'Unchartered' Land? Buyers Explore Corp. Craft Options

While corporate travel managers are accustomed to dealing with airlines, using a chartered aircraft can be a cost-effective yet complicated alternative.

Most companies use charters rarely enough that there is no set policy on how to go about it. According to the National Business Travel Association, about 30 percent of its members handle charters. Some of the complicating factors include no central pricing mechanism such as a CRS, no real sense of capacity in a given market because charters are essentially omnipresent, no schedule and a stereotypical yet legitimate concern over charters' fly-by-night reputation--a concern that requires hours of research into pilot certification, insurance and liability requirements, and safety.

It is for these reasons that traditionally, most companies--particularly those that book a charter perhaps once or twice a year--rely on intermediaries such as travel agencies, charter brokers or both to arrange such flights.

Nonetheless, sources on the supply side said buyers are becoming more savvy about the charter business and that the business itself is booming.

"About four years ago, maybe 15 percent of travel planners had sophisticated knowledge of the charter business," said Meara McLaughlin, publisher of "The Charter Guide," which offers a print- and Internet-based search tool for finding suppliers. "The trend I see now is that travel planners are getting a better view of their role as a resource person. They're discovering that the people they're trying to serve will deal with it themselves if they don't, and they are coming to understand the necessity for a cross-discipline approach."

McLaughlin's company regularly surveys managers of purchasing, corporate travel and fleet, as well as financial executives, although not travel agencies. In a recent survey of 500 such personnel, 71 percent said they are using or considering using charters. Although McLaughlin noted that her company surveys planners who are already likely to be involved in charters, she said the same surveys five years ago resulted in about 35 percent saying they were using or considering them. "To have doubled the response can't be attributed to our improvements in research," she said.

Jane McBride, CEO of Boston-based charter broker Flight Time International, has observed some of the same trends. "There's a lot more chartering going on, and we're seeing a much better-educated buyer," she said.

Central to the quality of a choice made by a corporate travel planner is the determination of what is a good charter fit--in other words, when is it cost-effective to charter (see chart). In instances that are not based on executive directive, but perhaps do include executives traveling, some of the initial flags that might indicate a good charter fit are a large group on a point-to-point trip, a large or small group that wants to get in and out of smaller cities in a short period of time--say for a tour of manufacturing plants or a sales meeting--or an international trip where the local airport infrastructure is underdeveloped.

Chris Amos, regional vice president of charter company The Air Group, provides an example: "Let's say an executive wants to get from Des Moines to Iowa City to New York all in the same day. These are areas that are not directly served by the larger airlines, and it may not be possible to get to them all and conduct business at the same time due to air traffic control holdups."

Given circumstances such as these, a cost analysis is a significant next step, and one that is difficult to do properly considering the many factors involved. One major factor that charter suppliers say is overlooked is the cost of the traveler's time.

"There are any number of formulas for calculating this, the most basic of which is to simply add up the cost of, say, a first-class seat at $800 for four or six people," said Amos. "Compare that to a Lear Jet and it can become more economical." However, a basic analysis such as that one is not the way to go because it doesn't take into account non-financial factors, Amos said

"The difficulty with travel managers is that charter will never be something policy cops will be able to use if they are only looking at a spreadsheet in terms of columns," McLaughlin said. "You can't usually justify it unless you look at a sophisticated web of travel, including soft costs such as hours out of the office."

Some companies feel that the cost of executives' time isn't as important as it might sound in the comparison of charter versus commercial airlines because of the productivity tools available nowadays--in a limo to the airport, a club at the airport and in first or business class on the plane. However, few would argue that if the business objective is to get to many cities in a single day, flying commercial isn't likely to satisfy the need.

Helping to answer the issue--just as in the commercial air travel industry--is technology, which is making cost analysis an easier component of the travel management mix with regard to charters and business jets.

Addressing concerns about reputation and safety, sources stressed the importance of long-term relationships, whether with a broker or directly with suppliers. According to Teterboro, N.J.-based Executive Jet, the first steps for corporate travel managers when considering a given charter operator are to obtain a copy of the company's charter certificate; gather information on the types and limits of insurance coverage; check the company policy on pilot experience, minimum flight hours required before hiring and pilot training policies; and check the company's safety record with the local Federal Aviation Administration office.

"People are understanding the importance of establishing a real level of trust," said Flight Time's McBride. "Some charter companies are in it for the quick buck--sort of the hit and run--so getting to know the supplier is essential."

"It is very much the case that companies try to narrow down the number of charter companies they deal with on a regular basis," said Mark Johnson, travel manager for the Cessna Aircraft Co., and vice president and treasurer of NBTA. "You find someone you like and can start to build relationships with pilots. All customers should get references on the charter companies they're considering. Reputation is critical because some don't do as good a job and if your senior people are flying with them, you want to check out their equipment maintenance and training."

The brokers--such as Flight Time, Atlanta-based AirFax and St. Louis-based Charter Search Network, among many others--provide the service of reputation checkers for buyers who are unfamiliar with the insides of the charter business.

"Obviously you'll evaluate cost, but do your homework on the supplier, either through a company like ours or on your own," McBride said. "Leave no stone unturned, compare apples to apples and get references. Once you've chosen suppliers, establish a professional relationship."

To help travel managers evaluate safety, "The Charter Guide" will soon provide an Internet-based database of safety information and a tracking mechanism for flights in real time. "There's been no quantitative analysis done on accident statistics, and we'd like to show people they don't have to feel insecure about flying a charter--it's the scheduled airlines that crash," McLaughlin said.

The boom in the charter business, many say, is partly attributable to last year's two major accidents on commercial airlines. Other factors include the airlines' retrenchment to and elimination of a few hubs (reducing direct service to many smaller cities), the general hassles of airport security and baggage searching and, most recently, the threat of a strike at American Airlines, which "brought people out of the woodwork," McBride said.

C. Sam Benson, president of Aviation Consultants in Findlay, Ohio, said it's "the dependability of the airlines" that spurs charters. "For example, if I have to be on the East Coast for a 10 a.m. meeting, I can't depend on the 9 a.m. flight, so typically I'll fly out of Detroit at 7 p.m. the previous night because the late ones get canceled so much. The key benefit of charters is their flexibility."

Once a company establishes a list of qualified charter suppliers, it can negotiate on volume just as it does with commercial airlines.

In fact, sometimes it is even appropriate to use negotiations with charter companies as leverage for airline deals. One source worked with a company that used bids from charter companies as a leveraging tool in its airline negotiations. The company's air travel costs dropped by $500,000.

Going direct is one trend on the commercial side that has not quite taken off yet for charters, especially considering all the complications involved in picking vendors. But, McBride said, "some companies do it. If not, they can work with a broker either directly or through their travel agencies.