Finding your way in a forest of options

Buyers' Guide » 2011
if they can, operators will charge as much for an empty leg as for a chartere
Friday, July 1, 2011 - 3:00am

Is economizing the new normal? Certainly not for all users of business aviation. But evidence from several quarters suggests that many private-aircraft travelers, including experienced owners who fly frequently, are placing cost higher on their list of considerations.

Take one long-time NetJets fractional-share owner who has often upgraded his Falcon 2000 share to a Gulfstream 500 when traveling to Europe. Recently he flew first class from New York to Paris on Air France, a $16,000 ticket. Why? Primarily for the lower cost, he said, but also because the service Air France provides its first-class passengers met his comfort and privacy needs. This frequent business jet traveler can still well afford to take a NetJets Gulfstream to Europe, which would have cost him about $178,000. "But, you know," he said, "that is a big difference in cost."

Some air charter operators suggest that other customers are also thinking more about price. "Since 2008, there's been a shift away from quality to price," said Dan Drohan, chairman and CEO of charter/management company Solarius Aviation in Burlingame, Calif. "It's now very much a price-driven market."

Consultant James Butler, CEO of Shaircraft Solutions in Bethesda, Md., agreed. "Charter users are flying less and are more focused on cost than ever before," he said. "And people are taking a more jaundiced view of fractionals, particularly with regards to the resale value of shares."

Andrew Richmond, CEO of San Jose, Calif.-based TWC Aviation, an aircraft management company, said he has seen some owners relocating their aircraft to Oregon to avoid taxes in California. "They are accepting the loss of the charter revenue they could get here, which has gone down," he explained, "because they can make up the difference in lower taxes."

And there's the group of business jet owners who spoke off the record to Business Jet Traveler's editors earlier this year. When asked what factors they consider when selecting an FBO, their unanimous response was "fuel price."

The View from Above

What do these stories have to do with the options available to users and prospective users of private aircraft? From 45,000 feet above the trees, not a whole lot. The "forest" of options available to travelers wanting to fly privately still looks about the same as it did a few years ago.

As with real estate, these options fall into two main categories: rent and own. Civil aviation regulations in the U.S. and around the world dictate this. (If you're unfamiliar with these options, we suggest you look at the table on page 7, which will give you a quick overview.)

When you get down to tree level, however, details emerge and economizing starts to take on greater significance. Take charter, for example. Most people who enter the world of private air travel do so via charter, because, dollar-for-dollar, mile-for-mile, it is the least costly way to fly privately on an infrequent basis. It's also the most advertised way to fly privately.

Using air charter means renting. You might pay by the hour or by distance or by some complicated formula that incorporates those factors. You might be charged numerous add-ons, such as for fuel, catering, positioning, landing, ramp use or overnight parking. Or you might find a company that offers flat-rate charter. It is all still renting.

Booking a charter flight is much more complicated than buying an airline ticket. That's where air charter brokers happily come in. And that's also where caveat emptor becomes, well, the savvy private air traveler's caveat. There are Web sites that seem to offer online booking of air charter flights; many of these belong to charter operators themselves and others to brokers. Try booking a flight online and eventually you'll be directed to a telephone and a real person. Most customers prefer it that way, and you should, too.

The Broker/Charter Operator Love/Hate Relationship

Brokers are like real estate agents, except they don't need to go through any training or pass any exams. Brokers aren't regulated, though many in the industry think they should be. Brokers can be 30-year industry veterans who can tell you the differences among a Citation III, IV and VII–or college dropouts with little but a laptop, a cell phone and a burning desire to make big money.

Good brokers will provide valuable information, find the best aircraft and charter operator for your needs, coordinate all aspects of the flight, be ready to find you a replacement flight at a moment's notice, give you a transparent invoice and charge you a reasonable fee, about 5 percent of the charter bill. The bad ones–let's just say there are scary stories about them. Caveat emptor, indeed.

Brokers are both a blessing and the bane of charter operators–a blessing because they bring in much business that operators can't or don't try to get themselves, a bane because they can find clients at much lower cost than the operators can. If operators could get all the business they could handle without brokers, they would do so; but few have figured out how to do this well. In fact, many charter operators also broker flights.

