Michelle Seaton
07/01/2004
Of the common business aircraft usage options, charter seems like the elder statesman in a world awash with upstart fractional contenders and glossy private jet brochures. But for many of us, charter remains the most affordable, flexible way to fly. “Typically, charter is cheaper,” says Steve Gregory, executive vice president of the Averitt Aviation Group in Nashville. “It is the most cost-effective solution of all forms of private air travel, out to about 400 hours per year.”
Though not as glamorous as jet ownership, nor as consistent in terms of passenger experience as fractional, charter requires no long-term financial or administrative commitments—a significant selling point for charter customers. There are no tax or depreciation issues; there is no haggling with a fractional program manager over resale values. At the end of the travel day, we are free to focus on our businesses, rather than on the management of an expensive airborne asset.
Charter’s comfort-without-commitment model works well for Greg Lemke, president of landscaping equipment dealer All Seasons Vehicles (ASV) in Grand Rapids, Minn. In the spring of 2003, to reduce the time he and his sales team spent traveling to and from the regional commercial airport that services their area, Lemke chartered a Citation CJ that could land at a nearby airfield. Twice a week for three months the Citation picked up three sales people at 7 am and delivered them two hours later to Denver, one of the frequent sales destinations for the ASV sales team. There, three rental cars would be waiting at the airport. On Friday at 3 pm that same plane would return to Denver to bring the reps home to Grand Rapids for the weekend.
In this charter arrangement, Lemke bought about eight flight hours a week, including the time the aircraft spent flying empty (called the “deadhead legs”). At $1,200 per hour, he spent roughly $10,000 per week on flight time alone. While his charter flight expenditure over the course of three months exceeded $130,000, he considers it a bargain. “We got five months of work done in that three-month period because we weren’t losing Mondays and Fridays to travel,” he says, adding that during that three-month period, his sales teams generated an extra $3 million to $4 million in new business.
Fractious CompetitionTOP VIEW
Chartering a private aircraft is a cost-effective alternative to jet
ownership for those who travel up to 400 hours per year. Although the quality of
service is less consistently flawless than one experiences with fractional
ownership or membership clubs, charter requires no long-term
commitments or up-front fees. It also allows us to avoid the administrative
hassles of ownership, and the worries about capital gains or losses on our
aircraft investments.
For decades,
charter services have delivered similar value to business travelers who do not
fly enough to justify a full aircraft purchase, but whose lifestyles require
flexibility and precise time management. The chartered aircraft is the airborne
equivalent of a limousine that, for a fee, will pick up and transport travelers
just about anywhere, often to more obscure landing fields that commercial
aircraft do not service.
Long the favorite alternative to both commercial
airlines and privately owned jets, charter has, in the past decade, lost
significant market share to fractional operators who offer a seductive mix of
ownership, flexibility and comfort that proves fiscally compelling. Given his
financial profile and travel needs, Lemke would make an ideal fractional owner,
an idea he has considered and rejected. “I know people who own fractional shares
and are quite happy with them,” he says. “It’s just so much more expensive than
chartering planes when we need them. Fractional ownership does make sense for
some people, just not for me.”
Lemke is not alone, says Mike Gorham,
president of SelectJet, the charter company in Grand Rapids that rents the
Citation to ASV. “I have a regular charter customer, a $150 billion company that
doesn’t own a corporate jet,” says Gorham. “They don’t want to. They’re too busy
making money doing what they do best.”
Kevin Jordan, president of Business
Jet Services, a charter and management company based in Dallas, has clients with
stories similar to Lemke’s. One group of lawyers prepays $100,000 for charter
business travel each month. For every flight, they charter a Gulfstream III for
$4,000 per hour, which includes fuel and crew (but not the 7.5 percent mandatory
excise tax). Jordan has tried to sell the firm a GIII, but the partners are not
interested. “In their defense,” says Jordan, “when they’re done with what
they’re doing, they won’t need a plane anymore.”
There is an even simpler
reason for Lemke and the lawyers to choose charter: for the amount of hours they
are flying, it is the least expensive way to fly privately. “Regardless of the
type of program, you’re going to pay less for charter on a mile-for-mile basis,”
says Walt Lamon, president of Wyvern Consulting, a New Jersey-based firm that
rates local and national charter providers.
This cost comparison
includes jet membership programs offered by national charter brokers and
fractional companies. Membership programs counter that they offer more than a
charter company can. In the case of Marquis Jet Partners, membership means
access to the fleet and customer service of NetJets, its parent company. In the
case of Sentient or Blue Star Jets—national charter brokers—it means access to a
nationwide group of charter providers that have been prescreened for service and
safety.
Fractional companies offering both ownership and jet membership have
successfully marketed against charter operators for the past decade by selling
the notion that ownership trumps charter in both safety and service, and that
these advantages justify considerably higher costs. According to Averitt Air’s
Gregory, these sales pitches succeeded because several years ago they were true.
“The fractionals have sold one thing: standardization of service. You get the
same thing every time you go out, and the charter companies have been terrible
at that,” he says. “Thanks to fractional, charter companies have begun to
standardize themselves. Now charter companies can give the same level of service
as the fractionals for significantly less cost,” he adds.
Additional Information
Expert Advice
Safety Check