The business of private aviation

May 13, 2011

Visitors attend the Shanghai International Business Aviation Show at Hongqiao International Airport in Shanghai April 13, 2011. REUTERS/Carlos Barria

Businesspeople choose private over commercial aviation for a number of reasons. But should they buy, charter or fractionally own a business jet?

For some, complete privacy is required to conduct business negotiations when on the move; tycoons don’t wish press speculation to rise to a crescendo each time they travel. Others need to hop on a plane at a moment’s notice. Still more keep offices in out-of-the way locations, or need to visit reclusive clients. A growing number might simply be too exasperated with commercial aviation’s rigorous security procedures.

One CEO I know of flies privately so he can keep to European time wherever he goes, and eats and sleeps accordingly, without having to succumb to the local time zone on scheduled flights.

There are three main options for the private aviator: they can purchase a jet, utilise a charter service (on a one-off or contract basis) or buy a share in a fractional membership scheme.

The eventual decision will depend on whether they’re flying as an individual or as an employee, whether they work for a small business or a multinational one.

Buying a jet flat out, says NetJets Europe’s Emily Williams, “makes economic sense for those who fly over about 400 hours a year.” But managing said jet is a job in itself; you need to hire quite a few people to handle pilot training, plane maintenance and storage.

During tough times, businesses tend to conclude that investing in a whole aircraft isn’t the best way to manage their funds. A private jet can fly between 800 and 1,000 hours year; the average private flyer will only need 160 hours a year. Williams makes the point that if 80 percent of your capital is sitting on the tarmac, that isn’t a hugely sensible investment decision.

Then there’s the charter scene. Michael Leek, Founder and CEO of start-up air-charter booking website FlyRuby.com, told me that if you’re going anywhere and back in one day, the absolute cheapest way to fly is with your local charter operator.

Leek started his booking portal after realising that almost 40 percent of all private jets flown in the US run empty, a logistical problem that arises with planes flying to and from their home airport to pick up or drop off passengers. Having ascertained that the average private jet trip in the US is approximately 1.3 hours, Leek’s website targets short-haul business travellers on seven- to nine-seater jets in the US$2,000-4,000/hour price range.

He concedes that, “If you’re doing a three-city tour, with four or five days between each flight, that’s a very inefficient trip (requiring flying that jet empty) and in that case [a fractional membership scheme] will likely be a better priced option.”

NetJets Europe, which operates 150 aircraft, four times as many as the next largest business aviation company, run such a model. Customers buy a share, which equals a number of hours a year; for example, an eighth of a share means 100 hours a year (from wheels up to wheels down) on a specific type of aircraft. The smallest share is a 32nd, which gets you 12.5 hours; the largest is a full share – 800 hours a year.

NetJets won’t disclose the value of these shares, but to give you some idea of the price, the firm offers a private jet card where one can buy a block of 25 hours airtime on a light jet for 141,000 euros.

Members can access a jet within 10 hours anywhere in Europe, just 4-5 hours in major cities. NetJets’ global operations run to 800+ planes; the Berkshire Hathaway-owned firm raised eyebrows recently upon ordering 120 Bombardier business jets for US$6.7 billion, the largest aircraft purchase in the history of private aviation.

Is the fractional ownership model the best option for everybody? Not for infrequent flyers; NetJets’ Emily Williams points out that, “For those flying under 10 hours a year or making a one-off trip, charter represents the best return on investment.” More regular jetsetters, she adds, should consider her firm’s model.

NetJets Europe counts 1,600 customers; 25 percent are classed as “high net worth individuals”; another 25 percent are entrepreneurs. The balance is big corporates doing business trips to airports like Le Bourget (Paris), London, Geneva and Zurich. Nice is popular for leisure trips.

NetJets passengers are in it for the efficiency and flexibility of the service rather than the price per hour, which, according to Michael Leek works out as “almost twice the hourly cost of flying with your local charter operator.”

However, charter flights’ prices fluctuate. As Emily Williams explains, “If you want to fly on a Friday in July, it’s very likely that the prices will be very high because of the demand.” This isn’t the case with a long-term contract.

Charter firms also offer contracts. For clients that commit to one, argues Rob Dore of UK charter bookers Jet Hire Direct, the pricing is guaranteed and any increase is based on airport charges and changes in the price of fuel.

Dore adds: “Taking a weekend break from London to Nice as an example, the pricing for the trip is the same for a weekend in June, July, November, even for the Monaco Grand Prix weekend which is probably when demand is at its highest. Pricing is subject to availability but not subject to the time of year.”

Well, it’s good to have options. One thing’s for sure; as the upswing in business-class travel continues, these decisions will be made by more and more people and businesses as customers either return to business aviation or start to use it for the first time.

Comments

Private jet costing is not as complicated as some may think. Have a look at our online private jet cost calculator to see what the market rates are for any route. http://www.privatefly.com/privatejet-sea rch.html

Posted by AdamTwidell | Report as abusive
 

Business aviation is certainly changing and I think we’re seeing a move away from models which lock clients into costly long term contracts. Who knows where their business is going be in six months time? A suggested first stop for anyone considering the financing of private jet travel would be Chapman Freeborn. The company has its own private jet cost calculator and through its partnership with FracTrade and Fractional Jet Europe it can help clients explore an early exit from their current fractional or jet card provider. http://www.chapman-freeborn.com/en/vip_p rivate_jet_charter/

Posted by AndyJames | Report as abusive
 

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