October 17, 2023
World's Leading Business Aviation Consulting & Brokerage Firm
If you walk into a hangar today and ask for opinions regarding fractional lift you will get a wide variety of answers.
You could hear anything from "it’s the biggest innovation in recent aviation history" to "it’s overpriced and a waste of money."
At Guardian Jet, we believe fractional lift is an excellent tool when used correctly. There are several different situations in which fractional lift is a great tool.
Possibly the most common usage of fractional aircraft is when the user does not fly enough hours to justify a whole aircraft. If you only fly 100 hours per year it is hard to justify whole aircraft ownership and the lower capital cost model of fractional ownership makes sense.
At Guardian Jet, we have done several consulting projects establishing just when does aircraft ownership become less expensive than fractional ownership.
The outcome typically concludes at lower levels of utilization, 50-150 hours, fractional aircraft are more economical, while at higher levels of utilization, 250+, whole ownership is more cost effective.
Exactly where fractional lift becomes more expensive is a function of a number of variables including, new vs. used, deadhead percentage, Part 91 vs. Part 135, and the time value of money.
Fractional aircraft ownership can also be a great tool if it is used to supplement fully owned aircraft. Factional lift is a great tool when used for the following situations:
Fractional aircraft have the benefit of not charging for deadhead hours, you only pay for when you are on the airplane. This is highly beneficial in certain circumstances. Consider the following two scenarios:
Let’s assume your wholly owned aircraft is based in Teterboro, NJ. An executive based in Los Angeles needs to travel on the corporate aircraft from LA to Seattle and back to LA.
To accomplish this on the wholly owned aircraft would require two deadhead legs from Teterboro to Los Angeles. With fractional the trip is easily completed with no deadhead paid for.
Again your wholly owned aircraft is based in Teterboro, NJ. An executive needs to go to Los Angeles on Monday morning and return to Teterboro on Friday night.
Again, using fractional lift could help in this situation. Instead of deadheading the aircraft home Monday afternoon and back to LA Friday afternoon, the fractional aircraft could be used to once again alleviate long deadhead legs.
Fractional ownership is extremely useful when more aircraft are needed than are owned. For a one aircraft owner this could be as simple as two executives needing to go on a trip at the same time. Even in large corporate fleets it can come in handy as well. Board meetings are typically a great use of fractional aircraft as all the board members are flying from multiple destinations to arrive at one time. While this can be a logistical nightmare, and perhaps impossible, with only fully owned aircraft, fractional aircraft can handle the mission with ease.
The option to upgrade or downgrade your aircraft to fit the mission is not possible in a wholly owned aircraft. If a company flies 90% of their mission along the East Coast, but the other 10% is cross country trips, a fractionally owned aircraft could help. Depending on the situation a fractionally purchased small aircraft could be upgraded to a super midsize aircraft to complete the long range mission or the company could have wholly owned small aircraft and supplement that with a super midsize fraction.
Obviously there are several advantages to fractionally owned aircraft, but there are also disadvantages.
Fractional lift becomes expensive when under or over utilized due to a large portion of the cost being fixed.
In a recent study Guardian Jet looked at a 200 hour share of a fractional aircraft to study the effects of underutilization to the hourly cost of the program. The all-in hourly rate for a ¼ share of a Challenger 300 flown exactly 200 hours was $8,560. If the same ¼ share is underutilized and flown 150 hours the hourly rate grows to $9,737.
If utilization drops even further to 100 hours, the hourly rate increases to over $12,000. The same issues arise when the aircraft is over utilized and an overage penalty is incurred. As you can see it becomes very important to match utilization to the number of hours purchased.
The hourly rate of operating a wholly owned aircraft, once an appropriate level of utilization is reached, will almost always be lower than that of a fractional aircraft. Flying round trip Teterboro to Los Angeles trip will cost significantly less in a wholly owned aircraft if deadhead legs aren’t necessary.
Fractional aircraft also have higher rates for international trips based on the international destination. International flying is drastically less expensive on a wholly owned aircraft than choosing fractional lift.
While it has its advantages and disadvantages, fractional lift can be an indispensable tool if used correctly in certain circumstances. This low capital cost option has found its foothold in the corporate aircraft world and isn’t going anywhere anytime soon.
Please give us a call today at (203) 453-0800 or shoot us a note if you have any questions regarding fractional ownership.Contact Guardian Jet
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