Back to economizing. If you book directly with a charter operator, you can probably get a lower price than if you use a broker. But charter operators do discount their prices for brokers who give them business and the brokers may pass on some of their savings to you. This price may still be higher than what you could get directly from the charter operator, but having the broker as your agent could be worth the extra cost.

Of course, your travel needs–destination, schedule, number of passengers, baggage requirements and, of course, budget–will dictate the size and performance capability of the airplanes and helicopters you request. Quite likely, several aircraft models could suit your trip in various ways, some better than others, and their charter costs will likely differ significantly. So having a knowledgeable person advising you–a good, honest broker, for example, or perhaps a trusted consultant or an aviation-savvy friend–could save you a barrel of money.

Cheaper Ways to Travel?

What about empty legs, those charter airplanes flying passenger-less on their way to or from a paying charter? Theoretically, empty legs should cost less than booking a standard one-way charter, because someone else has already paid the roundtrip cost of the one-way charter leg that generated the empty one. But if they can do it, operators and brokers will charge the unwary traveler as much for the empty leg as they do for the originally chartered leg. In a sense, operators are double dipping, because anything they get for an empty leg is gravy. Hey, that's business.

Another reason for more costly empty legs could be supply and demand. According to some charter operators, fewer empty legs are available now than previously. This could be because flying is down, or operators are becoming more efficient in booking these legs, or because the legs are getting filled more quickly by brokers, Web sites and other charter operators. Another reason could be the emergence of chartered airplanes without fixed bases. Instead of "coming home" empty after a charter (and thus creating an empty leg), the airplanes and crews overnight at the ­destination airport or reposition to other airports close to busy charter markets.

Brokers and charter operators can find empty legs for you. You can find them yourself on many Web sites. If you do, how will you know this is the aircraft you need and an operator you'd want to fly with? If your answer is "I don't know," don't book an empty-leg charter, or any charter. You need help or more experience.

A few brokers and charter operators have offered per-seat prices on business airplanes over the years. From a regulatory standpoint, there are various ways to do this and the business models can become complicated. Linear Air of Concord, Mass., one operator that did this successfully with single-engine Cessna Caravan turboprops for several years, has now shifted to plain-vanilla air charter with Eclipse 500 very light jets. A handful of companies, including Greenjets, a broker in West Palm Beach, Fla., is offering a per-seat option now. While such operations may be safe, legal and seemingly successful, it is difficult to know how long they will be around.

If you're considering travel with a per-seat company, be sure it fully discloses whether it is a charter operator or a broker, and find out details about the airplanes and crews. And make sure you'll get back any membership fees or other prepayments if the company shuts its doors.

When You Charter a Lot

As you gain more private-flying experience, you may want to look into block charter with an operator you know and like. Block charter usually involves a down payment, a reduced hourly rate and a customized agreement. These agreements work best when the operator has several aircraft of the model or models that fit your needs and you make regular trips that you can schedule ahead. Of course, the operator will be happy to accommodate your ad hoc trips, too, but there's always the chance he'll have to cover a trip by engaging another operator.

Jet cards are a more generic and formalized form of block charter. This is true whether a charter company, fractional-ownership firm or even a charter brokerage offers them. (A brokerage would have to contract with charter companies for the lift.) While cards offer various features and flexibilities, the big difference when compared with block charter is cost. Where block charter typically provides a discount to buyers for the commitment and down payment they make, jet cards usually cost more than straight charter. What you get for the premium is preferential treatment and other perks. ("Oops, I gave you my jet card instead of my black card.") Of course, block-charter customers also get preferential treatment and perks…or they should.

Despite their relatively high cost, jet cards have proved popular among travelers who prefer not to make big financial commitments and want the peace of mind of flying with a known entity, such as a prominent fractional or charter company. Before the 2008 recession, a lot of companies launched jet cards, but since then some cards have faded away and few have been introduced. A small number of charter operators have told BJT they are considering jet cards but are not ready to offer them yet.

