certainly be a fun thing to be part of.

What is your view on Airship Ventures?  Join the conversation and share your viewpoint on whether Airship Ventures is a viable startup by writing a review of the company or offering your comments on existing reviews.

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