Michelle Seaton
08/01/06
Adam Bold, founder of the Mutual Fund Store is, by any measure, a frequent flier. He spends most of his days traveling to or from the 42 cities in which his investment advisory company maintains offices. Bold estimates that in the past two months he has spent no more than four consecutive nights at his home in Kansas City.
Bold considered buying a jet, but did not feel that the benefits would outweigh the hassles. He also rejected fractional ownership, put off by the Byzantine fee structures and five-year commitments. Instead, two years ago Bold bought his first Marquis Jet Card, which provides flight time on jets owned and maintained by NetJets, the fractional jet company, for a straightforward hourly rate.
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Several years ago, that might not have swayed a traveler such as Bold away from the safety and convenience offered by jet card programs. The process of finding a reputable charter company, vetting that business for safety and then booking the individual flights consumed too much time. But ongoing consolidation and the emergence of new charter brokerage firms have made charter more attractive, both in terms of pricing and service. This is forcing fractional companies to change the way they run their jet card programs.
The charter industry’s growing sophistication is reflected in companies like Blue Star, which maintains a network of regional charter brokers who manage all the details of finding and scheduling flights, ordering catering and arranging ground transportation for clients. “If I wanted a rare Spanish wine on the plane, it would be there,” says Bold, describing the service provided by Kimberly Small, a Chicago-based broker who handles his independent flight arrangements through Blue Star Jets.
In addition to competitive pricing, charter companies can offer certain perks their fractional competitors cannot match. “Adam has had the same jet all week, and now it’s sitting on the ground waiting for him all weekend,” Small says. “And he’s still going to save $8,000 over what this would have cost through a fractional program.”
Bold retains his Marquis Jet Card and uses that service about 20 percent of the time, usually on short-leg flights that begin in cities far from his home. But on longer flights with higher per-hour fees, Bold would rather charter.
When he first began to use Blue Star Jets, he was chartering a light jet from an operator in Chicago and paying the repositioning fees between Chicago and Kansas City on either end of the flight, which made each trip cost roughly as much as a flight with Marquis Jet.
Then Small found a charter company in Kansas City that was managing a Citation III for a small firm. Because the company was eager for the charter business Blue Star could bring, it made the plane available at an attractive hourly rate. Bold no longer has to pay for repositioning fees because the plane is based near his home in Kansas City. The net result is that Bold can fly on a larger jet at a lower hourly rate than he could on a trip arranged through Marquis Jet. He also flies on the same aircraft every time and is on a first-name basis with the pilots. “Whenever he wants to fly anywhere, I call the company and say, ‘Tell them to cancel whatever they’re doing because Adam wants to fly,’” Small says. “And they do it.”
Arrangements like this give the charter industry a substantial competitive
advantage over fractional companies that manage their own fleets. According to
Gil Wolin of TAG Aviation, a global aircraft charter service based in
Burlingame, Calif., 80 percent of jets owned by companies and private
individuals are managed by a third party who makes them available to charter.
Aviation companies, such as NetJets, CitationShares and FlexJet, which own huge
aircraft fleets, must price their flights to make money. By contrast, individual
companies that own one or two jets view these planes as cost centers rather than
revenue centers. When these companies make an aircraft available for charter,
they generally can price it below the market, just as a way of defraying the
cost of maintaining it. Wolin says charter companies booking these aircraft make
their money from management fees and do not need to make a huge margin on any
individual flight, so the flights can be offered at lower all-in costs to
travelers.
Brokers Ascending
Several charter brokers have
decided to market themselves as quasi-fractional companies, despite their not
owning the planes on which they sell hours. The most innovative of these is
Weymouth, Mass.-based Sentient, which has assembled a national network of
charter operators from which it has bought tracts of flight time at wholesale
prices.
Instead of buying a set number of hours on a particular aircraft,
customers pay up to $250,000 for what Sentient calls a membership, but what is
really access to its scheduling service. Sentient members then book trips on
light, medium or heavy jets. Cost of flight time and fees are deducted from the
membership fee.
According to Stephen Maloney of Aviation Management Systems,
a Portsmouth, N.H., consulting company that advises buyers on private flight
options, Sentient hours cost a bit more than those of the typical charter
company. (A light jet, he reports, costs a minimum $2,500 per hour, but can cost
as much as $4,050 per hour plus standard fees for fuel, taxes and taxi time.)
However, customers benefit from Sentient’s reach: With so many operators in its
network, it can have planes available anywhere in the country in 10 hours.
Although Sentient will not release sales or membership figures, it does
claim that membership has increased by 60 percent in the past 12 months. This
success comes from the explosive growth of private aviation in general, but also
because charter companies have finally begun to address persistent concerns
about the safety of the industry. (See “Safe Travels”)
The success
of Sentient’s model has spawned similar services, including Blue Star and
JetNetwork, based in Miami. Jets International, a Quincy, Mass., company that
was once called CharterAuction.com, is a broker that books flights online. This
service offers charter companies a way to sell their deadhead flights
(repositioning flights flown without passengers), which would otherwise bring in
little revenue.
With Jets International, cardholders who have prepaid up to
$500,000 in flight time can log onto the website and post a proposed flight
plan. Charter operators who need to move airplanes along those routes bid on the
flight in a real-time reverse auction. Cardholders can then choose the operator
that offers the best price, or they can choose based on safety records and other
operator information provided on the site. Finally, Jets International checks
the trip, jet and crew against safety standards set by Aviation Research
Group/US, a Cincinnati service that rates charter providers.
According to
Jets International CEO Nate McKelvey, the service offers competitive pricing on
a per-flight basis and allows customers to choose their actual aircraft. They
can even see inside some aircraft before making a choice.
Michelle Seaton is a private pilot and a senior correspondent for Worth.
Additional Information
Safe Travels
Turbulent Times Next in Line