johnsonrod
Well-known member
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- Feb 25, 2006
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I just read an excellent article about XOJet in the January Business & Commercial Aviation magazine - I encourage everyone to read it if you can find it. A lot of people are still in the dark with regard to what XOJet has to offer - I couldn't figure it out either until I read this article.
In this article, there is a relatively clear description of the XOJet model as well as the founder/CEO's views toward "inefficient" fractional ownership. I think he makes some good points when you actually think about it.
First, to quote the arcticle (snipets from the article):
"XOJet's business plan is managed whole aircraft ownership with a companion option for leasing blocks of unused capacity, then selling charter to cover deadheading and periods when capacity is available to the on-demand market. XOJet sells whole airplanes and leases blocks of capacity, and both owners and lessees are guaranteed an airplane when they need it. XOJet sells charter on demand when the aircraft are available - during the slow periods. Lessees buy blocks of hours (i.e., 100 hours). In the ownership model, you buy the whole airplane, you pay no management fees or fixed cost, and so you save a million up front every year since there is no pilot pay, insurance or hanger rent and you receive 400 hours at the DOC rate only: fuel, engine MSP and trip expenses. Owners who require additional hours can pay an all-in rate that includes fixed cost plus DOC."
That's a pretty interesting model when you think about it ("opportunistic" charter when the aircraft is idle) and it would be very attractive to aircraft owners - it is FAR LESS RESTRICTIVE than fractional ownership terms where the provider will tell you there will be so many days a year with peak-period restrictions, positioning fees, etc. From a cost standpoint, it would be cheaper in many cases to just fly the XOJet crews to the idle aircraft than to reposition that aircraft from one side of the country to another. Only fly the aircraft when the owner needs it or when a charter pops up. I take it XOJet gets a good cut of the charter revenue to pay for its own expenses.
Meanwhile, the owner (not the lessee) gets all of the depreciation benefits of owning the aircraft. So, if you take a $20 million aircraft and depreciate it over a five year period, the owner would get to reduce his/her taxable income by $4 million per year through the depreciation benefits. Fractional share owners get the same depreciation benefits from their "owned" shares on a proportional basis. XOJet owners therefore get some charter revenue when their aircraft is idle and they get the residual value when the aircraft is sold after 5 years.
With regard to the five "built-in inefficiencies of fractional ownership," XOJet's CEO lists them as:
1. Charter outsourcing during very busy periods or under-capacity
2. Aircraft on ground during slow periods
3. the deadhead conundrum (up to 30% of fractional flying can be deadheads - no revenue generated)
4. too many aircraft types in the fleet (requiring extra training, maintenance - reduces scale economies)
5. having to charge the same price every day, as this is contractually locked in with the shareholders.
XOJet does not have fixed charter fees - they are priced according to supply/demand. XOJet is attempting to fix these five inefficiencies in the fractional model. By doing so, the XOJet founder claims that XOJet is 20% less per flight hour to the customer than a fractional carrier.
Other general XOJet information:
So, go read the BC&A January magazine - the article is called "New Business Plans for Charter" by David Esler. I have not found a link for the article. It is quite an interesting read about XOJet and a few of the other new and innovative providers.
In this article, there is a relatively clear description of the XOJet model as well as the founder/CEO's views toward "inefficient" fractional ownership. I think he makes some good points when you actually think about it.
First, to quote the arcticle (snipets from the article):
"XOJet's business plan is managed whole aircraft ownership with a companion option for leasing blocks of unused capacity, then selling charter to cover deadheading and periods when capacity is available to the on-demand market. XOJet sells whole airplanes and leases blocks of capacity, and both owners and lessees are guaranteed an airplane when they need it. XOJet sells charter on demand when the aircraft are available - during the slow periods. Lessees buy blocks of hours (i.e., 100 hours). In the ownership model, you buy the whole airplane, you pay no management fees or fixed cost, and so you save a million up front every year since there is no pilot pay, insurance or hanger rent and you receive 400 hours at the DOC rate only: fuel, engine MSP and trip expenses. Owners who require additional hours can pay an all-in rate that includes fixed cost plus DOC."
That's a pretty interesting model when you think about it ("opportunistic" charter when the aircraft is idle) and it would be very attractive to aircraft owners - it is FAR LESS RESTRICTIVE than fractional ownership terms where the provider will tell you there will be so many days a year with peak-period restrictions, positioning fees, etc. From a cost standpoint, it would be cheaper in many cases to just fly the XOJet crews to the idle aircraft than to reposition that aircraft from one side of the country to another. Only fly the aircraft when the owner needs it or when a charter pops up. I take it XOJet gets a good cut of the charter revenue to pay for its own expenses.
Meanwhile, the owner (not the lessee) gets all of the depreciation benefits of owning the aircraft. So, if you take a $20 million aircraft and depreciate it over a five year period, the owner would get to reduce his/her taxable income by $4 million per year through the depreciation benefits. Fractional share owners get the same depreciation benefits from their "owned" shares on a proportional basis. XOJet owners therefore get some charter revenue when their aircraft is idle and they get the residual value when the aircraft is sold after 5 years.
With regard to the five "built-in inefficiencies of fractional ownership," XOJet's CEO lists them as:
1. Charter outsourcing during very busy periods or under-capacity
2. Aircraft on ground during slow periods
3. the deadhead conundrum (up to 30% of fractional flying can be deadheads - no revenue generated)
4. too many aircraft types in the fleet (requiring extra training, maintenance - reduces scale economies)
5. having to charge the same price every day, as this is contractually locked in with the shareholders.
XOJet does not have fixed charter fees - they are priced according to supply/demand. XOJet is attempting to fix these five inefficiencies in the fractional model. By doing so, the XOJet founder claims that XOJet is 20% less per flight hour to the customer than a fractional carrier.
Other general XOJet information:
- XOJet currently operates roughly 20 Citation Xs with 30 Xs on firm order and 20 Challenger 300s on firm order with 60 Challenger 300 options. The first five Challenger 300s are due in Q4 of 2008.
- Company has raised $550 million from wealthy investors and very prominent private equity firms (e.g., Texas Pacific Group) - it is very well funded
- Schedules are 8/6 or optional 18/12 (I believe the 18/12 offers home-basing if you live near a suitable airline-serving airport).
- As for pilot domiciles, the article mentions that XOJet offers 12 airports designated at the moment and that will grow to between 50 and 75 airports, determined by the level of business.
- The article mentions starting pay for XOJet PICs is $90K topping out at $145K. FOs start at $52K and peak in the mid $80s.
So, go read the BC&A January magazine - the article is called "New Business Plans for Charter" by David Esler. I have not found a link for the article. It is quite an interesting read about XOJet and a few of the other new and innovative providers.
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