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From this mornings Wall Street Journal.
Crunch Time for Fractional Jet Owners
[FONT=Times New Roman,Times,Serif]Popular Pay-by-Hour Options
Add Restrictions to Manage
Surging Numbers of Fliers[/FONT]
[FONT=times new roman,times,serif][FONT=times new roman,times,serif]By CANDACE JACKSON
December 13, 2006; Page D1[/FONT]
[/FONT]
In the past few years, fractional jet companies have brought private jet travel -- and its bragging rights -- to the masses (relatively speaking), offering lower-end memberships and pay-by-the-hour programs. But now, some of those customers are getting their wings clipped.
The problem is that ... the companies are struggling to keep up with surging demand. Customers have complained of delays and troubles in snaring a jet, especially during holidays and on short notice. Some companies have had to scramble to find enough planes to meet customer requests -- and they have had to pay huge sums to secure them.
The Bombardier Learjet 60XR is part of FlexJet's fleet of private planes. To manage the traffic, jet companies are adding restrictions to the popular lower-end programs. This year, NetJets Inc., a fractional aircraft ownership company based in Woodbridge, N.J., required those who wanted to use Marquis Cards (which entitle users to a set amount of hours of private flying) to purchase their cards by Sept. 30 in order to book travel for Thanksgiving weekend. In prior years, users could buy their cards a week before holiday travel. Sentient Jet, a Weymouth, Mass., membership company, has a policy that allows it to reschedule flights booked on peak travel days within a three-hour window. So a user hoping to fly out at noon could end up with a flight leaving as late as 3 p.m. CitationShares, a fractional aviation company based in Greenwich, Conn., has instituted black-out days (such as Presidents Day) for customers using a new prepaid card program.
Companies are also attempting to push customers into more traditional -- and expensive -- higher-end fractional ownership programs, in which users actually own a stake in a particular plane. Since these programs have fewer participants, there is less potential for the demand for planes to exceed supply on peak travel days. In October, CitationShares launched a program called "Citelines," which offers travelers a price break for traveling on nonpeak days, and a flat annual rate for operating charges, instead of an itemized monthly bill. Flight Options LLC a private aviation company based in Cleveland, recently introduced a new program that includes discounts on the hourly rate for long-haul flights and simpler fuel pricing.
Companies are hoping to mollify higher-end fliers who are annoyed by the new crowds of private jet customers. Richard Gadbois, the president of a real-estate development company, owns a fractional share of a jet with Flight Options. (His share, which he splits with a friend, equals about 140 hours of flight time a year.) Though he's hooked on the conveniences of flying privately, such as skipping long airport lines, Mr. Gadbois says he has noticed more delays in recent years. "The problems stem from people who buy 25 hours and think they're now a jet owner and the red carpet should roll out," says Mr. Gadbois, who lives in Newport Beach, Calif.
The struggles have affected some companies' bottom lines: NetJets, a subsidiary of Berkshire Hathaway Inc. and the largest fractional company by market share, reported that while revenue rose 13% last year, the company incurred a pretax loss of $80 million. The reason: Supply shortages during peak travel days forced NetJets to charter expensive planes from outside companies to meet demand. Richard M. Santulli, the company's chairman and chief executive, says the problem was exacerbated by Marquis Card holders, who have made it harder to plan for busy periods. Mr. Santulli says that for this holiday season, the company solved the problem by adding more planes to its fleet, and adding those travel restrictions for Marquis Card holders.
Fliers can buy private jet time in a variety of ways. Fractional jet owners buy an actual share of a plane, usually starting in increments of one-sixteenth or greater. (Owners with a one-sixteenth share are usually entitled to 50 hours a year of flying, while a half share usually entitles an owner to 400 hours of flight a year.) Upfront capital investment starts around $600,000 for a smaller jet, and owners generally have to sign a five-year contract and pay monthly maintenance fees on top of their initial investment. At the end of the contract, the share is sold back to the company at current market value.
In contrast, card holders and members don't own an actual asset in a plane, but rather can redeem the hours they've bought for flights. Marquis Jet, for example, has a $115,000 pre-paid card, good for 25 hours of flying on NetJets-owned planes. CitationShares now sells a 20 hour card for $96,000. Delta AirElite, a subsidiary of Delta Air Lines Inc. that does some charter business, sells a 10-hour card, which starts at $43,900. In most cases, cardmembers and membership-program users can specify the type of plane they want for each trip, whereas fractional owners typically must use the plane they partly own.
Adam Bold, chief executive of the Mutual Fund Store , says commitment-free programs have hooked him on flying privately. At six-foot-six, Mr. Bold started developing back problems from cramming himself into the tiny regional jets he was flying with commercial airlines for about 20 days a month. "To not have to spend three hours in an airport, that's great," says Mr. Bold. But he says he wouldn't consider traditional fractional ownership because he doesn't think it is a sound investment. Instead, he uses debit-style program offered by New York-based charter jet broker Blue Star Jets. He says the program is flexible, doesn't tie up too much capital, and lets him avoid owning something that could decline in value over time.
