The High Life
The world of private jet travel has rebounded with more options for all types of fliers
From the Print Edition:
Liev Schreiber, November/December 2013
When the world’s best woman skier, superstar Lindsey Vonn, suffered a season-ending injury in Austria, her boyfriend quickly came to the rescue. That would be the world’s No. 1 golfer, Tiger Woods, who made headlines by dispatching his private jet, an intercontinental Gulfstream G550, across the Atlantic to pick her up. Even among the well-heeled private jet set, a plane this big with such a long range is an anomaly, but it makes a lot of sense for Woods, who moves quickly from one tournament to the next and often plays in overseas matches for seven figure guaranteed appearance fees in locales as far-flung as Thailand.
But this is not the only thing that makes Woods unusual in the world of private aviation. He was among a minority whose income was not hard hit in the 2008 economic crisis, which dealt a blow to the entire industry, a blow from which it is only now recovering thanks to a combination of factors: the improved economy and stock prices; stalwarts like Woods who, once hooked, simply could not travel any other way; and systemic changes that have made private aviation more flexible and affordable. In a classic silver-lining scenario, the upside of the economic downturn was that it forced buyers and sellers to seek more efficient alternatives, improving the product. A G550 like Woods’ costs north of $55 million, but the vast majority of entrants to the private aviation market since the 2008 downturn—and there have been a lot of new entrants recently—are spending far less. Many invest as little as $100,000 and are not buying planes at all, but are still flying in high style.
The convenience factor in flying your own jet is huge: no airport check-in counters, security lines, lost baggage, airline-induced delays and no missed connections—because there are no connections. You leave when you want, with no limitations on luggage, and you can even take pets on board. Virtually everything commercial fliers consider a hassle is removed from the equation, and in addition to convenience, there is a very practical side. Flying private saves a lot of time, at least an hour on the front end, plus any time that would be spent between connecting flights. It can save hours versus waiting for the next scheduled flight, and is especially efficient for multiple stops in the same day, making possible itineraries that could not be done commercially. In most cases you can also get much closer to your destination. Where I live, the nearest commercial airport is 90 minutes away, but the closest Fixed Base Operator, or airport handling private planes, is 12 minutes. If I had a jet, I would save at least 3 1/2 hours every trip. While the hourly cost of a private jet is high, for many users, so are the hours they are not flying—time is money.
“When you fly commercially, you can get to about 450 airports in the United States, but there are over 5,000 FBOs,” says Flexjet’s Erin Portman. “There are more than 10 times as many airports you can fly into privately than commercially, and that is a big part of the efficiency, getting closer.” Even when small rural airports have commercial service, they tend to have far fewer scheduled flights, and only from one or two cities. This is why private flights are so popular into otherwise tricky destinations like Nantucket, Aspen, Telluride and the Caribbean. Going private from New York to Los Angeles will save less than an hour, but going from New York to Sun Valley can save half a day—each way.
Flying privately is expensive, typically at least $5,000 per hour, but it has gotten more affordable. The economic downturn five years ago forced paradigms to change, costs went down and flexibility went way up. For much of its history, private aviation largely catered to deep-pocketed egos, but today it caters to customer needs and budgets. “After the fall of Lehman Brothers and the various other financial events of 2008–2009, most of our time was spent working with individuals who were already customers or were using another provider or solution. We gained quite a bit of ground during this period as we were well positioned and stable. However, there were not a great deal of ‘new entrants’ into the private aviation customer base. Today, however, we typically sell our Jet Cards to 35 percent ‘net-new’ individuals,” says Andrew Collins, president of Sentient Jet. “In 2012 and 2013 we have started to see that ‘new entrant’ reemerge.”
Sentient specializes in “jet cards,” the sector where the most changes have taken place since the 2008 crisis, and now the fastest growing private aviation segment, the way many would-be private fliers get their feet wet. With about 4,000 customers, they are the biggest in this sector, slightly ahead of NetJets (selling cards through Marquis Jet Card, which it owns). Due to FAA regulations, because Bombardier, the plane manufacturer that owns Flexjet, is a foreign (Canadian) company, its jet cards are through sister company Jet Solutions, a U.S. company colocated in Flexjets’ Dallas office. Sentient sold jet cards to 1,200 new customers in 2012 alone. “It’s still growing,” says Collins. “We see about 100,000 potential jet card buyers.”
