Cos. Try Prepaid Cards And Corporate Shuttle Service

Many travel departments—even at the largest companies—opt to avoid such luxury products as private corporate jets during these lean times, but a new wave of private jet models is becoming popular with travelers seeking relief from the perceived hassles and high prices of commercial air travel. These programs, a departure from such well-known concepts as fractional ownership and ad hoc chartering, include prepaid travel card programs and outsourced corporate shuttles.

Corporate shuttles—dedicated private aircraft used on a company's heavily traveled routes—are not new. Many larger corporations, including companies that run remote facilities as well as firms with executive transoceanic travel needs, have operated such services for years. "Considering the time savings and employee productivity, there is a quantifiable return on investment that makes a corporate shuttle an attractive option versus commercial flights, and that is new," said Tristan Lewis, vice president of aircraft management sales at Executive Jet Management. Executive Jet is a Cincinnati-based sister company of the popular NetJets fractional ownership program. "However, the corporate travel director is motivated to deliver a total cost solution, so the corporate shuttle model has to stand up to the scrutiny of the finance department."

To make the economics work, some companies may consider jointly investing in private jet services that otherwise would be too pricey for a single company. "The aggregate volume could justify the expense," said John Berkley, American Express vice president of strategy and marketing for corporate travel in North America, who confirmed that the travel management company has been investigating corporate jet opportunities for a group of large clients. "There is interest in a corporate shuttle because it can provide a higher level of service on particular routes and increase leverage with main suppliers."

However, there also could be a negative impact on supplier negotiations, since companies placing senior executives on private shuttles would be removing premium travelers from traditional commercial agreements. "There are risks," Berkley said. "How do you do this under the radar of the majors?"

Meanwhile, several third-party companies recently have begun exploring corporate shuttle arrangements. Kansas City-based Air Charter Team, for example, in January just started marketing its shuttle offerings, though it has developed such arrangements in the past. "In terms of what corporations need, it is far and wide and vast," said Air Charter Team president Jonathan Tasler, noting the company has provided regular service between smaller U.S. airports, across the Atlantic to Europe and everything in between, including incentive group travel for the likes of General Electric. The company, which has worked with entities outside of the corporate sector, now is focusing on corporate travel managers and corporate travel agencies. "We are looking to get to the agencies and reach their corporate accounts," said Robin Becker, the company's manager of charter sales. Air Charter Team, through its affiliated partner program, provides agency commissions, tracking and customized Web pages for agency Internet sites that enable travelers to request price quotes.

Executive Jet Management has been running corporate shuttles for 12 years, but Lewis said interest and activity has never been greater. "Several clients are likely to move forward on corporate-owned shuttles, which we would manage," he said. "The fact that it takes so long to take a commercial flight and that commercial schedules still are reduced means that it is an easy, safe decision to operate a corporate shuttle, at least in the short term, because it is cost-efficient and justifiable."

Executive Jet Management offers two shuttle services: fully outsourced charter shuttle operations and management of client-owned planes dedicated to particular routes. "The typical corporate charter customer is concerned about single trips for key people and not with the lowest cost option," Lewis said. "The corporate shuttle business is focused on providing airline-type service on a more agreeable schedule." A large high-tech, West Coast-based client falls into the latter category. Executive Jet Management handles nine of the client's aircraft, flying 42 flights a day to five cities, an operation Lewis called, "the largest corporate shuttle operation in the world."

Chicago-based Indigo had been offering another spin on the corporate shuttle model. Currently, the company flies private jets on the Chicago Midway and Teterboro, N.J., route but recently backed off regularly scheduled service in favor of ad hoc chartering. Indigo expects to return to scheduled service later this year as new 16-seat Embraer 135 LR aircraft begin arriving in October. At that point, the company plans not only resumption of daily scheduled private service on the existing route, but also additions to the network, possibly including Midway to White Plains, a destination north of New York City.

"This Embraer order is a critical path for our overall plan for 2002. It is a tough airline environment but some people recognize it may be time for a new model," said Indigo chairman and CEO Pete Pappas. "Given the realities of the marketplace, we have changed the model and the plan is to pre-sell our seats via corporate contracts, at least to the break-even point, before entering new markets."

Negotiated corporate rates for preferred clients will be discounted from the going fare of $679 one way on the Midway-Teterboro flights, based on volume. Targeted customers include law firms, accountants, consultants and other traveling business professionals desiring enhanced productivity.

Indigo, which at startup in 2000 received partial funding from American Express, continues to be marketed to American Express corporate clients. "They can offer Indigo service throughout the travel and card divisions," Pappas said. "They are looking to support us in the preferred vendor program and also in a program they are developing in corporate aviation services."



