The Downside Of Most Fractional Ownership
Published on Monday, 25 June 2012 12:52 Written by TradersHuddle Staff
Boca Raton, June 25, 2012 (GLOBE NEWSWIRE) -- It is often said that if you fly between 50 and 400 hours per year, fractional ownership is the best way to go. As with most rules of thumb, there is some truth to this maxim, but your analysis should go much deeper.
Usage - Generally, if you fly less than 50 hours per year, the benefits of fractional flying may be outweighed by the capital commitment, the variable cost exposure and the long term nature of this investment. If you fly more than 400 hours per year, purchasing an aircraft may be the best option. However, just because you're flying between 50 hours and 400 hours per year doesn't mean that fractional is your best bet.
If, for example, you fly a lot of short hops- say 30 minute flights- you will lose almost half your flight hours because, under standard operating procedures, each fractional flight is charged at a minimum of one hour. Thus, your 50 hour investment may provide you only 25 hours of actual flight time. Providers sometimes will waive the one-hour minimum on a couple of occasions each year, but not always enough to make a significant difference.
If you plan to fly primarily on high usage or "peak" travel days, e.g., dates around New Years, the Super Bowl, Presidents' Day, Thanksgiving, etc., your fractional provider may not guarantee to fly you within the normal call-in time; nor will it guarantee to upgrade or downgrade you to a particular aircraft that best suits your needs.
Conversely, for trips on non-peak travel days, if you know well in advance when you're going to fly, the guaranteed call-in time is of little benefit to you; yet, the provider must factor the cost of maintaining that capability into its operational model. In this scenario, you would be paying for a program feature that you're not actually utilizing.
Similarly, if your home base is in or near a big city, it's likely that you are well served by a capable charter fleet. Thus, the advantage of not paying directly for repositioning aircraft to service your flights that comes with fractional ownership may be of relatively little benefit to you inasmuch as a charter operator also likely will not need to reposition aircraft for you. The same analysis may apply if you travel to popular and well served destinations.
If your flights are short, deadheading flights by charter operators (that return the aircraft to its home base) will be relatively inexpensive, again limiting the fractional benefit of not paying directly for deadheading. Indeed, if you fly a lot of same-day round trips, you may avoid deadheading charges altogether on charter flights.
Finally, fractional may not be right if your usage is likely to vary substantially over time. Most commitments are five years in duration and can be very costly for an early termination. If, for example, you have business in another city that requires you to fly frequently this year, you may budget for a fairly large fractional share; but if you sell the business in a year or two and so now won't be taking those flights, you may end up paying for a lot of flight time that you can't use. Or if you have a second home in a remote location, you may enjoy flying directly into and out of the small nearby airport; however, if you sell that home next year and buy a new home that's well served by reputable, safe charter operators, you may not need that fractional share at all.
Aircraft Models - Fractional providers are moving increasingly to limit the models of aircraft they hold in their fleets. If their aircraft don't suit your needs, fractional may not be right for you. Far too few fractional owners consider whether they are well served by the capabilities of their aircraft. While you may focus on seating capacity, you also should consider range, speed, luggage capacity, fuel usage, Wi-Fi capability, etc. If your fractional aircraft can't make your favorite trip without a fuel stop, if it won't hold all of your luggage for that golf or ski vacation, or if it can't land at or take off from the closest airports, you're probably not going to be very happy with your investment. If the aircraft models offered by your provider are either too small or too big you may not find fractional to be "just right." Indeed, if the provider has the perfect aircraft, but there are so few in the fleet that much of the time you're likely to find yourself flying on a different aircraft and thus may not be a very satisfied fractional owner.
Cost Certainty - If you require cost certainty, fractional may not be the way to go. Unlike hourly jet cards, for which generally you pay a purchase price and are guaranteed a certain number of flight hours, with fractional you bear much of the risk of operational cost increases and, more importantly, you bear the risk that the value of your aircraft (and thus your share) may change significantly over time, so that it's impossible to project with any certainty what your actual cost will be over the life of your investment.
Miscellaneous - A few other reasons why fractional may not be right for you:
- Purchasing a fractional share requires a substantial capital outlay. Thus, in comparing the cost of various options, you should consider the opportunity cost of committing to such a capital investment.
- If you purchase a share through your business, you likely will have to show it on your books as an asset, which sometimes raises the hackles of shareholders. However, charter flights, jet cards and the like may be reflected as part of your company's overall travel expenses.
- If you purchase a fractional share for personal use, the benefit of depreciating the share as an asset likely will not be available to you (but consult your tax advisor).
The goal of any private air travel investment should be to purchase maximum flight time on appropriate aircraft with a reputable and safe operator at minimum cost. Making the wrong choice can cost you hundreds of thousands, even millions of dollars in unnecessary expense. A fractional share can be the perfect investment, but as you can see, there's a lot more to consider than just the number of hours you fly each year.