Historically, cards were based on hours, most commonly 25 hours, in a particular class of plane. While many still sell cards this way, the industry is rapidly moving towards more flexible models, with hours split between plane sizes, hours swappable among plane sizes or dollar-based debit models. “From 2006 until 2011, the only option we offered was an hourly calendar card,” says Flexjets’ Portman. “But after the economic crisis, people demanded more flexibility and options, and wanted to be able to upgrade or downgrade the size of planes in a seamless way. We transitioned to a new debit model at the end of 2011, and it has been a runaway success. Everyone in the industry underrated the debit card concept. It’s simple: you put $100,000 on your card and you can fly any day on any of our five classes of planes and pay for what you use—it’s totally flexible.”
Thanks to flexible new products, the industry has made up much of the ground lost in the downturn. “Since the height of the market in 2007 to today, the overall private jet industry has contracted,” says Deanna White, president of Flexjet. “That said, Flexjet has been able to weather changes in consumer travel and spending habits due to its broad portfolio of private aviation products. The skies are continuing to brighten for Flexjet, which is seeing an upward trend in both new fractional and jet card sales, as a result of our ability to customize product offerings.”
The biggest private aviation player, NetJets, won’t cite figures but agrees the market is growing again. “NetJets has experienced improvement in business across the board this year, and we continue to see businesses and individuals invest in NetJets’ private aviation solutions. We are seeing the private aviation industry improving as the U.S. economy grows. Demand is up for us and the industry in general, but we are not at the levels that were experienced before the downturn,” says Adam Johnson, senior vice president of global sales, marketing and service for NetJets.
There are four basic options for flying private, and while each has many variables and moving parts to consider, the framework is pretty straightforward. You can buy (or lease) your own plane, you can buy (or lease) part of a plane through fractional ownership, you can pre-buy hours of flight time with a “jet card,” or you can simply charter when the need arises. Whole ownership is akin to having a limo and full-time driver, while charter is like using a car service a la carte, and the other options fall in between. Use a car service occasionally and it makes sense, use one a lot and at some point it’s more economical to have your own chauffeur. The up-front capital cost of these four options goes from biggest to smallest in the same order the options are listed, as does the level of flexibility, while hourly operational costs run in the opposite direction.
In other words, buying a plane requires a huge up-front investment, but you are guaranteed immediate access whenever you want, and if well utilized, the hourly costs are the lowest—you get economy of scale. Chartering requires zero up-front cost but is the most expensive per hour and per trip, with no guarantee of timely access—or access at all, as you simply may not find availability spur of the moment or at peak holiday travel times. Additionally, if you charter and the plane has to be brought to you, which is often the case, you pay for that flight as well, called a “repositioning” fee, which can substantially increase the cost of a trip. Such fees usually do not apply for fractional shares and jet cards, between these extremes in terms of capital outlay, hourly cost and flexibility. A surprising number of private aviation customers purchase more than one option and might have a fractional share in a small plane for family use, but need to move to a bigger group a couple of times a year and go the jet card route for that larger aircraft.
Deciding between the options is the simplest part of the private jet decision—it comes down to the amount of hours you will actually fly each year. The industry standard for a plane’s “capacity” or annual flying time allowing for maintenance, down time, and other inactivity is 800 hours. As a rule of thumb, ownership begins to make financial sense if you fly privately in excess of 300 hours, and some think closer to 400. Jet ownership gives you the greatest access, and some people only want to fly their plane, all the time, and maybe highly customize it. If you have the resources you might buy a plane and use it far less than 300 hours simply because you want your own plane. Some owners rent them out when not in use to defer costs, in which case you might justify a lower number of hours. Purchasing can provide significant tax advantages but that is something you need professional advice on. However, all the major private aviation companies agreed that whole ownership is a corporate option rarely exercised by leisure fliers. Even Tiger Woods usually flies for work.