The number of private jets flying in the U.S. has grown 40% in the past five
years. As of last month, there were 3,968 fractional jet owners, up 30% since 2001, according to AvData, an industry tracker. But this figure, which doesn't include cardholders or membership-program users, has been flat since 2002. During the same period, membership-card sales have shown strong growth, with an estimated 5,000 sold since they were introduced five years ago, says David Strauss, an aerospace industry analyst with UBS Investment Research. He estimates their sales have grown at least 25% in the past year.
Companies are also introducing incentives to encourage participants in their lower-tier card and membership programs to use their flying hours in low-demand times. Flexjet, a Dallas-based fractional jet ownership company, recently launched a card that includes up to a 25% discount for flying on off-peak days. OneSky Jets, based in Manchester, N.H., now sells a $100,000 pre-paid jet membership that promises discounts for purchasers who travel on less-busy days. The program also takes a cue from commercial airlines by offering cheaper hourly rates for the busiest routes (like Teterboro Airport, near Manhattan, to West Palm Beach International, near Miami) and charging more for flights booked at the last minute.
As more players enter the increasingly crowded marketplace, companies are also doing more to keep customers loyal. Blue Sky Jets just announced that starting this month, it will add a frequent-flier style program whereby customers earn points that can be redeemed for items like Rolls Royce car rentals and Coach handbags. Sentient Jets has a partnership with the Cleveland Clinic that makes it easier for members to book appointments at the prestigious hospital. NetJets plans a roster of high-profile events similar to those held at last week's Art Basel in Miami.
Some customers have decided that they need both kinds -- the high-end and the low-end -- of private jet ownership. Charlie Eitel, chief executive of Simmons Co., a mattress maker based in Atlanta, uses a one-eighth fractional owned jet with NetJets. He also has a Sentient membership service, which he uses to book corporate travel for his executives when they fly to meet clients, especially to remote places like Janesville, Wisc. They'll choose the type and size of plane based upon the trip. For example, if Simmons executives are traveling alone, they may use a slightly older model plane. If clients are traveling with them, they ask for a new plane.
Write to Candace Jackson at [email protected]
~
Crunch Time for Fractional Jet Owners
[FONT=Times New Roman,Times,Serif]Popular Pay-by-Hour Options
Add Restrictions to Manage
Surging Numbers of Fliers[/FONT]
[FONT=times new roman,times,serif][FONT=times new roman,times,serif]By CANDACE JACKSON
December 13, 2006; Page D1[/FONT]
[/FONT]
In the past few years, fractional jet companies have brought private jet travel -- and its bragging rights -- to the masses (relatively speaking), offering lower-end memberships and pay-by-the-hour programs. But now, some of those customers are getting their wings clipped.
The problem is that ... the companies are struggling to keep up with surging demand. Customers have complained of delays and troubles in snaring a jet, especially during holidays and on short notice. Some companies have had to scramble to find enough planes to meet customer requests -- and they have had to pay huge sums to secure them.
The Bombardier Learjet 60XR is part of FlexJet's fleet of private planes. To manage the traffic, jet companies are adding restrictions to the popular lower-end programs. This year, NetJets Inc., a fractional aircraft ownership company based in Woodbridge, N.J., required those who wanted to use Marquis Cards (which entitle users to a set amount of hours of private flying) to purchase their cards by Sept. 30 in order to book travel for Thanksgiving weekend. In prior years, users could buy their cards a week before holiday travel. Sentient Jet, a Weymouth, Mass., membership company, has a policy that allows it to reschedule flights booked on peak travel days within a three-hour window. So a user hoping to fly out at noon could end up with a flight leaving as late as 3 p.m. CitationShares, a fractional aviation company based in Greenwich, Conn., has instituted black-out days (such as Presidents Day) for customers using a new prepaid card program.
Companies are also attempting to push customers into more traditional -- and expensive -- higher-end fractional ownership programs, in which users actually own a stake in a particular plane. Since these programs have fewer participants, there is less potential for the demand for planes to exceed supply on peak travel days. In October, CitationShares launched a program called "Citelines," which offers travelers a price break for traveling on nonpeak days, and a flat annual rate for operating charges, instead of an itemized monthly bill. Flight Options LLC a private aviation company based in Cleveland, recently introduced a new program that includes discounts on the hourly rate for long-haul flights and simpler fuel pricing.
