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Private Jet Insider

Welcome to the ninth edition of Private Jet Insider.

If I had a dollar for every time I heard "Uber for Private Jets" I could almost afford to buy one. I can't think of a single pure-play private aviation company that led with "low cost" that has survived for any significant period of time, at least with that business model. In this article, we'll explore why that is, and if there is ever hope for private aviation to become more accessible to the masses (spoiler alert, I do see a path, but its a long way off.)

So what do we do until then? We trust good providers, and we grow our income or our businesses so that we can afford to fly private. The best way to do that, is by watching your costs which goes perfectly with today's newsletter sponsor...

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A touch of housekeeping...

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No one is democratizing private aviation

For those of us that work in private aviation, the phrase "democratize private aviation" can bring a bit of a wince. If you want to read a 103 page investor deck from Wheels Up circa 2020, you can read it here. It's very interesting to read it 5 ish years later.

But I want to point out one interesting slide (that ties in a bit to our conversation from last week about when you can afford to fly private.)

If you can't read the tiny text at the bottom, the TAM expanding footnote assumptions are super interesting. I'll make it larger for you here (I've added some sub points to help with reading):

1. REPRESENTS 2020 REVENUE
2. U.S. PASSENGER CHARTER MARKET PER IBIS; U.S. FRACTIONAL OWNERSHIP MARKET PER MAGNA RESEARCH; U.S. WHOLE AIRCRAFT OWNERSHIP MARKET BASED ON GAMA GLOBAL TURBOPROP AND TURBOJET DELIVERY VALUE, ASSUMING 66% APPLIES TO U.S. AND 80% IS FOR PRIVATE PART 91 USE PER WALL STREET RESEARCH AND GAMA
3. ASSUMED LEVELS OF PRIVATE FLYING SPEND:
   1. INDIVIDUALS WITH NET WORTH OF $1-5MM SPEND ~$11K PER YEAR
   2. $5-10MM SPEND ~$50-60K
   3. $10-50MM SPEND ~$180-205K
   4. $50MM+ SPEND ~$280-320K ACROSS ALL PRIVATE FLYING SPEND
4. ASSUMED LEVELS OF PRIVATE FLYING SPEND:
   1. CORPORATIONS WITH LTM [Last Twelve Months] REVENUE OF $20-100MM SPEND ~$130-160K PER YEAR
   2. $100-250MM SPEND ~$180-230K
   3. $250-1,000MM SPEND ~$180-230K AND
   4. $1,000MM+ SPEND ~$610-765K ACROSS ALL PRIVATE FLYING SPEND
5. ASSUMED LEVELS OF PRIVATE FLYING PENETRATION:
   1. 5% OF INDIVIDUALS WITH NET WORTH OF $1-5MM FLY PRIVATE, INCREASING TO 7% BY 2025
   2. 7.5% OF $5-10MM COHORT FLY PRIVATE, INCREASING TO 9.5%
   3. 10% OF $10-50MM COHORT FLY PRIVATE, INCREASING TO 12%
   4. 10% OF $50MM+ COHORT FLY PRIVATE, INCREASING TO 12%
   5. 100% OF CORPORATIONS INCLUDED IN TAM ANALYSIS

I have a lot of respect for Kenny Dichter, who sold Marquis Jet to NetJets (the now-foundation of their Jet Card program) before he started Wheels Up.

Wheels Up grew quickly, and even became a public company on the NYSE before hitting some turbulence in 2023 and restructuring a lot of their business model (and turning over a lot of their fleet) in 2024. The dream to make private aviation democratized and more accessible seems to have come to an end for Wheels Up. With their recent acquisition of Grandview Aviation, they're moving into the Phenom 300 and Challenger 300 platforms and moving away from the King Air 350's that we all know and love from bringing in the pickers on College Gameday.

But this isn't an article about Wheels Up, instead its about the challenges to truly making private aviation "democratized" and what some even say, "affordable."

These Private Jet Companies Don't Print Money

You would assume since the ticket prices are so high that charter operators are sitting on piles of gold like Scrooge McDuck.

You would be mistaken.

1,151 of 1,817 companies that are listed on the Part 135 database operate 3 or fewer aircraft. Remember what Kenn Ricci said about fractional operators, that it takes 150 airplanes to reach profitability. I'm not saying that these smaller operators aren't profitable, but to reach scale it takes a lot of cash and if you own your own fleet (like a lot of the household name operators, including Wheels Up), you have high capital costs. That's on top of the relatively razor-thin margins many of these companies operate at.

Why its so hard to make money operating aircraft

There are a lot of causes to the razor thin margins, but the two main drivers for an owned-and-operated fleet is operating costs and capex. I'll define Capex simplified of purchasing the aircraft, the real depreciation of that aircraft, and the maintenance. There are a lot of things to break on a business jet, and none of them are cheap. I had a client who had to replace a $45,000 valve for the potable water on their aircraft. The part was smaller than a standard sheet of paper.

The other cause is operating costs, and a large percentage of that is fuel. To put into perspective, I pulled from Aviacost 3 commonly chartered aircraft and calculated the percentage of the direct operating cost for each factor.

Fuel accounts for 39% to 45.6% of direct operating cost of these aircraft. If you've been to the pumps recently, you'll know that the cost of fuel is increasing. Large operators will purchase hedges and manage their fuel spend, but the fuel bill as a percentage of revenue is still very high. Say the Phenom 300 was chartered for $7,000 an hour, 15.4% of revenue is fuel.

