UBS Measures Fractional Provider Activity

[CL60]

AINalerts: September 1, 2005


At the end of June, UBS estimated the fractional churn average at 0.69, meaning 69 shareholders leave for every 100 that join. CitationShares had the highest retention rate at 0.11 (11 shareholders lost for every 100 that join), “primarily due to its rapid growth in recent years,” UBS said. NetJets followed with a below-average churn of 0.54. Flexjet at 1.59 and FlightOptions at 2.15 “are both losing nearly two shareholders for every one gained,” UBS said. “We believe fractional programs are losing shareholders at a high rate primarily because of significant declines in residual values; the advent of other less capital-intensive programs, such as [fractional jet cards]; and the expiration of initial five-year contract periods.”

 

[On Your Six]

AINalerts: September 1, 2005


At the end of June, UBS estimated the fractional churn average at 0.69, meaning 69 shareholders leave for every 100 that join. CitationShares had the highest retention rate at 0.11 (11 shareholders lost for every 100 that join), “primarily due to its rapid growth in recent years,” UBS said. NetJets followed with a below-average churn of 0.54. Flexjet at 1.59 and FlightOptions at 2.15 “are both losing nearly two shareholders for every one gained,” UBS said. “We believe fractional programs are losing shareholders at a high rate primarily because of significant declines in residual values; the advent of other less capital-intensive programs, such as [fractional jet cards]; and the expiration of initial five-year contract periods.”

I am sure the looming threat of a pilot strike or slowdown at NJA doesn't help with owner retention either... Good job keeping the front-line troops (who interface with the owners) happy!

 

[CL604DRVR]

Is that the full text of the article? I would be interested to know who paid for UBS to do the study.

It brings up several questions; are owners simply switching from one program to another or are they leaving. If they are leaving; are they leaving aviation entirely or buying their own aircraft. As I understand it if they sell out completely then they will have to pay Uncle Sam the recapture on all the depreciation they took over the term of their contract if they have not reinvested in a like property in six months.



I would also be interested to know the term that UBS looked at for the study. Was it several months or years? This churn rate could be cyclical at each company. Example: Flex is 10 years old and most contracts are 5-year contracts. If a bunch of contracts were sold in year one and renewed in year five then they are up this year and the owners may move on.


Despite my questions, the study is a bit alarming if you make your living in the fractional business and are planning a long-term career there.

 

[CL60]

Fractional Provider Activity

CL604DRVR,

I can't find my original AIN Alert however, the full article can be found on the AIN website.

I would be interested to know who paid for UBS to do the study.

As I understand it, the Union Bank of Switzerland publishes a periodical statistical report on this market which precludes the notion of a petitioner for the article.

are owners simply switching from one program to another or are they leaving.

The "churn rate," as far as I know, is the percentage of subscribers to a service that discontinue their subscription to that service in a given time period. In order for a company to expand its clientele, its growth rate (i.e. its number of new customers) must exceed its churn rate. I do not know if the UBS actually tracks a former owner's transportation proclivities in these reports however the point seems to be inconsequential to the statistical objectives therein.

I would also be interested to know the term that UBS looked at for the study.

The UBS periodical states that: “We believe fractional programs are losing shareholders at a high rate primarily because of significant declines in residual values; the advent of other less capital-intensive programs, such as [fractional jet cards]; and the expiration of initial five-year contract periods.”

Hope this helps,