Aviation

Sky Share

For premium travellers wanting to fly for business or pleasure, there have traditionally been three choices. Buy an aircraft outright. Charter a jet. Or put themselves at the mercy of mainstream airlines and risk exposure to cancelled flights, lengthy airport delays and stale biscuits.

Another option is now on the radar in Australia. Fractional jet ownership has for years been a preferred way to travel for many Americans and Europeans. The model allows individuals or corporate buyers to purchase a share in an aircraft – akin to a time-share deal – reflecting the number of hours they expect to fly in a year. Users get the convenience, and kudos, of flying on their own aircraft but at a fraction of the cost of outright ownership of a private or corporate jet. In the US and Europe, a one-sixteenth interest represents the smallest share available in most fractional models, equating to about 50 hours of flying a year. As a rule, a one-eighth share gives you 100 hours, and a quarter share 200 hours.

Go Jet, based at an airport near Wollongong south of Sydney, has introduced a business model providing either whole ownership of a private jet or a fractional deal. Offering a quarter, half or full share in a jet, Go Jet has two aircraft under management – a Cessna Citation Jet and a Beech Premier 1A – and is in talks with up to a dozen other potential users. “It’s quite an expensive purchase, so people take their time considering a deal,” says marketing manager Luke King.

Go Jet’s foray into fractional ownership is a modest but significant move in a market where other private jet companies have focused on charter services. King says: “It’s basically a new product that’s being offered in Australia … We’re really the only company that has come out and established itself as a management firm that will look after someone’s jet rather than one that will just hire a jet.”

A flight to service

With about 15,000 private jets and thousands of private carriers, competition in the United States market is fierce. The fight for fractional clients makes up a large part of the battleground. Since NetJets pioneered fractional ownership in 1985, a host of rivals has entered the market, each with distinctive selling points. Billionaire investor Warren Buffett owns NetJets, which has the largest jet fleet in the US, ranging from the light Hawker 400XP to the medium-sized Citation X and large transcontinental Gulfstream G550.

Aircraft manufacturer Bombardier Aerospace runs Flexjet, the first fractional program from an original equipment manufacturer. Among its innovations is Versatility Plus, which gives fractional owners an option to buy and sell flying hours from each other.

Cessna Aircraft Company owns CitationShares, a major player that offers a full concierge service for all clients. Other companies such as Flight Options has a referral program whereby anyone who introduces a fractional owner can earn a $US10,000 flight-time credit. Then there are jet card programs from the likes of Marquis Jet, which on-sells blocks of time on NetJets aircraft, or Sentient Jet, which sells membership cards to fly on approved charter operators.
While fractional ownership is billed as an affordable option for access to a jet, it does not come cheap. NetJets sells fractional ownership shares starting at more than $US400,000 for a one-sixteenth interest in a small jet. In addition, expect to pay an hourly fee for time spent in the air plus a monthly management fee that covers maintenance and administration.

At Go Jet, a quarter share in an entry-level jet will cost about $AUD850,000. In addition, there is an ongoing management fee of $AUD2500 a month, plus a daily operating cost of $AUD1100 an hour that rises or falls according to fuel costs. King argues that the numbers stack up for a frequent luxury flyer. As a rule of thumb, he says a Go Jet quarter share owner in a small jet can expect to pay an overall annual cost of $AUD190,000 for 100 flying hours, which is the equivalent of one flight a week between capital cities on the east coast. Remember that such a jet will give you four seats for family members or business colleagues. He says comparable travel time in business-class seats for four people could cost about $AUD230,000 a year.

“So if you’re a businessman or wealthy family that is used to being in business class on a fixed schedule with an airline and going though all that hassle, to actually offer a cost saving and a far better service is quite an attractive proposal.”

Hedge your bets

In the US, Regent Jet founder Justin Sullivan is shaking up the fractional market and its cost structure. Since launching his business about a year ago, Sullivan has been offering a new “jet hedging” model that gives fractional and jet card owners a chance to dramatically reduce their costs. “These fractional programs offer good value some of the time, but not all of the time,” he says.

Sullivan has runs on the board in the private jet sector. Formerly vice-president of sales at OneSky Jets, he delivered triple-digit revenue growth at that company. Through the Regent brand, his team negotiates cheaper lease rates through a network of about 50 private jet operators and offers them to members of other fractional or jet card programs.

Sullivan says his goal is to educate clients “on how they can get the best bang for buck every time they fly”.

The biggest cost conundrum for fractional operators, says Sullivan, is “dead-head time” – the industry term describing the period when pilots are flying empty planes as they ferry aircraft from one site to another to pick up customers. Regent is tapping into this dead time to strike deals that can save flyers tens of thousands of dollars at a time.

Sullivan says: “It’s a funny thing in that we’re one of (the jet companies’) best salesmen, but our business model is their worst nightmare. It’s a fundamentally disruptive concept to take away all their profitable legs and cram the unprofitable legs down their throat.”

A soaring market

In Australia, jet charter operators such as ExecuJet, JetCorp Australia and Global Jet International have resisted offering fractional ownership models because of the relatively small size of the domestic market. Barry Graham, the CEO of JetCorp Australia, says his company has no immediate plans to offer a fractional model because it is “not an established way of acquiring an aircraft” in this country. He argues that jet chartering is about 30 per cent cheaper overall than fractional ownership or jet card programs because of fewer aircraft maintenance and running costs.

Scale is an issue for Australia’s private jet market. Graham cites a recent visit to Teterboro, a ‘reliever’ airport near New York, where he counted 108 corporate jets on the tarmac. In total, Australia has only 130 to 150 private jets in operation. Nevertheless, Graham says the resources boom and a buoyant Australian economy is fuelling demand for private jets. “The market for aircraft charter, private aircraft and corporate jets is probably as vigorous now in Australia as it ever has been,” he says.
Graham says the “appallingly bad service” of low-cost domestic carriers and delays on mainstream airlines is doing the private jet sector a favour. “Travelling on regular airline services is just a pain in the tush.”

A waiting list of up to two years for new aircraft is also playing into the hands of fractional and jet-hedging operators. With aircraft in such short supply, Go Jet’s Luke King expects share ownership models to come into their own.

“There is a strong market indication that there will be growth in the fractional market.” *