The other main piece is reserves for maintenance. Jet fuel, while it burns cleaner than other fuels, still has carbon in it and therefore creates buildup (this isn't an eco-friendly newsletter, but carbon is real and it does create maintenance issues.)

Democratizing Aviation Requires Step-Change Reductions in Operating Cost

The beauty of the Wheels Up model was that they used King Airs, which could carry a lot of people with the efficiency of a turboprop engine. This reduced operating cost, allowing Wheels Up to pass along those savings to their members and thus expanding the TAM of private aviation. But the capex catches up quick on those aircraft when you're making thin margins on low total-spend. 10% on $10,000 is a lot less real dollars than 10% on $100,000.

So I propose to you that the only way to truly democratize private aviation is a radical reduction in operating cost.

I propose you do that is with fuel.

And no, I don't think we'll have battery powered airplanes (more on that in a second).

Science Corner with a Non-Science Guy

I'm going to try to make this a relatively dumbed-down section (mostly for me), but to lay some scientific foundation, let me explain the basic physics of flight.

There are four forces of flight:

Weight, Lift, Thrust, and Drag.

Weight is pretty self explanatory (and the main reason I don't believe batteries are in the near-future for fixed wing aircraft. Too much weight)

Most of the lift is generated by the wings.

Thrust is generated by some means of propulsion, on today's business aircraft that's a jet engine (a jet engine turns the prop on a turboprop).

Drag is the air resistance that tries to stop the movement forward.

Now that you're essentially an aero engineer...

Let me pitch you on what I believe is the only promising opportunity for step-function reduction in operating cost.

Hydrogen Electric Aircraft

When you think about what it would take to dramatically and drastically reduce operating cost, its going to take a revolution in aircraft propulsion. I believe Hydrogen has a chance to be that future, and I think its the only one that shows real promise.

Hydrogen's Distinct Advantages and Disadvantages

I told you this was going to be science corner for the non-science guy.

Essentially, Hydrogen Electric has much higher energy content by weight compared to Jet Fuel. Hydrogen produces about 33 kWh/kg compared to Jet A which has 12 kWh/kg. This makes a single kilogram of hydrogen roughly 3x more energy efficient than a single kilogram of jet fuel.

One of our four forces of flight is weight. Advantage: hydrogen. Today, there is a lot of extra equipment that goes on board that essentially zero's out the net benefit, but there is a chance for innovation here, which gives it a good chance.

If you combust hydrogen the same way we do jet fuel today, it burns much hotter and isn't as efficient.

But, when you convert it to electric energy and turn a propellor, it is 50-60% efficiency levels to turning the shaft (as opposed to Jet A which is 30-40% efficient).

Also, Electric motors also have significantly less moving parts than a fossil fuel engine, which in theory reduces the maintenance costs over time (see above for the other 60% ish of operating cost that is maintenance.)

Hydrogen power isn't without its downsides, though. First of all, to store it at a liquid it has to be stored at -253 degrees celsius. That's frigid. The other problem is it is about 3x less dense compared to Jet A. Remember drag? That will increase as you need more space to store the fuel.

Potential for Step-Function Reduction in Cost of Production

Today, Hydrogen is really expensive. Green hydrogen typically costs $4 to $7 per kilogram compared to around $1-$2 per kilogram for Jet A. We also have an entire infrastructure built around jet fuel. Replacing it isn't happening any time soon.

But, the exciting part is that there is opportunity for that cost of production to come down exponentially through technologies. We need some serious technological breakthroughs, but I don't see significant breakthroughs coming via jet fuel. We may get more efficient engines, or have percentage change, but we won't see exponential reduction in cost through traditional fossil fuels.

So how does this play out in the real world?

There's a company that's already getting there called ZeroAvia, and I listened to a podcast recently with their CEO. He was pointing out that Hydrogen retrofitted aircraft will have around a 50% useful range compared to their jet engine counterparts. So, if the range is 1500nm, it would be ~700nm if retrofitted for hydrogen. Their first platform is the Cessna Caravan, retrofitting a 600kw hydrogen-electric engine into the existing aircraft. They are also working on integrated designs with aircraft manufacturers to find a solution built around the unique needs of storing hydrogen.

But I can see a world in my lifetime where there is a surge of Regional Air Mobility (RAM) between city pairs of 500nm or so with PC-12 type aircraft running between them at highly efficient cost. Think, intra-California or intra-Texas, New England, or even some Southeast routes.

Private aviation isn't going to be democratized by an application or a technology that suddenly makes these operators more efficient. It's an inefficient and expensive activity, that has complex logistics, sunk costs, and big regulatory overhead that it'll never be "affordable" or "democratized" in its current state. It may become slightly easier to book a charter through an app, but its not going to magically become less expensive.

Unless you can reduce the cost by orders of magnitude. A 20% margin on a flight that costs the operator $1,000 to execute as opposed to $10,000 to execute makes it more affordable for the flier. The more affordable, the more people will be willing to pay for the time machine.

And that is the democratization of private aviation.

At least, that's the way I see it.

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Until next week,

Preston Holland

P.s. forward this to to your friend who owns a plane. In the body of your forward, put "I thought you might enjoy reading this. Oh also- when are we flying on your plane next?"

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