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

33. Page 5-4

background image

5. Pricing

 

 

 

 

Private Jet Travel: Understanding the Options  

  

October 2003

 

5-4

An extremely important point in performing financial analyses of various business 
aviation options, though, is that if any of these options involve ownership 
(Ownership or Fractional), it is absolutely essential to include an “after-tax” 
scenario to get an apples-to-apples comparison (or use a lease cost as a proxy 
for ownership).  Depreciation expense, and its tax treatment, can be such a 
crucial driver of the true financial picture of these programs that failing to 
consider it can grossly skew the results.    

Usage Patterns 

The final factor making it difficult to compare the all-in price of various business 
aviation programs might be the most important – the travel patterns of the user.   

If you Charter an aircraft from New York to Chicago, attend a mid-day meeting 
and return that same night, your cost will essentially be the quoted hourly rate 
times the number of flight hours (with perhaps some incidental charges for 
specific catering requests, or arranging for a car).  If you want to come back three 
days later, though, you might wind up paying double this amount, because the 
Charter company cannot afford to have an aircraft sit idle waiting for you instead 
of earning revenue.  So they might charge you for the “empty leg” back to New 
York, then the additional return to Chicago to pick you up.  Or would you be 
better off paying for the “daily minimum” level of hours, even though you’re not 
actually using them?  Then what about the overnight charges?  And if the aircraft 
you charter is not based at a nearby airport, will you be charged for the 
positioning flight?  On both ends of the trip?  

Block Charter programs are typically not quite as hard on inefficient users as On-
Demand Charter tends to be.  Some offer a round-trip (i.e., efficient) hourly price 
and a one-way (i.e., inefficient) hourly price.  The inefficient price might be 30-40 
percent higher than the efficient price.  Not as bad as double, but still a factor that 
must be considered against your true travel requirements.  Other Block Charter 
programs keep the hourly fee constant, but allow half of the hours to be used 
one-way (the net result is not that different from the approach just described).  
Others turn this around and offer an incentive (i.e., discount) for efficient use.   

Fractional and Block-Frax programs, due to their anywhere-anytime approach 
and network scale, come down on the opposite end of the spectrum from On-
Demand Charter: there is no charge for positioning or empty leg flights and no 
penalty for inefficient use.  While this means that the cost is spread around all the 
program users, it is also reduced by network optimization practices.   

All of these factors interact to make it extremely difficult to compare within or 
across program types without conducting rigorous financial analyses in order to 
derive a true, “all-in” apples-to-apples price per hour or mile.  But by working 
through each of the cost areas described above, digging into the details of the 
program, and applying them to your projected “real world” trip requirements, you 
can make a much more informed financial decision.  In Appendix A, we provide 
some representative pricing information for various business aviation offerings. 

 

 

 

 

High penalty for 
inefficient use 
with Charter 

 

 

 

 

Block Charter 
often rewards 
efficiency 

 

 

 

 

Inefficiency is 
borne by all 
owners with 
Fractional and 
Block-Frax 

 

<< 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.