Fractionals in the Coporate World

[GVFlyer]

I was under the impression that the fractionals make their money by selling airplanes not by flying people around. They pay a pretty hefty price to get companies to provide suplimental lift on a regular basis for them...

...From what I understand Net Jets and the other fractional operators are happy if they just break even on air ops. The real bread and butter of that industry is the buying and selling of airplanes. What will be interesting to see is what happens in the long run. Can fractioanls continue to make money that way or will they eventually have to streamline their air ops to be profitable? It will be interesting to see as the industry matures...

Warren Buffett's 2005 Letter to Investor's would seem to suggest otherwise.

In flight services, earnings improved at FlightSafety as corporate aviation continued its rebound...

Operating results at NetJets were a different story. I said last year that this business would earn money in 2005 – and I was dead wrong.

Our European operation, it should be noted, showed both excellent growth and a reduced loss. Customer contracts there increased by 37%. We are the only fractional-ownership operation of any size in Europe, and our now-pervasive presence there is a key factor in making NetJets the worldwide leader in this industry.

Despite a large increase in customers, however, our U.S. operation dipped far into the red. Its efficiency fell, and costs soared. We believe that our three largest competitors suffered similar problems, but each is owned by aircraft manufacturers that may think differently than we do about the necessity of making adequate profits. The combined value of the fleets managed by these three competitors, in any case, continues to be less valuable than the fleet that we operate.

Rich Santulli, one of the most dynamic managers I’ve ever met, will solve our revenue/expense problem. He won’t do it, however, in a manner that impairs the quality of the NetJets experience. Both he and I are committed to a level of service, security and safety that can’t be matched by others.

GV

 

[h25b]

I think this has, and will continue to be their biggest challenge. In their beginning their cash cow was in fact the sale of shares. Actual operations is not a profitable business at all and uncle Warren is not in this as a hobby. Ask any charter operator how easy it is to make money.

I'm still waiting to see how the big payraises end up affecting the bottom line.

 

[sydeseet]

Did you see our balance sheet? Neither do we.

True, but NJ was started as and remains a for-profit-enterprise. The profit may be elusive, if at all possible long-term, but is the end goal.