Comparison study of buying an airplane, fractional share, jet cardrivate jet charter
UNDERSTANDING THE OPTIONS
<< BACK NEXT >>

31. Page 5-2

background image

5. Pricing

 

 

 

 

Private Jet Travel: Understanding the Options  

  

October 2003

 

5-2

Complexity 

Some programs by their very nature have a high level of financial complexity.   

Whole Aircraft Ownership, as an example, typically involves a laundry list of fixed 
expenses (financing or lease payment, pilot salaries or monthly management 
fees, hangar rentals, chart subscriptions, insurance) and variable expenses (fuel, 
maintenance, maintenance reserves, airport charges, catering, weather reports 
and charts for specific flights; these are often called “DOC’s”, for Direct Operating 
Costs).  

Charter prices, at the other end of the scale, are not particularly complicated. You 
pay the agreed hourly rate for each flight hour, plus any incidentals (we are 
ignoring positioning flights, daily minimums and similar “inefficiency” issues here, 
as they’re dealt with in the discussion of usage patterns).   

Block Charter and Block-Frax programs generally offer an uncomplicated pricing 
model.  Pre-pay and commit to a defined number of hours at a pre-determined 
rate.  Some, though, debit on the basis of dollars, effectively meaning that the 
price per hour can be escalated.  

Fractional programs have a somewhat more complex pricing model.  You pay 
three main charges – acquisition cost, monthly management fee and occupied 
hourly rate.  These mimic the same categories of expenditures noted for 
Ownership, but are aggregated and therefore somewhat simplified.  They are 
subject to various escalation provisions.  Upgrading and downgrading impact 
pricing, but in clear, formulaic fashion.  You will also pay a take-off/landing fee 
that is designed to compensate the program for the costs of the taxi portion of the 
trip, on top of the flight hours.  

Uncertainty 

Many costs in business aviation are uncertain.  

Whole Aircraft Ownership can involve a high degree of financial uncertainty. 
Some costs are fairly predictable (e.g., pilot salaries) and some are quite volatile 
(fuel and, lately, insurance).  A financial analysis of the all-in cost of Ownership 
will be fairly heavily dependent on the resale (“residual value”) assumption used.  
How much will the aircraft be worth when you go to sell it?  Other costs are also 
uncertain.  How much will you spend if the FAA decides that your aircraft needs a 
special inspection under an Airworthiness Directive or Service Bulletin?  What 
will you pay for the next heavy maintenance visit (this can be smoothed through 
“power-by-the-hour” programs)?  What kind of interest rate can you get on an 
aircraft loan, or should you lease?  And how do you account for the “opportunity 
cost” of the investment?  

Fractional programs often identify their price certainty, especially as compared to 
Ownership, as a major contributor to their success.  The Acquisition cost is what 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ownership can be 
highly uncertain 

 

 

 

Fractional is 
mixed 

 

<< BACK NEXT >>

"Chartering a plane, either directly from a charter company or through a charter broker, is often the most cost effective way to fly private."

Independent Source: Deloitte Private Wealth, Private aircraft: Flying private makes sense for those with the right information (page 20)
*This website has no affiliation with Deloitte.