Charter vs. Fractional
|
This was originally published as a part of the intro sequence for my newsletter. If you want to receive all 7 days of insider tips and tricks, go to prestonholland.com and subscribe. One thing you've probably heard someone at the country club say is "My Netjets Share" or "My Netjets Card" and you've wondered what that means. Part 135 Chartering: Like Uber for JetsFor basis of your knowledge, when you fly in an on-demand charter (programs like Wheels Up, Sentient Jet, Vista Jet, Leviate, Jets.com, etc.), you are flying under Part 135 rules. This means, you're paying for the aircraft, the flight time, and the crew all in one transaction. There are some nuances here on operational rules but they're held to a generally higher standard of maintenance and safety. When you fly Part 135, you are required to pay 7.5% FET (Federal Excise Tax aka fun tax). The FAA defines flying Part 135 akin to hiring a taxi or an Uber. On-Demand Charter When chartering a jet, there are typically a few people involved in the transaction. First is the charter broker. You don't have to use one, but many do. These are your main point of contact and arrange the flight on your behalf, taking a margin above and beyond what the cost is on the flight. When they do this, they're also taking on the logistics planning in the event something doesn't go according to plan (which happens a lot.) Next, is the charter operator. This is the company that has operational control over the airplane itself. They hold the certificate, follow the rules and regulations, hire and pay the pilots, etc. The charter operator is ultimately the one carrying out the flight, the charter broker is just an arranger. You can bypass the charter broker and sometimes save money by going directly to the operator. Often times though, the operator will offer a wholesale rate to the charter broker and offer a retail rate to you the individual so you're not guaranteed to save money this way. The other nuance here is that if there is a mechanical issue and the trip cannot fly, often times the local charter operator doesn't have enough capacity to make it right. This will leave you up a creek, and you'll probably end up calling a broker anyways. The best part about on-demand charter is it is no commitment outside of that one trip. You don't have to go back to that operator or broker if you have a bad experience, and you can move your business elsewhere. There are a lot of sh*t brokers out there, since there's no regulation on charter brokering (crazy I know...) which is why its important to have a good one. I have recommendations just reply to this email. Jet Cards and Memberships Jet Cards and Memberships are just subscription fees for access to on-demand charters. For cards like Sentient Jet and a few others, they will "guarantee" a "lower" rate on a given aircraft type, like a light jet for instance. This means you will pay "x" per hour on a CJ3, Phenom 300, Lear 45, etc. What many of these cards do is they go source capacity in the marketplace for you and keep the margin, therefore incentivizing them to find the cheapest capacity they can find. In addition, with many jet cards and memberships, they require a sizable (like, $50k to $200k+) deposit. They get to keep that money in a money market account and get to keep whatever % that they can get risk free. There may be a monthly maintenance fee to maintain the card or membership as well. The other not great thing (and many people have learned this) is that if you put money on deposit with a shifty operator and they go belly up, your money is gone. Its almost never put in an escrow account and if the company goes your deposit goes. The last part is you're having to commit to a type of aircraft, regardless of if it fits your mission properly or not. Mission is defined as distance, speed, how many passengers are going, and personal preferences. All of this leads to many folks opting to skip the membership and just go the broker route. Here's some sample pricing on a Phenom 300 jet card I acquired pricing for subscriber for a few months ago. Phenom 300 Jet Card
Let's say you took 10 trips with a 3 hour average trip.
Fractional OwnershipThere are some distinct advantages to fractional ownership. Sometimes your blended hourly cost can be lower, and you get a unified experience. The larger companies (FlexJet, NetJets, PlaneSense) have what is considered a floating fleet, which means that the airplane-type you're a fractional owner in is usually not too terribly far away. How it works You have an initial capital expense in buying the fraction of one airplane. That means you own 1/8th of a real airplane that is out there, even if you never actually ride on it. (Netjets airplane tail numbers all end in "QS" which stands for "quarter share"). The advantage here is if you are buying for business, you can depreciate the airplane share. Most contracts are 5 years long, with a guaranteed buyback number at the end of the 5 year contract. There is real depreciation expense, sometimes as high as 40% in the contract. Its important to read the fine print! There is always a monthly management fee, which is proportionate to your share of the fixed expenses on the airplane (hangar, insurance, management, etc.). Then you have the hourly rate which is when you ride on the airplane. Almost always, that rate is lower on an hourly basis than if you were to on-demand charter. The proper way to calculate the "effective hourly rate" is to divide your annual management fee divided by the amount of hours you flew and then add that to the hourly rate. So if you flew 100 hours, you would divide the annual management by 100 and add it to the published hourly rate. Here's an example fractional cost I acquired for another customer. Phenom 300 Fractional Cost
Again, 3 hour average trip but access for 20 days, so 60 hours.
The disadvantage you have in a fractional is that you are locked into an airplane type. Let's say you want to take 10 people to Cabo for your birthday. Well, if you're a Phenom 300 owner with Flexjet, you are going to have to pay to upgrade and lose available time on your fraction. Most fractions have an hourly cap associated with them, and when you "trade up" (often called an interchange), the rate is 1.3-1.5x the amount of hours and costs more. Here's a handy chart! |