The Flee to Fractional
This week, I was on the Krow Knows podcast and one thing we talked about was fractional ownership.
You may remember a few months ago my deep dive into Kenn Ricci, where you got the history of FlexJet and learned a little bit about the fractional ownership industry as a whole.
Executive Jet Aviation pioneered the fractional aircraft-ownership model in 1986. The idea was simple: buy a share of an aircraft and assume that same proportion of its overhead and flight time. Owners never had to hunt for partners, recruit pilots or manage benefits. Instead, it was all handled by a third-party operator. The original offering was a quarter share, which is why every NetJets tail number ends in “QS” (many people mistakenly believe it stands for “Quality Service”). That quarter share covers one quarter of the overhead, one quarter of the pilot costs and one quarter of the available flight hours, with only a minor trade-off in departure speed.
Every major airframe manufacturer tried its hand at fractional ownership...Bombardier, Cessna and Raytheon rolled out in-house programs, convinced they could scale production by cutting out the middleman.
Surprise... none of the OEM programs still exist.
Today, you have the leader in NetJets, its closest rival Flexjet and a handful of smaller players. Yet, this is the fastest growing (and recently, only growing) segment of the market by a few key metrics.
Fractional: The Only Growth Area
There is no surprise that 2023 and 2024 were tough years for private aviation. It was tough for commercial real estate (a large user of private aviation), e-commerce, and many other consumer-driven segments due to the recovery from the pandemic.
For private aviation, there was one shining star: Fractional Ownership.
I asked my friend Trey Hunt, Director of Enterprise Sales at Wing-X to help me quantify the fractional growth over the last few years. This data is reflective of Business Jets in the U.S. Their data is interesting because it studies flight behaviors segmented by category. (They also have a weekly bulletin about macro activity that is super interesting).
Although cost per hour isn't a perfect metric, using "hours" as a proxy for demand is a good benchmark because it eliminates some aircraft size bias. As you can see in the chart above, the peak happened in 2022 and the cumulative hours rose ever so slightly in 2024 compared to 2023.
To decode the data, Part 91 is considered corporate or private owners who are flying aircraft they own. Part 91K is fractional aircraft, and Part 135 is charter aircraft.
Which leads us to our next graph...
Here you can see the only consistent grower since 2022 has been fractional, where Charter and Part 91 flying has decreased in both 2023 and 2024 collectively.
Part 91 flying is retesting 2019 levels, where the Part 135 charter is still holding strong.
If you look at Compound Annual Growth Rate (CAGR) for 2019 through 2024, it shows another interesting layer.
- Part 91 CAGR: 1.45%
- Part 91K (Fractional) CAGR: 8.38%
- Part 135 CAGR: 6.01%
Which leads us to our final visualization, which is the percentage of the total hours by type of flight. Here, we see Part 91K/Fractional taking market share away from both Part 91 and Part 135. Let's explore why.
The Convergence of Two Markets
In fractional, I believe we are seeing a convergence of two primary buyers.
The UHNWI Buyer
This is their first time owning any piece of an aircraft.
These buyers are members at Soho House and various Country Clubs, and have expectations of consistent user experience. They are looking for the highest levels of safety and training, and are willing to pay a premium.
Kenn Ricci has said the average age of their customer continues to go down, as generational wealth shifts and even "new money" is attracted to the fractional model.
I have a friend who owns half a G650ER with FlexJet. He would be what one would consider "new money." He has a net worth with three comas in it, and he could definitely afford a whole aircraft. He told me that he didn't want to have to deal with the pilot hiring, the hangar, the insurance, and all the other things that come along with aircraft ownership. He's aware that he's paying a premium per-hour cost when you calculate all of your hidden costs, but to him it was worth it.
He's a millennial, for whatever its worth.
Corporate Flight Departments
The second market is the true corporate fliers. For those that are unaware, most household brands have a Corporate Flight Department, which handles all the private travel of top executives. Pilot hiring, flight attendants, maintenance, hangar, etc. are handled by a team of people that work for the company.
Many of those are ceasing to exist because the fractional providers are pitching their services as an alternative to the flight department. To name a few, GE, Aetna, Bristol-Myers Squib and L Brands (Victoria Secret and Bath & Body Works) have shut down their flight departments to move to fractional.
My friend Greg Sydor from Guardian Jet shared with me some data they have collected on the shift of big corporate flight departments to fractional. It gets pitched to the CFO, who loves to save money. The hourly cost may look the same, but when you look at the high-usage of many corporates combined with the real asset depreciation, fractional isn't always the best long-term move.
So who is fractional for?
I think fractional serves an interesting place in the market. The charter people will tell you that fractional makes zero sense and that its very expensive for the same service. Whole aircraft ownership proponents will say the fact you can't leave in 3 hours on a fractional is a deal-breaker. Then, when you hit a certain amount of hours it makes sense to purchase an aircraft all things being equal.
I think the truth exists somewhere in the middle.
When you consider total-cost-of-flying, fractional can be expensive when you add up the total hourly costs and monthly membership fees and the real depreciation over the life of your contract.
It's capital light, meaning you don't have to figure out how to pay for a $30m jet. That's a pro.
The equipment is almost always like-new, which gives a great user experience. That's a pro.
You get a consistent experience, so you know what is going to happen.
That said, its not all roses and candy. There are hiccups in processes and there are dropped balls. Aircraft have mechanical issues, or a pilot has a bad day. There's a very large company called Aviation Portfolio who built an entire business on keeping fractional providers accountable.
If you're looking to purchase a fractional, you can book a free 15 minute phone call with me and we can talk through if it makes sense for you or not.
Until next week,
Preston Holland
P.s. Send this to your friends who own a fractional. Tell them they're not unique anymore, and a lot of others are doing it! Then, remind them to bring you on the next golf trip in their Praetor 500 or Citation Latitude.