Individuals flying frequently for personal reasons are more likely to choose fractional ownership, which the Federal Aviation Authority heavily regulates, requiring that planes be divided into sixteenths, each representing roughly 50 hours. Ownership can be in new or used planes, typically for a two- to five-year period, at the end of which owners can roll equity into a new contract or be reimbursed for their share of the asset’s fair-market value.
For fractional ownership to make sense, you need to anticipate using the plane about 50 hours per year, and since it is ownership, there can be important tax benefits to consider. Jet fractions are very different from fractional real estate, or time-shares, because even though you purchase part of a specific plane, operators mix and match planes in their fleets, so you may never actually set foot on “your” plane. “It’s not like a time-share, where you get two of 52 weeks a year and can’t use it if someone else is,” says Portman. “If you buy a share in a Challenger 300, we have 30 of them and you probably won’t ever fly on yours. They are all the same and you can use it at the same time as someone else who owns a share in ‘your’ plane.”
Because fractional companies shift planes around, it ensures widespread availability, and most operators guarantee customers a plane within no more than 4–6 hours and do not charge repositioning fees. This makes fractional ownership the next most flexible option for spur-of-the-moment travel.
There are three major players in the fractional segment, NetJets, which invented the category and is by far the largest, along with Flight Options and Flexjet, which are very close in fleet size and market share. NetJets has nearly 700 planes in its fleet, with a wide variety of makes and models, including Cessna Citations, Hawker 400 XP and 900 XP, Embraer Phenom, Gulfstream G200, G450, G550, 5000 and 6000, and Dassault Falcon 200EX and 7X. It just cemented its leadership position, with a $17 billion order for 400 new aircraft. In comparison, Flexjets has about 80 planes. When you buy a fraction you are not paying for hours, but rather for a sixteenth of the price of the plane, and although you get some back at the end, this is a substantial investment—the popular new Learjet 85, a midsize to super-midsize model with a maximum of eight passengers and range of 3,000 miles, costs about $18 million, making a fractional share around $1.1 million. One alternative is to lease, rather than buy, something NetJets offers. And while your fraction represents 50 hours of use, it’s not that simple: in addition to the purchase price, you still pay an hourly rate, a monthly management fee and usually a fuel cost based on market variability.
Because of the large up-front investment, some customers who know they will use 50-plus hours choose the next option, a jet card. Most companies market this to consumers flying 25–75 or 25–100 hours a year (under 25 hours it usually makes more sense to charter). Other than chartering, jet cards feature the lowest up-front investment (typically from $100,000) and hourly commitment, but offer a lower hourly rate and a lot more flexibility than charters, with most companies guaranteeing availability within 10 hours, and no repositioning or recurring management fees. Rates for various aircraft are fixed, and while there are often fuel charges and surcharges for peak days, card programs are easily understandable and predictable. However, one big concern is unused hours, which typically expire at the end of the contract year.
Since the 2008 downturn there have been several recent developments that increased the flexibility and appeal of jet card programs. Flexjet added a service that lets buyers put unused hours into a pool for other owners who are slightly over their allotment to buy, potentially avoiding expiration loss. The company claims its customers have averted more than $31 million in waste this way. Several companies, including NetJets and Flexjet, now allow customers to split hours on cards in advance between two different plane classes at 12.5 hours each, good for any customer who regularly flies solo or with a small number of companions and at other times with larger groups, saving upgrade and downgrade fees. Sentient eliminated fees for switching plane classes altogether and simply charges the hourly rate for whatever size you choose, and has also been an innovator by capping fuel prices yet passing on savings when costs go down.
“We invented the jet card in 1999, and it has continued to evolve,” says Collins. “The first thing anyone looks at is safety. That’s the No. 1 priority. Next is great service. The next step—especially since the economic downturn—is ‘What am I actually paying?’ We’re priced at about 30 percent less than our major competitors. We see fuel as a cost of flying, whereas others see it as a way to dig deeper into their customer’s wallets. We lock in the fuel cost, which gives our customers a hedge and they appreciate that.”
