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JETNET - Business Jet Market Trends

What are the latest trends in the fractional and jet card business jet markets? These two segments generally represent entry-level users of Business Aviation who sometimes seek advancement to whole aircraft ownership. In addition, many flight departments utilize fractional shares to supplement lift demand on their own aircraft.

Mike Chase   |   5th October 2014
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Mike Chase Mike Chase

Mike Chase has thirty-five year's extensive global managerial experience in marketing,...
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By Michael Chase & Marj Rose

In this month’s JetNet Know More feature, we look at the fractional and jet card business jet market trends. These two segments generally represent entry-level users of Business Aviation who sometimes upgrade to whole aircraft ownership. In addition, many flight departments utilize fractional shares to supplement lift demand on their own aircraft.

Overview

The Business Aviation Market is driven by strong economic activity, corporate profitability, wealth creation, and business investment. The typical ownership types and the number in operation breakdown for both Business Jets and Business Turboprops, as depicted in Table A, are sourced from JETNET.

It is interesting to see that Fractional aircraft make up just 4% of the worldwide business jet market today. In years past, this segment substantially impacted the OEM’s business jet forecasts. But new aircraft orders from Fractional providers, as with the rest of the market, have shrunk over the past several years.

The typical candidates for jet cards and fractional participation are either businesses that do not have their own flight departments, or are private individuals or corporate flight departments that need additional lift but cannot justify the cost of acquiring an additional aircraft.

TABLE A

WORLDWIDE FLEET

OWNERSHIP TYPE BUSINESS JETS FLEET % BUSINESS TURBOPROPS FLEET %

Wholly-Owned* 18,679 94% 13,892 97%
Fractional 716 4% 106 1%
Shared* 437 2% 294 2%
Total 19,832 100% 14,292 100%

* Whole represents one owner; Shared is two or more owners, but is different from Fractional.

Source: JETNET; In-Operation as of September, 2014.

Table B, meantime, separates usage based on a typical annual range of hours of each type of ownership. These usage hours present a ‘rule of thumb’ estimate of the typical user. The specific US regulation for each type has been included in the table, but the hours of usage are not mandated by these regulations. Other countries follow similar regulations.

TABLE B

BUSINESS AVIATION OWNERSHIP TYPES

TYPES USAGE - ANNUAL US REGS

Whole or Shared* 200+ Hours** FAA Part 91
Fractional 50-200 Hours FAA Part 91K
Charter 25+ Hours FAA Part 135
Jet Card 25-100 Hours FAA Part 135

* Whole represents one owner; Shared is two or more owners
** Average hours per year are 400

Brief History of Fractional Ownership

The concept of aircraft fractional ownership was introduced in 1986 by Netjets when just three shares in a single aircraft were sold. Bombardier FlexJet followed NetJet in 1995; Raytheon Travel Air in 1997; Flight Options in 1998; and Citation Shares in 1999. Avantair was founded in July 2003 as the exclusive fractional provider of the Piaggio Avanti aircraft and in February 2007 became the only publicly-traded stand-alone fractional operator in the industry. Flight Options and Travel Air merged in 2002 to become Flight Options LLC. Citation Shares became Citation Air in 2009, and Avantair ceased operations in June 2013.

Directional Aviation Capital completed its acquisition of Flexjet from Bombardier for about $195 million in December 2013, along with an agreement to buy up to $5.6 billion in Bombardier aircraft. Directional confirmed its firm order for 115 Bombardier aircraft (including 25 Learjet 75, 60 Learjet 85s, 20 Challenger 350s and 10 Challenger 605 jets). This firm order, which was increased to include 30 extra Learjet 85s, is valued at $2.4 billion. The order also includes options for up to 265 more aircraft, pushing the total value to $5.6 billion.

With the closing, Directional Aviation Capital adds Flexjet to its growing portfolio of Business Aviation companies, including one-time rival Flight Options, along with Sentient Jet Cards and Sentient Jet Charter. As part of the sale, Flexjet partner, Jet Solutions’ stakeholders will buy the remaining portion of that company. Jet Solutions (49% Bombardier and 51% US stakeholder-owned) provided Part 135 charter services to Flexjet. The strategic relationship between Flexjet and Jet Solutions, at least for the near term, is expected to continue.

Initial plans call for Flexjet to maintain its current leadership, operations and branding independent of Cleveland-based Flight Options. The two fractional ownership providers now face the prospect of carefully positioning themselves in the market, with Flexjet remaining the premium, high-end brand, and Flight Options emphasizing its value proposition.

Directional now has a strong footing in the fractional ownership market, and is well positioned to compete against fractional giant NetJets.

Other, smaller fractional aircraft providers will focus on covering demand by carving out their niche in a particular region in the US (like Executive AirShare and PlaneSense). Their fractional models include utilizing small business jets (VLJ/Entry Level Jets) and/or turboprops to service targeted regional markets.

