Availability and Pricing

There are a lot of factors affecting the price of a charter flight, but the primary is the availability of the jets that meet your specific needs at the time and place of your departure. As an example, let’s say you require a non-stop flight from Aspen to New York on a jet which is 10 years old or newer and has WiFi with 8 passengers and a bunch of ski equipment and bags. The entire Worldwide business jet charter fleet consists of about 4,200 jets, only 930 of them are 10 years old or newer, 510 are SuperMid or larger which would be required to make it non-stop and accommodate the baggage and # of passengers, 126 are based in the US and about 50 of those have WiFi capabilities.

An average SuperMid jet hourly cost to the owner is around $3,200 not including the cost of the jet which in this case can run between $75k and $400k a month depending on the model, year, etc. The average charter hourly rate is around $5k per hour. The flight from Aspen to New York is about 3.2 hours of flight time which costs you the charter customer about $16k but this assumes the aircraft has NO repositioning costs. If the jet is based in New York and is repositioned to pick you up in Aspen, then you would be expected to pay an additional 4.5 hours of flight time which increases the cost to $38,500 and even that assumes the jet is based at the exact airport as your destination and won’t have to reposition at the end of the trip. If you are using a broker for your flight, the average commission can run between 10% and 20% of that total and we still need to add the U.S. Federal Excise Tax (FET) of 7.5% and the Segment fee of $4.10 per passenger per leg. Since you are flying into Aspen with ski equipment, you can also expect snow which means you may get hit with a de-icing fee which can run as much as $5k. This leaves a spread between about $17 and $50k depending on where the nearest available jet is located in comparison to Aspen.

Availability changes by the minute as customers book, unbook and change itineraries which in turn changes where and when the jets will be available. There are typically 4 types of availability: 1. Home Base – This is where the aircraft is typically hangered, crew reside and routine maintenance is performed. It is the least expensive place for the jet to sit idle waiting for its next trip. 2. Transient Availability - is triggered when a jet is sitting idle away from its home base and often occurs when another charter customer or owner will have an extended trip such as a California to Florida where they will spend a week and return. During the time the jet sits in Florida, it is available for charter. 3, Empty Leg Availability - occurs every time the jet moves without passengers which typically happens when a jet has to return to its home base after dropping off passengers. 4. Not Available – The owner or another paying charter customer is using the jet, it is down for maintenance or the crew is in training or otherwise not available. Prijet.com automatically searches through all of this availability information when you add your trip here: PriJet.com and hit “calculate”. If you are a PriJet Premium member, we will automatically check every new piece of availability information automatically to see if there might be any matches to your trip and request a quotation for you.

Other Factors

Private jet charter supply doesn’t move the way it would be predicted with typical economic models since much of the industry is comprised of business jets whose primary purpose is to fly the owner with a secondary purpose of offsetting some expenses for the owner through charter. To put this into perspective, imagine if you are the owner of a jet and have a family vacation over the Holidays; what financial incentive would it take for you to give up your jet for a charter flight. Or, maybe you are an owner who uses the jet primarily for business and have several important meetings. Are you going to give up your jet because a charter customer would like to use it?

Why aren’t businesses simply buying jets to offer into the charter market to meet this growing demand? Typically charter prices are about 80% of the cost to own and fly it. You heard me correctly, a charter flight typically costs more to fly than you are paying. Here’s why: If you purchase a $20 million jet today it will likely depreciate in value an average 50% over 5 years. Using the example above for the SuperMid cabin jet which costs $3,200 per hour to operate and charters for $5,000 per hour and a monthly loan payment of $200,000, you would need 111 Revenue hours of flight time to make your loan payments and cover the direct costs of flying the jet. NetJets sells 800 hours per jet with 4 pilots each which is close the maximum number of Revenue hours a private jet can handle. To Achieve more than 1000 hours you would need 1 to 3 additional crew members and the jet will be down for maintenance 1 month out of the year which always puts profitability out of reach since logistically managing more than 100 hours a month is nearly impossible since you will certainly have a percentage of empty legs, unanticipated maintenance, bird or lightning strike or customers who default on payments.

I know there are some companies claiming to be making money purchasing jets and chartering them out, but they will often use EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) as their calculation for profit which can be a useful measure for an investment in real estate where you are paying off an appreciating asset with a depreciation schedule of 27 years, but aircraft lose half their value in just 5 years and interest expense on a $20 million jet at 5% Interest will run over $200k a month on a 10 year note. It’s the same as saying that you are making money if you get all the jets for free. Positive EBITDA only means that you are losing less money than if you had negative EBITDA.

“The worst sort of business is one that grows rapidly, requires significant capital to engender the growth, and then earns little or no money. Think airlines. Here a durable competitive advantage has proven elusive ever since the days of the Wright Brothers. Indeed, if a farsighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favor by shooting Orville down.”

— Warren Buffett, annual letter to Berkshire Hathaway (owner of NetJets) shareholders, February 2008.

Why in the World would anyone own a jet and charter it out at less than the cost to fly it? Owners get a few advantages; 1. An accelerated tax depreciation schedule to offset income or profits from another business. 2. They can offset some of their expenses and reduce their overall costs to own the jet. 3. Would you trust your car to start if it hadn’t run in a month or two? Now imagine your life depended on it running every time. Keeping a jet and crew routinely flying, even when the owner doesn’t have a need for it keeps it running better and the crew current which makes for safer flights.

Wholesale Implications

NetJets got its start selling in increments of 1/4th shares of jets, but as time progressed they began selling 1/8th and now you can buy the equivalent of a 1/32nd share with a Marquis Jet card. The problem with 32 people per airplane is that a large portion of those owners will all want to fly on those same high demand (peak) days. Where do the Fractional programs turn for those peak periods…? You guessed it, the charter market which further exacerbates the charter supply problem. It’s not just the Fractional Programs; every Operator, Broker and Jet Card program are all trying to purchase the limited number of jets positioned in certain regions of the country during peak days.

How does all this Affect Charter Pricing?

Charter prices are heavily subsidized by the jet owners and the only way to grow supply is to grow the owner market or raise prices 20% to 40% which would make the business case for owning and chartering jets viable. The available supply which is subsidized doesn’t increase quickly enough to match charter demand cycles and especially not during peak travel days which is why you can see sharp spikes in prices at these times.

Now imagine you booked a charter for your family Holiday trip and on the day of the flight the aircraft has a mechanical and is not able to fly. Jets are available, but only in the places where everyone is flying too such as the Rockies in the Winter or the Caribbean in the Summer which is where you are headed. It’s highly likely that you will pay more if you are forced to find a jet at the last minute and it’s not likely to be as high quality as the one you booked in advance.

Recommendations

First and foremost, always ask before you book “What happens in the event of a mechanical?” You need to know who is responsible for any increase in costs associated with a replacement aircraft as well as a guaranteed response time. Anyone can guarantee a replacement jet in a week, but it could get very expensive to guarantee one in 4 to 6 hours. Second, you should always get a second opinion and on each trip. Maybe an empty leg matches your trip and your Broker is not telling you but instead charging you a full rate and keeping the difference. The only way to know for sure is to always have a competing quote and PriJet Premium members get both competing quotes and automatic notifications of changing availability.