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Be a sky king – at a fraction of the cost

Mark Dye is a freelance journalist and Managing Editor of Penton Europe, a media group specialising in business to business publishing.

With frequent business flyers acknowledging that commercial airlines may no longer offer the level of service required, more and more people are turning to the concept of fractional ownership of private jets

You've arrived at the airport. You were stuck in traffic on the way. And the news is about to get worse. Your flight has been delayed.

This is a scene familiar to families and business travellers alike: frustration boiling over, misgivings over connecting flights, the potential problems are endless. Yet, like the weather, it is something we have learned to live with, if not wholly accept.

In the past, Concorde would have catered for those who could afford it, on a transatlantic basis, but short of purchasing your own private jet, what are the other options to ease the stress of air travel?

Imagine having a private jet at your disposal at a few hours notice without the day-to-day management concerns, main­tenance worries or payroll responsibilities.

It seems there is an answer. The concept of fractional ownership is a simple one. Owners buy a fraction of an aircraft, giving them access to a certain number of flying hours per year – typically one-sixteenth of a share translating to 50 hours flying. Contracts can range from one to five years, with a one-sixteenth of a Citation Excel costing approximately US$620,000. That's a huge saving on a $9.9 million purchase.

According to Robert Dranitzke, Director of Communications at NetJets, there are many reasons why commercial air travel does not meet the needs of today's business traveller. These range from delays caused by security concerns, inconvenient flight times associated with pared down schedules to the simple inability to conduct business aboard commercial flights. "Yet the time of senior executives is often a company's most precious commodity, so it is in shareholders' interests for top executives to fly privately," he says. "Fractional ownership allows them to do so in a cost-effective and convenient way."

Why wait?
Today, says Judith Moreton, Managing Director for Bombardier Flexjet Europe, there is a dawn of realisation that business jet travel is not just a toy for the rich and famous. "By knowing exactly who you are travelling with, flying closer to your destination, and avoiding lengthy waits in terminals, business jet travel programmes are becoming more and more attractive."

Although the aviation industry has experienced a tough time through economic downturn and increased fears of terrorist activity, the rationale for fractional ownership remains strong. According to research from AvData, between 1998 and 2002, the fleet of fractionally owned aircraft grew by 182% to almost 800, with the number of shareowners rising above the 4000 mark, an increase of 263%.

For Dranitzke, there is a simple reason for this. "In the age of globalisation, business becomes tougher and tougher each year, therefore individuals have to be more and more productive. Fractional ownership immediately makes top executives more productive."

The fall in re-sale values of business aircraft has also highlighted one of the strengths of fractional ownership. "When one buys a whole aircraft they are subject to 100% of the risk of the depreciation of that asset," adds Dranitzke. "When one buys a fraction of an aircraft they are only subject to a fraction of that risk."

Lower family risk
Risk is certainly something business families are keen to avoid. And for those still not tempted by the idea, the vendors are becoming even smarter. Bombardier, is one such company to offer a variation of the traditional fractional model. With its 'Jet Membership' programme, customers can purchase a minimum of 25 annual flying hours and use them to fly as and when they want. There are no monthly management fees and the cost of Jet Membership can be treated as a travel expense, with minimum commitment being one year and customers being able to change which aircraft model they fly on every time they travel, with no penalties.

In the current climate it is difficult to predict where the business jet travel market will go. Those on the inside indicate new players will undoubtedly continue to jostle for position, offering new innovative uses for business aviation – either through smaller aircraft models or by seat services. One thing is clear though, "With the demise of Concorde, we would expect focus to shift to transatlantic travel as the market grows," says Moreton.

Fractional ownership is an established and proven business model, with many believing the only issues being how fast it will grow, and the share of the market it takes. With more and more companies and individuals experiencing the ease and convenience of fractional ownership for their aviation requirements, Dranitzke retains a bullish outlook on the future. "In Europe, where the number of owners has doubled in the last year alone, we are acquiring over $300 million in new aircraft to meet demand in 2004," he says.

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