Companies are hoping to mollify higher-end fliers who are annoyed by the new crowds of private jet customers. Richard Gadbois, the president of a real-estate development company, owns a fractional share of a jet with Flight Options. (His share, which he splits with a friend, equals about 140 hours of flight time a year.) Though he's hooked on the conveniences of flying privately, such as skipping long airport lines, Mr. Gadbois says he has noticed more delays in recent years. "The problems stem from people who buy 25 hours and think they're now a jet owner and the red carpet should roll out," says Mr. Gadbois, who lives in Newport Beach, Calif.
The struggles have affected some companies' bottom lines: NetJets, a subsidiary of Berkshire Hathaway Inc. and the largest fractional company by market share, reported that while revenue rose 13% last year, the company incurred a pretax loss of $80 million. The reason: Supply shortages during peak travel days forced NetJets to charter expensive planes from outside companies to meet demand. Richard M. Santulli, the company's chairman and chief executive, says the problem was exacerbated by Marquis Card holders, who have made it harder to plan for busy periods. Mr. Santulli says that for this holiday season, the company solved the problem by adding more planes to its fleet, and adding those travel restrictions for Marquis Card holders.
Fliers can buy private jet time in a variety of ways. Fractional jet owners buy an actual share of a plane, usually starting in increments of one-sixteenth or greater. (Owners with a one-sixteenth share are usually entitled to 50 hours a year of flying, while a half share usually entitles an owner to 400 hours of flight a year.) Upfront capital investment starts around $600,000 for a smaller jet, and owners generally have to sign a five-year contract and pay monthly maintenance fees on top of their initial investment. At the end of the contract, the share is sold back to the company at current market value.
In contrast, card holders and members don't own an actual asset in a plane, but rather can redeem the hours they've bought for flights. Marquis Jet, for example, has a $115,000 pre-paid card, good for 25 hours of flying on NetJets-owned planes. CitationShares now sells a 20 hour card for $96,000. Delta AirElite, a subsidiary of Delta Air Lines Inc. that does some charter business, sells a 10-hour card, which starts at $43,900. In most cases, cardmembers and membership-program users can specify the type of plane they want for each trip, whereas fractional owners typically must use the plane they partly own.
Adam Bold, chief executive of the Mutual Fund Store , says commitment-free programs have hooked him on flying privately. At six-foot-six, Mr. Bold started developing back problems from cramming himself into the tiny regional jets he was flying with commercial airlines for about 20 days a month. "To not have to spend three hours in an airport, that's great," says Mr. Bold. But he says he wouldn't consider traditional fractional ownership because he doesn't think it is a sound investment. Instead, he uses debit-style program offered by New York-based charter jet broker Blue Star Jets. He says the program is flexible, doesn't tie up too much capital, and lets him avoid owning something that could decline in value over time.
The number of private jets flying in the U.S. has grown 40% in the past five
years. As of last month, there were 3,968 fractional jet owners, up 30% since 2001, according to AvData, an industry tracker. But this figure, which doesn't include cardholders or membership-program users, has been flat since 2002. During the same period, membership-card sales have shown strong growth, with an estimated 5,000 sold since they were introduced five years ago, says David Strauss, an aerospace industry analyst with UBS Investment Research. He estimates their sales have grown at least 25% in the past year.
Companies are also introducing incentives to encourage participants in their lower-tier card and membership programs to use their flying hours in low-demand times. Flexjet, a Dallas-based fractional jet ownership company, recently launched a card that includes up to a 25% discount for flying on off-peak days. OneSky Jets, based in Manchester, N.H., now sells a $100,000 pre-paid jet membership that promises discounts for purchasers who travel on less-busy days. The program also takes a cue from commercial airlines by offering cheaper hourly rates for the busiest routes (like Teterboro Airport, near Manhattan, to West Palm Beach International, near Miami) and charging more for flights booked at the last minute.
As more players enter the increasingly crowded marketplace, companies are also doing more to keep customers loyal. Blue Sky Jets just announced that starting this month, it will add a frequent-flier style program whereby customers earn points that can be redeemed for items like Rolls Royce car rentals and Coach handbags. Sentient Jets has a partnership with the Cleveland Clinic that makes it easier for members to book appointments at the prestigious hospital. NetJets plans a roster of high-profile events similar to those held at last week's Art Basel in Miami.
Some customers have decided that they need both kinds -- the high-end and the low-end -- of private jet ownership. Charlie Eitel, chief executive of Simmons Co., a mattress maker based in Atlanta, uses a one-eighth fractional owned jet with NetJets. He also has a Sentient membership service, which he uses to book corporate travel for his executives when they fly to meet clients, especially to remote places like Janesville, Wisc. They'll choose the type and size of plane based upon the trip. For example, if Simmons executives are traveling alone, they may use a slightly older model plane. If clients are traveling with them, they ask for a new plane.
Write to Candace Jackson at [email protected]
~
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