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Making Plane Sense
Fluto Shinzawa with Bill Quinn
12/01/2003
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Choosing the Provider
Mateo and Quinn focused on NetJets, the standard-bearer of fractional ownership. Not only did NetJets launch the industry, but today, according to Russell, the company claims a 70 percent market share. Money-losing operations in Europe have dampened recent performance, but NetJets is still attracting new clients and placing bulk orders for new planes, which is how the company makes a profit (manufacturers such as Cessna and Gulfstream give NetJets premium discounts on large orders).
Before committing to NetJets, Mateo’s most important objective was to identify the cost drivers involved in the purchase—expenses that could add significantly to the base price of the share. While the programs differ, there are several common factors built into a fractional provider’s contract that prospective owners must take into consideration:
• Takeoffs and landings. Most programs will deduct one-tenth of an hour for every takeoff and landing to cover fuel burn and aircraft wear and tear during taxi. For example, if a flight lasts five hours from takeoff to landing, providers will deduct 5.2 hours. So if you purchase a one-eighth share (100 annual flight hours), assuming all your flights take one hour, you will only have 80 hours of actual in-flight time on your airplane, losing 20 percent of your annual allocation.
| Before committing to NetJets, Mateo’s most important objective was
to identify the cost drivers involved in the purchase—expenses that
could add significantly to the base price of the share. |
• Short-legging. Flights of less than one hour will be rounded up. Again, assume you purchase a one-eighth share (100 hours) and take 100 flights a year. If half your flights take 0.7 hours (42 minutes), then you will lose 15 hours of your annual allocation because of short-legging. Even worse, assume you own a one-eighth share and fly exclusively between New York and Washington, which takes less than an hour. Taking penalties for short-legging and takeoff and landing into consideration, you will have only 65 hours of in-flight use. Clearly, fractional ownership is more efficient over longer journeys.
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