Sentient offers 25-hour cards on five sizes of airplanes, and for each, two age options, “Select,” using planes manufactured before 2000, and “Preferred,” planes from model year 2000 or later, an option few companies offer (in comparison, the fleets of the nation’s largest commercial airlines average 14–16 years, with planes in service today that are 20–30 years old). Its smallest plane in the older Select category runs $4,924 per hour, or $123,100 for a 25-hour card, including fuel and taxes, for use within the continental U.S., which is about as inexpensive as the jet card market gets. At the top of Sentient’s spectrum, a newer Preferred heavy jet, the largest category, runs $13,894 an hour or $347,350 for a jet card, and that too is at the low end for the industry. In general, buyers considering jet cards should be prepared to spend $5,000–$15,000 per hour domestically, with significantly higher rates for travel outside the U.S.
Talon Air, a charter company that describes itself as a boutique provider, also has a card option. “We’re an on-demand company,” says Paul St. Lucia of Talon. “People pay as they go, so you only pay for what you need. We don’t lock you into a specific aircraft.” Talon has 25 planes, from King Airs for short hops to a Gulfstream V with a 6,500-mile range.
One other notable jet card option is Delta Private Jets, a division of Delta Airlines, a unique hybrid between commercial and private aviation. For this reason, “John” (private aviation is sharply divided between those who want people to know they have private jet access and those who do not, and John is the latter) chose Delta Private Jets for his first foray into the industry. “I know that from time to time I have trips that make a lot of sense to fly private, but I honestly didn’t know how many hours I would use. I fly Delta a lot, domestically and internationally, usually in first or business class. Even compared to that, flying private is a luxury thing, so I wanted to have the choice. Do I want to pay X and fly commercially this trip, or pay Y and fly private? What I like about the Delta Private Jet programs is that you can use what you put on the card, for me $100,000 towards tickets. I know I’m going to fly my family to Europe or another international destination in first maybe twice a year, and that’s $30,000–$40,000 each trip, so either way I am going to use up the value of the card. With most cards I looked at—and I looked at them all—you use it or lose it. I know I can spend most of my commitment on tickets. Otherwise it’s structured the same way, you choose your plane size with fixed hourly rates, there is an option to upgrade to larger planes, they guarantee 10- hour availability, and so on.”
One other bonus is that jet card customers automatically make the highest tier of Delta’s frequent-flier program, Diamond Medallion, which normally requires 125,000 miles of annual flying. As a result, John can buy much less expensive coach tickets domestically and get upgraded to first almost every time, and gets four international upgrades, easily worth more than $25,000. Finally, Delta offers the lowest entry-level price in the industry, with cards from $25,000.
Besides deciding what form of ownership makes sense, the other big choice is plane size. Generally, the industry divides planes into five categories: light, super-light, midsize, super-midsize and large or heavy, but there is overlap. The main thing that changes as you increase size is cargo, comfort, speed and range. Many light, super-light, midsized and super-midsized aircraft will list a maximum capacity of eight passengers but a light plane could have a range of as little as 1,000 miles and top speed of under 500 mph, while a super-mid can have a range of 4,500 miles and fly at 600 mph. The hourly price roughly triples as you move from smallest to largest, so it’s important to realistically consider your needs before buying.
No one spending the kind of money private aviation requires wants sticker shock surprises on top of foreseen costs, so no matter what option or company you go with, ask a lot of questions about what is and is not included. As Sentient’s Andrew Collins suggests, “Make absolutely sure you understand all transparency in the pricing—ask ‘What am I paying for and what am I getting?’ Find out how flexible it is if you change plane types.” Specific items to address are repositioning fees, catering, fuel surcharges, higher rates for peak times, how hours of use are actually calculated, monthly or management fees, fees for changing class of aircraft and what happens at the end of your time commitment. Buyers planning to fly overseas have additional concerns, including fees and travel within foreign countries. Some fractional and jet card companies are only geared towards domestic service, while some can fly to and from foreign countries, but not within them. Some have partnerships for this with local companies, while NetJets has two subsidiaries, NetJets Europe and China to fly within those regions.
Larry Olmsted is a contributing editor of Cigar Aficionado.
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