PrePaid Private Jet Cards

Similar in concept to commercial programs offered at American Airlines, United Airlines and others, prepaid private jet debit cards are gaining popularity in the marketplace. Boston-area private jet supplier EBizJets claims to have pioneered the concept in 1999.

"Full ownership costs lots of money, fractional ownership also has capital requirements and other restrictions, and charters are not always available, have unpredictable pricing and oftentimes charge for empty legs," said Don Smith, director of national accounts at EBizJets. "Private jet membership and our travel card solves all of that."

Debit accounts can be established for $100,000, $250,000 and $500,000, with any remaining balance fully refundable if the cardholder opts to cancel the program. Corporations can authorize multiple users. In this year's first quarter, the company said membership grew 150 percent and related flight volume jumped 144 percent year over year. Most of the growth is related to corporate travel and Smith said, "hundreds of corporations now are enrolled," ranging from small companies to one in the Fortune 10. "The appealing feature is the open book policy on pricing. You know, from the category of aircraft you use, exactly what the charges will be. That makes Corporate America happy," Smith said. "It's a first step into private aviation for many corporations."

Aside from the travel card, EBizJets, which is a portfolio company within CSFB Private Equity, offers on-demand charters with one-way rates and guaranteed availability within five hours by calling on a network of 1,400 aircraft worldwide.

Meanwhile, relatively new to the market, New York-based Marquis Jet Partners last year established the Marquis Private Jet Card, a prepaid fractional ownership lease for as few as 25 hours of actual flying time. "The Marquis program is a response to the market share we have been capturing," said EBizJets' Smith. "It is gratifying to see others doing it." As the exclusive value-added reseller of the market-leading NetJets fractional program, Marquis said its offering is well-suited for "lots of companies that do not necessarily want to put a five-year fractional ownership cost on their balance sheets but see the benefits to their corporate travel departments." Rather than the standard five-year commitment and minimum purchase of 1/16 shares, Marquis' plan can be just one-year long for as little as $109,000. That single price includes all the benefits afforded regular NetJets customers, including 24-hour availability and access at more than 5,000 domestic airports.

Though Marquis only recently began marketing its program to the corporate travel sector, CEO and co-founder Alan Clingman said the interest is there. "We offer a neat package that can be used as an employee bonus, given to executives in the form of a card or supplemental to a corporate flight department. We are starting to get traction in those areas," he said. Clingman originally sought to sell 300 cards during 2002 but now expects to easily surpass that goal. More than 100 have been sold since November and about 30 new clients enroll monthly. According to a company spokesperson, clients include law firms, real estate management companies and other corporations that "need to shuttle employees between offices."

Meanwhile, Skyjet, a unit of Bombardier Aerospace, recently added a new program to its list of offerings. Premier Fleet is a block charter program targeting high-volume customers with fixed hourly rates and without empty-leg fees. One-year contracts are available for 25-, 50- or 100-hour commitments. Leveraging the name recognition of its parent, Skyjet provides Premier Fleet customers with credit toward monthly fees associated with the Bombardier Flexjet fractional ownership program or a 5 percent credit on private jet purchases available through Bombardier Aerospace.

Despite the growing number of private jet options, many still are financially prohibitive for much of Corporate America. "The cost usually is comparable between an eight-seat corporate shuttle and putting those same people on a commercial flight, if the coach tickets are $400 roundtrip. Once you get beyond eight passengers, you make the leap from something like a Citation V to a larger aircraft and the cost per hour increases dramatically," said Executive Jet Management's Lewis. "Sometimes it may be more cost-effective to use two smaller planes than one larger one. I also have told certain clients that, in their situation, it is not cost-effective and does not make sense for them at all."

Indeed, a common corporate buyer perspective is that corporate jets remain beyond economic feasibility. "We looked at all kinds of scenarios and I determined that on one of our busiest routes, it would still cost us $5.5 million a year more than commercial air transportation," said a travel manager at a Corporate Travel 100 company, noting that insurance costs are skyrocketing.

Though American Standard Cos. in the past has used private jets to transport employees to remote facilities, global strategic sourcing director Tom Barrett said such services are used only when necessary. "We have looked at fractionals and other models, which we have had to resort to occasionally, but it is not a high priority," Barrett said. "As we recover post-9/11 one month at a time, you need to ask if you should be investing in these long-term agreements. The real focus is maximizing productivity but with minimal resources."

"Overall, in hard dollar costs, flying privately is not comparable to commercial," acknowledged EBizJets' Smith, noting such isolated examples as last-minute fares between Chicago and New York. "But you can condense trips, travel with multiple colleagues, save on hotel costs and improve productivity. Private jets no longer are a corporate perk, but have become business tools, especially now that the world's commercial travel has changed forever.