Charter or fractional: Which business model will best serve business jet providers?

12/07/2012 7:18 AM

08/08/2014 10:13 AM

Wichita’s single biggest business jet customer, NetJets, and Swiss charter operator VistaJet each placed record-breaking multibillion-dollar business jet orders this year.

What’s more significant than the size of their orders is their fundamentally different, and at times, competing, business plans, said Brian Foley, an aviation consultant with Brian Foley Associates.

“They both bet … a large fortune on two different business models for the future,” Foley said.

Whose solution will prevail? Foley asks.

In June, NetJets signed what it called the single largest private aviation order in history: up to 425 new planes from Cessna Aircraft and Bombardier valued at $9.6 billion at list prices.

The order includes up to 150 Wichita-built Cessna Citation Latitudes, 25 firm orders with options for 125 more.

NetJets, a Columbus, Ohio-based fractional provider of business jets, sells fractions of planes to buyers, similar to a timeshare.

Clients then pay hourly and monthly fees for the company to crew, fly and maintain the aircraft. Those who own larger shares can fly more hours.

NetJets makes money upfront by buying in bulk from manufacturers at a discount, then selling the fractions at retail prices.

Last month, charter operator VistaJet signed its largest business jet deal ever: a $7.8 billion order for up to 142 Global aircraft from Bombardier Inc.

VistaJet officials called it the single largest transaction placed with any manufacturer in the history of business aviation.

The planes will be used much like a limousine — taking clients from Point A to Point B, Foley said.

Costs are based on flying time, but the hourly rates can be high. Clients pay for blocks of charter hours in 25-, 50- or 100-hour increments.

“It’s a pay-as-you-go system,” Foley said.

NetJets and VistaJet are confident enough in their business models to risk billions, and both are valid and sound – and are working for them, he said.

But with such different models, how can that be? Foley asked.

He predicts each model will evolve over time and adapt with the market.

Different parts of the world have different tastes, and both companies will need to be flexible, he said.

“In my view, this means moving toward each other, particularly as they tailor their offerings to suit varying regional needs and tastes throughout the world,” Foley said.

Choosing one business model over the other won’t ensure success, he said.

Worldwide market forces will gradually compel the providers to meet in the middle with a hybrid charter-fractional model that Foley dubs “chactional.”

NetJets has taken a step in the charter direction by offering what it calls a Marquis Jet Card program aimed at charter customers.

And in China, the company’s focus is on helping owners maintain and operate their planes – and less on selling shares, he said.

VistaJet, on the other hand, may act more like a fractional ownership company at times as it evolves, Foley said.

Each must be flexible, he said.

“NetJets and VistaJet have taken different approaches but have similarly recognized a need for private air travel that is both worldwide in scope and under the auspices of their respected brands,” Foley said.

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