Fractional Jets - in Depth

In Depth

The development of fractional ownership plans accelerated the adoption and broadened the reach of private aviation. Previously, the only way to consistently enjoy private aviation was to buy a jet, which then spent a substantial portion of its life in a hangar, collecting dust and maintenance bills. In 1986, Richard Santulli launched what is now NetJets. By offering a timeshare model with guaranteed availability, he lowered the cost and increased the utilization, creating a more valid and viable path to ownership for thousands. Suddenly, the benefits of plane ownership could be attained with less than the full cost – or commitment – of full ownership.

In the fractional model, customers purchase (or lease) a fraction of an aircraft, alongside numerous, anonymous others. Depending on the company, the plane may be split into 16ths or even 32nds of a fractional share. These fractions translate to a number of hours per year, with a full 100% share equating to 800 annual hours. Most shares are sold at the 1/16 (50 hours) or 1/8 (100 hours) level.

Although the plane is shared, owners are guaranteed access from any airport with just 4–48 hours notice, depending on the provider and plan. This is referred to as the “call-out” period.

In addition to purchase costs, owners pay a monthly maintenance fee to cover the cost of upkeep, upgrades, hangaring, pilot salaries and training. When using the plane, owners are also billed for the actual hours in flight, with 12 minutes tacked on for taxiing. The final cost component is fuel, which is often a surcharge above the hourly fee to account for price volatility.

An owner's share allotment is depleted for actual hours of “occupied flight,” plus taxiing, with a 1-2 hour minimum. Notably, owners are not charged for any non-occupied flight time that may be required by the logistics of travel: getting the plane to a departure point, and returning to its base after the flight. This is called variously “deadhead,” “positioning,” “ferry,” and “empty leg.”

In addition to the "owned" plane, customers gain access to other planes in the fleet. When desired, they may switch to larger or smaller planes on a set “interchange” formula. Access to a smaller plane is typically guaranteed, but larger plane guarantees may be conditional on the size of one's share—typically 1/8 or greater. There may also be limits to the percentage of an owner's total annual hours that can be flown with exchanged hours.

All shares are priced pro-rata, with no discounts for larger shares. In other words, a 1/8 share is twice as expensive as a 1/16 share, and half the price of a 1/4 share. The size of a share may dictate which additional benefits and rights the owner enjoys. Below is a list of possible benefits of larger shares.

• “Short leg” waivers – most plans require that each flight be a minimum of one hour. A waiver allows customers to be charged only for the actual flight time of a shorter trip.
• Availability guarantees – the strength of many guarantees increase with share size, for instance, shorter call-out periods and guaranteed access to larger planes.
• Overfly rules – some companies allow owners to access hours from future years if they’ve already flown their annual allowance.
• Ferry waivers – When flying outside of a provider’s “primary service area,” owners lose certain guarantees and often have to cover the “deadhead” cost of moving the plane around. Some plans define secondary service areas, such as the Caribbean, where these expenses may be waived.
• Peak/Busy period access – Some companies declare popular holidays and heavy travel dates as peak or busy periods. These dates can push the company’s logistics and business model to the limit. Accordingly, companies may reduce service levels by lengthening call-out periods, relaxing certain guarantees, and applying additional restrictions. These changes tend to be more stringent on owners with smaller shares or card members with smaller commitments.