Private jet operators see opportunity in Iowa’s skies
Fractional ownership of planes attracts corporate executives.
Companies that let people buy fractional stakes in private jets are trying to woo frustrated customers away from commercial air carriers that are struggling to maintain service amid a slowdown in the U.S. economy.
Problems abound in commercial air travel, from delays and declining amenities to financial troubles. Most recently, UAL Corp.’s United Airlines filed for bankruptcy protection, a move that could lead to cuts in the number of routes it serves. Security concerns following last year’s terrorist attacks have increased delays.
As a result, Netjets, which introduced the concept of fractional jet ownership in the 1960s, Flight Options, Bombardier’s Flexjet and CitationShares are positioning themselves as an attractive alternative to commercial travel for wealthy individuals and corporate executives.
“The market is ripe for this,” said Donn Seidholz, who is vice president of sales and marketing for NetJets. The company has a “healthy core of customers” in Iowa, he said, though he declined to name Iowa residents or businesses who are customers.
NetJets has a commanding lead in the rarified air of private jet travel. The company, which in 1998 was purchased by Warren Buffett’s Berkshire Hathaway Inc., has 60 percent of the market.
Fractional ownership, which lets people buy as little as one-sixteenth to as much as one-half of a jet, is similar to the time-share model used by people who want to ease the financial burden of owning a second home.
Roughly 4,000 individuals and businesses own shares in jets today, Seidholz said. Executives at NetJets estimate that number will more than double in four years.
Using U.S. census data, Netjets marketing executives believe there are 150,000 people and a number of businesses across the country that are wealthy enough to become customers. Seidholz, who is responsible for sales in eight Midwestern states, is confident that there are hundreds of potential customers in Iowa and surrounding states.
“The potential in the Midwest is untapped,” he said.
For those who can afford it, private jet travel offers an escape from the rigors of commercial travel – and despite the tepid economy, more individuals and businesses are taking that escape these days. NetJets expects to grow at 20 percent this year and add 70 aircraft to its fleet.
Travel by private jet is expensive. An eight-passenger jet can cost $10 million or more, and annual expenses, from a pilot’s salary to fuel and hangaring costs, can run into hundreds of thousands of dollars.
At NetJets, a one-sixteenth share of a Citation V Ultra can cost $350,000, plus a monthly management fee of about $5,400 and an hourly flight fee of $1,343, according to a recent article in the Robb Report, a magazine devoted to the lifestyles of the wealthy.
Fractional ownership helps spread the costs among several owners, while freeing owners from other burdens as well. Companies such as NetJets provide a range of services, including handling aircraft maintenance, pilot training and Federal Aviation Administration certification.
At NetJet’s operations headquarters in Columbus, Ohio, nearly 1,000 employees help the company’s 2,400 customers arrange travel plans. It has security specialists and a meteorological team that tracks weather across the United States, Europe and the Middle East, areas of the world where NetJets currently has operations.
The company’s 2,300 pilots have access to 5,000 airports in the United States alone, giving customers more routing operations than commercial flights. NetJets has 508 aircraft, including seven luxurious Boeing Business Jets and 64 super-fast Citation Xs, a jet that can travel from New York to Los Angeles in about four hours. The company has another 1,220 jets on order.
NetJets’ clients include celebrities such as Arnold Schwarzenegger, Annika Sorenstam, Pete Sampras and Tiger Woods. Companies using it include General Electric Co., Sun Microsystems Inc. and Siemens AG.
Nothing about the airline business is easy, and fractional jet companies aren’t immune from financial difficulties. In the past decade, roughly 55 such companies have been started, 50 of which failed, Seidholz said.
Part of NetJets success, executives said, is the financial backing it gets from Berkshire Hathaway, which helps convince banks and customers that it is financially stable.