Moving Up to Aircraft Ownership

Fractional-ownership companies have had their own hard times, as airplane values have plummeted, owners have stopped renewing and potential new owners have shied away. The majors are holding on. Berkshire Hathaway's NetJets has even placed two substantial orders for new airplanes in the last few months, though its chairman and CEO David Sokol resigned in late March, amid controversy not related to NetJets. So while the fractional business model is not on a steep upward trajectory now, it will likely be around for a long time.

Fractional is ownership, because you actually buy a share of an aircraft. You can purchase several shares and even a whole aircraft, if you care to. Fractional also involves aircraft management, because you pay the fractional provider to take care of all aspects of owning and operating the airplane for you, including hiring, training and managing the pilots, dispatching and tracking flights and handling maintenance.

A key factor with a fractional program is that all other owners in it, even those who don't have a share in the aircraft you own, may fly on your airplane. Of course, you get to fly on all the other airplanes in the fleet, too. In fact, depending on the size of the fleet and scheduling, you may never actually fly on the airplane you partly own. But that does not matter because all the airplanes usually look and are equipped the same, more or less.

Fractional ownership, whole ownership and partnership arrangements are alike in that large sums of money change hands, several contracts need to be signed and the process requires time and at least several and sometimes numerous attorneys, accountants and consultants. Taxes, laws and financing all play a part, influencing decisions about where the contracts are signed and where the aircraft is based. Other basic decisions involve such matters as what aircraft model to buy, whether it should be new or used, what personnel you may need to hire and what modifications to make to the aircraft.

Moving into aircraft ownership, whether after long experience with charter or from a dead start, requires solid advice from aviation professionals in many disciplines. You know the adage about defendants who act as their own lawyers; people who represent themselves when buying a fractional or whole aircraft also have fools for clients.

As one aviation consultant explained, "A lot of first-time aircraft buyers have the idea that buying an airplane is like buying an expensive automobile. They think that once they select and buy the car, they can park it in the garage and there really won't be a lot of ongoing costs, except when they take it out to drive on a sunny day. That's not the way it is with any airplane. There are big recurring costs, even when you don't fly."

In the forest of business aviation options, how do you find the tree that's best for you? Talk to friends who use private aviation, charter brokers, aviation consultants and representatives of the aircraft manufacturers. Go to trade shows, such as those organized by the National Business Aviation Association, the European Business Aviation Association and others. Research online. Continue to read Business Jet Traveler. And don't forget the private air traveler's caveat.

 

 

CHARTER BROKER OR CHARTER OPERATOR? 

 

 

How to tell the difference

 

Both charter brokers and operators have Web sites. Often it isn't clear whether a company is a broker, an operator or both.

One way to determine this is to look for a note on the company's home page, often in small print at the very bottom. The Department of Transportation requires U.S. charter brokers to put language on their home pages that clearly indicates that they are brokers, not operators. Look for such terms and phrases as "charter brokerage," "ABC Company does not own, maintain, charter or operate aircraft," "ABC Company is not a direct or indirect air carrier," and "ABC Company arranges flights on behalf of clients with FAR Part 135 air carriers that exercise full operational control." Such phrases may also appear elsewhere on brokers' Web sites.

Note that charter brokers that don't do business in the U.S. aren't required to list such information, although they might.

Charter operators don't have to list information that proves they are bona fide operators, although it is to their advantage to do so, if only to differentiate themselves from brokers. Some operators might say somewhere on their Web sites, "ABC Company is a Part 135 charter operator," or "ABC Company holds charter certificate number 12345678," or other such language. This is not always easy to find. If it's not on the home page, try looking under "About Us," "Company History" and "Contact Us." The fact that a charter company is also an aircraft management company is a good clue that it is a charter operator.

Note that non-U.S. charter operators may indicate that they have an Air Operator Certificate (AOC), which is a requirement to operate an aircraft. Therefore, a company with an AOC is a bona fide charter operator, although it may also do charter brokering.

 

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“Let me be straight with you. What I'd rather have is an airplane. We just had a third kid. I don't like flying commercial. I like to take my family to Hawaii. When I go east, I'd like to have pilots I know. ”