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Blair LaCorte T$90$ glanced out the window as his Virgin American flight approached San Francisco International Airport, and thought about the challenges facing XOJET and the private aviation industry as a whole. LaCorte almost always flew commercial, as did the rest of his management team, because when they were on a XOJET plane it meant it wasn$$t available for customers. With demand up $50\%$ YOY they needed every jet they owned. It was October, $2011,$ and LaCorte had been CEO of XOJET for two years, during which time his team had grappled with difficulties both short and long term that faced the private aviation industry. Their analysis had determined that the industry wasn$$t just in a cyclical downturn, but faced structural challenges that would require XOJET to alter its strategy. When he landed, LaCorte had only a fifteen minute drive to XOJET headquarters, where his team was gathering to make a final decision on whether or not to acquire up to twelve Hawker Beechcraft $800$XP jets. The company had $30$ super$-$mid jets in their current fleet and believed they would need around $50$ planes to reach operational scale. The Hawker $800$XP jets were smaller and slower mid$-$sized planes that did not have the transcontinental range of its current fleet. These jets however were much less expensive to purchase, had operating costs similar to the company$$s current fleet and could be more appropriate for shorter distance flights which made up about $30\%$ of XOJET customer demand $($see Exhibit $1$ for XOJET fleet detail$).$ LaCorte and his team knew that the Hawker $800$XP decision would be important for the future of the company. To make the decision, XOJET needed to balance increased demand against current capacity, provide their customers with best$-$in$-$class service, and ultimately manage company profitability. At issue was an important question: was adding a smaller cabin and less expensive alternative the right decision to drive capacity? On the surface it appeared to be contrary to the original super$-$mid transcontinental strategy. It also added more operational complexity and risked degrading the premium XOJET brand. The Hawker jets, however, did offer major cost advantages. Private Aviation Background Prior to XOJET$$s arrival on the private aviation scene, customers had three distinct options for their travel needs: XOJET Reinvents Private Aviation TC$6-0036$ Tuck School of Business at Dartmouth$$Glassmeyer$/$McNamee Center for Digital Strategies $21.$ Purchase their own plane for individual use, $2.$ Purchase a fractional share in a plane, or $3.$ Charter on a per use basis, from someone who purchased a plane but registered it as a rental. Purchasing a plane required a high upfront cost, but guaranteed consistency, control and flexibility. Only minimal notice was needed for the pilots to have the plane ready to take off. The plane could be decorated to the owner$$s tastes including the cabin and exterior stripe pattern and the amenities were exactly to the owner$$s specifications each time they flew. However, the plane would also sit idle anytime the owner wasn$$t flying. Along with the high upfront investment, the hiring and management of full$-$time pilots and the on$-$going costs for maintenance meant aircraft ownership wasn$$t feasible for most people. In $1986,$ NetJets introduced the fractional ownership model, allowing customers to purchase a pro$-$rated, guaranteed share of a plane rather than an entire aircraft, and receive annual flight hours at their disposal. Customers were guaranteed a flight with only four hours$$ notice and could fly anywhere they pleased. In addition all planes were a standard configuration and the pilots all wore matching uniforms. This time$-$share model allowed customers to feel like owners. In addition to the purchase price, the customer paid a monthly management fee along with the variable costs and fuel each time they used the jet. Fractions became the alternative to buying a full plane. While your share would be very expensive on a pro rata basis, the benefit was you did not have to buy a whole plane and they would manage it$.$ The hidden cost of purchasing a fractional share was a significant depreciation and residual value risk for the customer at the end of term. As long as the market was growing this risk was hidden in the supply$-$demand imbalance but when the $2008$ recession hit, demand evaporated, valuations plummeted, and many consumers had to sell and take a major loss on the residual value of their plane. The only alternative option that existed for customers who didn$$t want to purchase upfront and take this ownership risk was to go to the charter market to find someone willing to rent their plane. Plane owners would often rent out their aircraft on a per trip basis when they weren$$t using the plane as a way of making up some of their ownership costs. This could allow owners to avoid long$-$term commitments,