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$52,000 Per Flight Not Enough For Air Methods

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Air Methods continues to make news with concerned investors.

Seeking Alpha, a platform for investment research, last week released an article with sharp criticism of Air Methods’ business model.

Here is a summary of the article:

  • Air Methods’ business model is non-sustainable, with 43% downside risk.
  • Air Methods’ business model is dependent on raising prices.
  • Payors are pushing back against bills. Air Methods account receivables are growing twice as fast as competitors.
  • Air Methods’ fair value is estimated at $22/share.

$52,000 Per Flight Not Enough for Air Methods

Is $52,000 per flight enough to save Air Methods’ business model?

Before I answer this question, I want to explain the reason behind the question.

I admit to a certain amount of shock value inserted into this article’s headline. The reason is to get your attention. That’s the purpose of all headlines. What makes this headline different is that it’s a legitimate question.

The “$52,000 question” begs an answer. The question goes directly to Air Methods’ business model.

The obvious follow-on question is how it affects current and future air medical flight crews?

That’s the point.

If you’ve followed me and FlightSafetyNet blog for awhile, you know we’re all about the people who keep air medical safe. The people in the trenches who do the work.

Read What is EMS Flight Safety Network And Why You Should Give A Crap for more information about the different careers inside EMS Flight Safety Network. The purpose of EMS Flight Safety Network is simple:

A Team Approach to Improving Air Medical from The Ground Up

We’re not about beating up on the air medical industry or any individual company.

I have no problem admitting my bias. In fact, I’m proud of it. I think all air medical companies do great things. And my bias absolutely includes the 600-pound gorilla of the air medical industry, Air Methods.

But…

What makes EMS Flight Safety Network different is that we’re about the operators. We aren’t beholden to any helicopter company or health system, and please notice that we don’t allow any to sponsor us or advertise on our website.

Why is that?

Easy answer.

We don’t want influenced by donations or contributions. It would cheapen us and devalue our community. We want to represent the people who setup the landing zones, fly the helicopters, treat the patients and do the work, fairly.

It’s about you. The EMTs, nurses, pilots, mechanics, firefighters, dispatchers, ER staff, trauma doctors, specialty transport teams, hospital security, flight communication specialists, and of course the family and friends who support these professionals.

All that is to say…

I call it like I see it.

So Here Goes:

According to Seeking Alpha, Air Method’s business model is dependent upon raising prices. Air Methods has raised the average community-based transport bill from $18,400 in 2010 to $52,000 in 2016.

All good, except mathematically, it’s still not enough. That’s the short answer to the question. No, $52,000 per flight is not enough for Air Methods to sustain its current business model. The company either needs more money per flight, or it needs to change other variables.

Here’s why:

The challenges for Air Methods are two-fold. First, the company’s growth stagnated, and is now starting to decline. Second, Air Methods’ ability to raise prices above current levels is unrealistic.

The gig is up when it comes to unlimited price elasticity in the air medical market. Insurance companies have figured out it makes no sense to pay 10 or 20 times (sometimes more) the actual cost of a medical flight.

It’s the combination of these two factors that leads Seeking Alpha to believe Air Methods currently has 43% downside risk.

What It Means In The Real World

What does 43% downside risk mean in the real world?

43% downside risk means Air Methods’ stock price could drop by 43 percent. Or, explained a different way, Air Methods’ stock is currently overvalued.

How does this news affect current and wannabe flight nurses, flight medics and EMS pilots?

Let’s take one question at a time.

In the short term, it’s negligible. There is no affect to current flight crews or wannabe flight crews. Read What Air Methods’ Troubles Mean For Flight Crews for more information.

In the medium term, you can expect to see more news about Air Methods and how it plans to appease investors. For the record, this process is not unique to Air Methods. All publicly traded companies in the United States feel the same pressure as Air Methods’ to produce results for investors.

Think how you would feel if it were your money? You give X amount of dollars to someone who promises X return. Later, you find out not only are you not getting X return, but you can potentially expect to lose 43% of your investment. Would you be pissed off and expect the company to do things differently? I would. I’m guessing you would too.

That’s what is happening with Air Methods – just on a larger scale.

In the long term, who knows? There are rumors and speculation about a larger company possibly acquiring Air Methods.

What Is The Solution

What is the solution for Air Methods? How does it get investors off its back and rid itself of negative publicity from upset investors?

The concept is simple. Because at its core, it’s just math.

Air Methods needs to grow in size (add more bases) or raise its prices (and revenue).

But there’s also a third option investment companies don’t mention because to them it’s unspeakable.

What is the third option?

The third option is Air Methods stock price does go down and the company is worth less money. At some level, you already knew this was possible, right?

The point is that if you’re current or wannabe flight crew, it’s still way too early to sell your farm or tear the shrink wrap off the locksmith home study course in the bottom of your closet.

Nothing is going to change dramatically in the short term. Your job is not at risk.

And if you read my last article on this topic, you already know change that affects operators takes a great deal of time. Read What Air Methods’ Troubles Mean For Flight Crews for more details.

What To Do Now

As current or wannabe flight crew, what do you do now? Now that you understand more about Air Methods’ recent publicity, what makes the most sense?

I recommend a common-sense approach most professional flight crews already follow.

Sharpen the saw. Keep your skills current and your resume up to date. Today’s air medical world changes quickly. It’s smart to create, or at least start thinking about a backup plan. What would I do if I couldn’t fly? Or if I had to change employers?

Think about it. Put a little time and effort into creating a plan that works for you and your family. And then let it go.

Flying air medical is one of the best jobs on the planet. Enjoy it and have fun. Don’t let rumors or gossip, or anything else keep you from enjoying one of the best jobs ever.

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EMSFSN Staff
EMSFSN Staff

EMS Flight Safety Network is The People Who Keep Air Medical Safe.

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