Benefits of Fractional

For those individuals or companies not requiring the use of an aircraft full-time, fractional ownership plans offer all of the benefits of private aviation, including on-demand transportation, consistently high service levels and an excellent safety record that reports zero fatal accidents, per Robert E. Breiling and Associates (which has been tracking business turbine aircraft accidents and incidents since aircraft introduction).

Fractional Programs that provide more than 16 owners per aircraft, including subleased shares that result in an ownership interest smaller than 1/16th (or 1/32nd for rotorcraft) must operate under either Part 121 or 135, per the March 2009 US Department of Transportation, FAA advisory circular.

Table C displays the number of flight hours flown by each operator’s fractional business jet fleet (included in these flight hours are jet card flights and dead-heading) for the years 2010 to 2013.

ANNUAL FLIGHT HOURS 2010-2013

BUSINESS JETS TURBOS

YEAR NETJETS FLEXJET FLIGHT

OPTIONS CITATION SHARES AVANTAIR*

  • 2010 318,350 67,915 58,137 42,289 62,500
  • 2011 330,292 64,633 61,506 56,942 66,133
  • 2012 324,980 58,496 56,820 45,960 71,276
  • 2013 331,674 63,336 59,812 46,757 13,458

* Flight Hours in 2011, 2012, 2013 estimated by fleet size/average utilization as Avantair declined to submit.

- PlaneSense, which operates 29 turboprops, and other providers declined to provide flight hours.
Source: Robert E. Breiling Associates

Exploring the Jet Card

In 2010, NetJets bought Marquis Jet, which sells flight time on private jets. Under the terms of the deal, Marquis became a NetJets subsidiary, and the deal formally united two of the biggest names in private jet travel. Marquis uses NetJets’ fleet to fly its cardholders to their destinations. A Marquis Jet flight card allows a customer up to 25 hours of flight time, with prices beginning at $149,900.

There are three Fractional providers that offer Jet Card options. However, they market the Jet Cards in different company names. Other than the Marquis Jet Card, Bombardier Flexjet (now owned by Directional Aviation) has a FlexJet 25 Jet Card program and Flight Options has JetPASS Select, while Sentient Jet has the 25-Hour Card. Avantair was also selling Turboprops Cards prior to bankruptcy. The list of eight Jet Card Providers displayed in Table D is provided by ARG/US and JETNET.

JET CARD PROVIDERS (as of beginning July 2014)

# NAME CITY STATE COUNTRY AIRCRAFT

1 Marquis Jet Holdings, Inc. (NetJets) New York NY USA 33
2 FlexJet 25 Card (Bombardier) Richardson TX USA 62
3 JetPASS Select
(Flight Options) Cleveland OH USA 63
4 Sentient Jet 25-Hour Card (Flight Options) Weymouth MA USA 0
5 Delta PrivateJets
Erlanger KY USA 37
6 Air Partner JetCard
Crawley West Sussex UK 0
7 TWC Debonair Jet Card
Van Nuys CA USA 26
8 Wheels Up
New York NY USA 19

Source: ARG/US & JETNET

The last column in the table shows the number of aircraft that could be used by each provider for either Jet Card holders, Fractional or Charter. Just how many jet card holders there are by each program is not reported, except for Marquis which mentioned in a 2010 press release that they had 4,000 card holders. Marquis Jet sees the addressable market as comprising 500,000 to 1,000,000 people in the United States (each with a net worth of $7.5 million or more). It additionally believes there are 50,000 to 100,000 businesses that are candidates for the Marquis Jet Card. Seventy-five to 80 percent of that business is leisure travel, and 20 to 25 percent is for business.

According to Marquis Jet Card, 80-85 percent of the card owners are 25-50 hour per year users. Those people will typically stay with Marquis Jet Cards for the duration of their flying life. Fifteen to 20 percent of Marquis Jet Card owners are going to fly more than 50 hours annually – thus Marquis sees many people graduating to the NetJets fractional program.

Summary

The North American aviation market is the largest and most mature of the global regions so it is no surprise that the Fractional and Jet Card segments are well established in the States. As the industry recovers and the global economy picks up, the level of interest in Jet Cards should increase, which in turn should spur an increase in fractional owners and eventually over flow into the wholly-owned aircraft segment. At least that is what we have seen in the past and speculate will happen again.

Other ownership options exist, of course - such as simply chartering aircraft, and we look forward to covering that segment in a future article. We also anticipate that the industry will continue to evolve, and with the ingenious solutions that history has documented as coming out of Business Aviation down the years, who knows what the next new business model will be to successfully meet the demands of private travel for business and leisure? Stay tuned.

Read more about: Jet Cards | Fractional Ownership

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