U.S. Corporations Increase Investment In Private Jets

Though the major carriers' fares have stabilized—even decreased in many markets—and operational reliability has improved from last summer's disastrous levels, alternative air transport options continue to garner interest from corporate travel buyers. Models for corporations to assess—depending on the economics, company culture and travel patterns—include charter, fractional ownership, full ownership and corporate shuttles.

"Fractional ownership represents the fastest growing area of aviation, period," said Phil Roberts, president of Par-Travel Tech and chairman of the National Business Aircraft Association, speaking this summer at the National Business Travel Association's annual conference in Atlanta. According to NBAA's Business Aviation Factbook, the number of fractional aircraft owners increased in 2000 to nearly 3,700, from just 542 five years ago, representing more than $1 billion in fractional shares sold.

Michael Zea, vice president of Mercer Management Consulting in London, said the economics of fractional ownership make sense when factoring in productivity gains. "Full economy and business fares have increased to the point that a corporate jet in a fractional program with a reasonable load is cost-competitive once initial shares have been purchased," he said in a recent Fractional Jet Ownership: A New Business Model Emerges study.

The NetJets program from Executive Jet is the market leader and last year flew 200,000 flights for its fractional owners. A one-sixteenth share buys a client 50 flight hours in a year for $375,000.

"Once your company's need reaches 400 to 500 hours a year, it can justify owning an aircraft outright," said Julie Diamond, vice president of charter sales in the western division for Executive Jet. "And you can charter it out when it is not in use."

Manufacturers have been reporting mixed results in terms of private jet sales as the economy stays soft. Nevertheless, Brazilian manufacturer Embraer continues aggressively to court private corporations as potential buyers of its business aircraft. CEO Maurizio Botelho said that nearly 100 corporate aircraft have been delivered and another 120 are on order.

Exceeding company forecasts, Boeing through last October sold 71 of its Business Jets—essentially tailored 737-700 aircraft. The first longer-range 800 derivative will enter service next year.

Once a company owns a private jet, it usually reserves it for the most senior executives. However, some travel managers seek opportunities to fill their corporate fleets with regular travelers to avoid commercial airfares whenever appropriate. "We use 'Apollo Batch Pulls' to search for commercial passengers in order to fill empty seats on scheduled company plane itineraries, and conduct the cost comparison between commercial and company plane travel," said Cindy Minx, travel manager at VF Corp. in Greensboro, N.C. "There is a definite cost savings by avoiding commercial airfares when a company plane is already scheduled."

VF's corporate aircraft department, which fields seven jets, is tied together with the commercial travel department. "There are expensive software programs out there that will link the corporate aircraft scheduling system to the commercial booking system," Minx said, "but because of our travel experience and access to Apollo, we can do this ourselves at no additional cost."

For many companies, however, chartering still is the cheaper, more appropriate way to go. Skyjet, now owned by Bombardier, facilitates online links between charter users and more than 100 charter operators offering 1,300 aircraft, and has developed a range of products and services to simplify aircraft chartering. "There has been tremendous movement in this whole area," said Skyjet CEO Trevor Cornwell. "Business aircraft have moved into prime time."

The company's newest service for New York-area business travelers, dubbed the Simple Plan, is designed for first-time charter users and is most appropriate for same-day roundtrip travel within 1,000 miles of New York City. Like Skyjet's regular charter service, Simple Plan offers complete online booking capabilities and such tailored services as limo transfers. Unlike Skyjet's regular bookings, however, the program will suggest only the single most appropriate available aircraft to match the user's needs. "This is business aviation on training wheels," Cornwell said. Skyjet hopes such first-time users will see the value proposition offered by charter services and become regular customers for itineraries that offer cost-savings, especially when traveling with colleagues (BTN, March 26).

Altering the charter model, Chicago-based Indigo offers scheduled, four-times daily service on private jets between Teterboro Airport, just outside of New York City, and Chicago Midway. Westchester County Airport in White Plains, N.Y., and Atlanta's DeKalb Peachtree Airport will be added later this year, with planned expansion next year into Minneapolis, Washington Dulles and Reagan Washington National.

Indigo, which said "the public business jet will soon make high-quality air travel available to business travelers at prices competitive to coach fares," quoted a one-way Teterboro to Midway price of $629, or "less than what United and American Airlines charge for walk-up service."

The company's published schedule is a major draw for some travel buyers. "It still is a bit pricey, but for your people paying close to full price anyway, it could make sense—and they will negotiate with you," said Beth Castleberry, director of shared travel services for Atlanta-based Dun & Bradstreet and related companies. "In our policy, we say you really cannot do charters, but these are public itineraries."

Indigo flies eight-seat Dassault Falcon aircraft, with various business amenities, and partners with BostonCoach for connecting ground transportation. It is part-owned by American Express, which markets Indigo service to cardholders.

Indigo is just one of many air charter companies to choose from, and Executive Jet's Diamond cautioned that picking the lowest bidder is not a prudent approach. "You don't ask for the cheapest used car on the lot," she said, adding that there are many selection considerations, including insurance, appropriate operating certificates, security, accepted form of payment and business amenities.

Recognizing both the potential of the exploding realm of corporate aviation and the need to provide additional value to key corporate customers, a few major carriers are jumping into the game.

"A high-end entry like fractional ownership could further fragment the majors' relationships with their business customers," Zea noted. "As share of wallet declines, the hold airlines exercise on business travelers through loyalty programs will become less tenable, and business travel will become even more commoditized."

United Airlines' new subsidiary, currently called United BizJet Holdings, is the highest-profile response by a major carrier to date (BTN, May 7). The company is expected to publicly launch as early as this month, with initial operations—potentially including fractional ownership, corporate fleet management, traditional chartering and corporate shuttles—up and running by the first quarter of next year. In the meantime, the group is creating a senior management team, exploring branding options and buying jets to fill out a fleet expected to grow to 200 by 2005. Thus far, 135 Dassault Falcons and Gulfstream aircraft either have been ordered, optioned or included in letters of intent.

Though the subsidiary has been presenting its range of options to potential customers, it has not yet begun selling services. And to date, United stands alone as the only major U.S. carrier pursuing the corporate aircraft market, which, some say, could cannibalize traditional premium commercial offerings. However, on the other side of the pond, British Airways works with a fractional ownership company in the United Kingdom, but the service is marketed only there (BTN, May 7). "It does make sense, at some point, to market it to U.S. corporations for onward service from London after the traveler flies BA into Heathrow," said David Noyes, BA executive vice president of sales and marketing in North America. "But that sort of arrangement has not yet been discussed in the United States."