- 15 Sep 2020
- René Armas Maes
- Aircraft Ownership
In this article, Rene Armas Maes assesses the travel needs of a fictitious company named ‘Corporation A’ to highlight the best way to undertake a Corporate Travel Profile Analysis.
Assume Corporation A uses several travel solutions to support its business, moving its executives, senior managers, middle-management, and other employees around the US. How could a Corporate Travel Profile Analysis help assess the efficiency of its current arrangement? Read on...
The travel solutions utilized by Corporation A include use of a Jet card from a trusted fractional ownership provider, ad-hoc charter, rail services between Boston and New York, and point-to-point scheduled airline travel services. As Corporation A expands its operations in the US, it needed to assess whether buying a business jet makes better financial sense, or if it should continue with its current solutions.
Corporation A is a fine-dining restaurant chain, with branches spanning from coast to coast. For the past three decades, the corporation has grown into a thriving empire of more than 50 locations, each one delivering consistently superb service and excellent food. Today, Corporation A’s annual transportation budget is close to USD $2m.
What’s the ‘Highest Value Creation’ Proposition?
The question of getting the highest value creation proposition to move its employees efficiently is of prime importance to Corporation A as it continues to assess potential market expansion opportunities.
To get a clear view of the needs of Corporation A, and to thoroughly evaluate whether a business jet financially makes sense, the assessment tool depicted in Figure A should be considered.
Figure A: Travel Evaluation Checklist
First, it’s important to undertake an historical ‘utilization analysis’ to determine any potential opportunity that an in-house flight department could have had to support Corporation A’s travel mission over previous years. It is particularly important to assess Corporation A’s monthly block-hour utilization trends:
In addition, review and analyze the data to understand current and alternative travel arrangements, including:
Then evaluate the effectiveness of cross-over between ad-hoc charter and scheduled airline travel options. There can be key efficiencies and savings on point-to-point airliner scheduled services and train services over other means of transportation.
Figure B: Corporation A’s Jet Card Program & Ad-hoc Charter Trip Assessment
Develop a Travel Cost and Benefit Analysis
Next, a Cost and Benefit analysis should be developed, and first include an evaluation of historical costs to help define the existing needs and challenges for Corporation A, including:
Then, review Corporation A’s strategic vision for the next three years and any expansion and business partnership goals (i.e., new restaurants) that could impact its transportation budget in the future. Information could include, but is not limited to:
Realistic benefits should be carefully considered in the unique context of Corporation A’s corporate goals and objectives. Answering the question, ‘Why would Corporation A use a business aircraft?’ What are its benefits compared to public transportation alternatives?
A high-level aggregation would includes six core benefits of business aircraft use, for example:
In a business model, several assumptions should be made, and include executive trip time reduction due to corporate aircraft schedule efficiencies, and the percentage of executive airfare costs that are still incurred due to corporate aircraft scheduling conflicts (among others).
The analysis should include:
Where benefits are not quantified, develop a relative scoring system to compare such elements. The analysis needs to provide assistance in validating the choice of aircraft, and a recommendation to a single course of action.
What if the Benefit is Greater than Cost?
If the quantifiable benefits are greater than the quantifiable costs, business aircraft utilization should be a “must” for Corporation A (or any company).
Among their net benefits, business aircraft improve door-to-door and en route productivity time. Business jets can accelerate a company’s time to market and revenues, while enabling it to stay ahead of the competition. Moreover, business aircraft can improve customer retention (enabling faster response times to customer needs). And a business jet is a strategic team deployment and mobility tool.
A number of intangible benefits also exist: A business jet can be a key talent-retention tool helping to reduce turnover and staffing levels, while improving employees’ quality of life (less time away for home).
Assuming, having undertaken the analyses, that there was a case for Corporation A to consider buying a new or pre-owned business jet or turboprop, the question arises as to which type of aircraft?
Buying business aircraft can be a daunting task, and we recommend using the Eight-Steps methodology to professionally evaluate a potential business aircraft purchase. In addition, define capital/expenditure investment and consider multiple solution scenarios that include whole aircraft ownership vs. maintaining the status quo.
What are the other possible options (i.e. an aircraft management company; joint ownership; making the aircraft available for charter when not in use)? Here, it is also vital to identify which non-executive employees would have access to the business aircraft.
Consider the Other Costs and Tax Benefits
Finally, assuming a business jet or turboprop makes sense for Corporation A, it is time to explore other opportunities that help reduce costs (see How to Minimize Financial Risk When Buying Jets), including tax benefits and accelerated tax depreciation, among others.
At every step of the evaluation process, the analysis needs to incorporate the input of employees and management to ensure that the final analysis best meets Corporation A’s needs.