SKYNET Aviation Group, offers a fresh take on the private jet charter experience, and is positioned to take advantage of the growth in business travel by providing service, access and value beyond the basics. Paul Levine and Benjamin Head, managing directors, created a new kind of charter service based on the personal touch - what they like to call "white glove and red carpet" customer care. "High-level executives use private aviation because it saves time and money," notes Levine. "But until now, they've had no alternative to paying up-front for contracts and indifferent treatment. We offer the flexibility of 'on-demand' service with no monthly maintenance or long-term commitment fees, plus personal concierge service that they can't find anywhere else."
Business needs private aviation to thrive," says Head. "Executives and CEO's spend a lot of hours in the air, and we wanted to give them an experience that offers the whole package; safety, flexibility and global access along with a personal travel concierge that allows our clients to focus on business while we focus on all of the details of their trip." Each client has one SKYNET Aviation Group contact who personally follows every leg of the trip, ensuring VIP treatment from door-to-door and keeping the client's home office appraised of his progress with an exclusive "flight following" program.
Leveraging their combined experience and contacts, Head and Levine developed the largest fleet of luxury charter aircraft in the U.S., Europe, Caribbean and South America, and implemented a rigorous safety program, recognized as one of the industry's finest. Their unique take on the business extends to their approach to marketing. Instead of the traditional print and media campaign they connect directly with Fortune 500 clients by participating in business conferences, summits and ultra-high-end luxury events. Says Head, "We are using our marketing budget to put us face to face with the people who can afford and need to use our services."
- SHAREHOLDER ALERT: Pomerantz Law Firm Investigates Claims on Behalf of Investors of rue21, inc. - RUE
- BTB announces the sale of one of its commercial properties
- Elephant Talk Communications Receives Non-Compliance Notice from NYSE MKT
- CME Group Inc. Declares Quarterly Dividend
- SHAREHOLDER ALERT: Pomerantz Law Firm Investigates Claims on Behalf of Investors of AsiaInfo-Linkage, Inc. - ASIA
- Tempur-Pedic Announces Name Change To Tempur Sealy International, Inc.
- Midwest Energy Emissions Corporation Adds Two New Directors
- Dean Foods Announces Completion of Spin-Off of The WhiteWave Foods Company
- Amgen to Present at the Deutsche Bank 38th Annual Healthcare Conference
- Federal Realty, 2013 Triple Winner, Recognized by the Alliance for Workplace Excellence
Related Partner Headlines
- Petronas Posts 30% Decline In Q2 Net Profit - Benzinga
- Mail.Ru H1 Net Profit Rises 54.3% - Benzinga
- Advanced Medical H1 Pretax Profit Surges 72% - Benzinga
- Markets Jump After FOMC Comments on Easing - Benzinga
- Feel the Energy and Excitement of the Forex & Options Expo in Las Vegas - Benzinga
- Amazon's Living Social Stake Sees Value Decline - Benzinga
- Fender Withdraws IPO - Benzinga
- Benzinga Market Primer, Friday July 6: Non-Farm Payrolls Edition - Benzinga
- An Introduction to Forex Trading - Benzinga
- Benzinga Market Primer, Friday June 22 - Benzinga
Latest Partner Headlines
Dow Today: Verizon Communications (VZ) Higher - TheStreet.com
Separating the Bargains From the Busts - TheStreet.com
Cramer Quick Take: The 60-Inch TV Will Be Key This Holiday - TheStreet.com
Cramer Quick Take: Cisco Wins If Fiscal Cliff Is Resolved - TheStreet.com
Gap Up and Sit - TheStreet.com
Apple, Intel, MicroStrategy: Tech Winners & Losers - TheStreet.com
Windows 8 PC Sales Disappointing: Report - TheStreet.com
Cramer Quick Take: Buy Home Depot and Lowe's - TheStreet.com
Dow JonesCompany ID [INDEXDJX:.DJI] Last trade:15,294.50 Trade time:4:53PM EDT Value change:▼12.67 (-0.08%)
S&P 500Company ID [INDEXSP:.INX] Last trade:1,650.51 Trade time:4:52PM EDT Value change:▼4.84 (-0.29%)
NASDAQCompany ID [INDEXNASDAQ:.IXIC] Last trade:3,459.42 Trade time:5:15PM EDT Value change:▼3.88 (-0.11%)
In The Wires
Apache Pledges $500,000 To Build Storm Shelters And Safe Rooms For Oklahoma Schools
AT&T 3G/4G Combo Named Best for Speed and Value
SHAREHOLDER ALERT: Pomerantz Law Firm Investigates Claims on Behalf of Investors of rue21, inc. - RUE
BTB announces the sale of one of its commercial properties
Elephant Talk Communications Receives Non-Compliance Notice from NYSE MKT
CME Group Inc. Declares Quarterly Dividend
SHAREHOLDER ALERT: Pomerantz Law Firm Investigates Claims on Behalf of Investors of AsiaInfo-Linkage, Inc. - ASIA
Tempur-Pedic Announces Name Change To Tempur Sealy International, Inc.