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The Hot New Trend in Private Aviation
Jet cards can make flying more affordable
By: Michael Verdon
Jul. 23, 2004 12:00 AM
New programs in the form of jet card memberships have become the hot new trend in private aviation, and every month another company seems to be launching a membership program. Not only have these programs helped lift the industry out of the downtime it experienced after the collapse of the stock market, but they have attracted a new type of flyer who once considered it too expensive to get into private jets.
While the Marquis Jet Card Program, Sentient Private Jet Membership, Titanium Luxury Club Program and back-end details vary by program, the goal is the same: attract new customers by driving down the expensive barriers to entry, while making flying safer and more flexible.
"We saw there was a real void between charter and fractional," says Bill Allard, CEO of Marquis Jet, headquartered in New York. "On one hand, we found that a lot of charter brokers don't really control the assets - the planes. They can be all over the place in terms of quality and safety. On the other, fractional memberships require a long-term commitment, significant capital up front, and a minimum of 50 hours flight time each year. We took a very different approach."
Fractional ownership has suffered something of a black eye after the exuberant stock market of the late '90s hit the wall and the recession set in. Shareholders in private jets had paid a premium to be part owner in the heady dot-com days, but then saw their jets' values depreciate - sometimes by 40 or 50% - and were still bound to five-year contracts with frequently heavy maintenance fees.
Marquis saw the opportunity to create a niche in early 2001, and established a program to repackage traditional fractional shares in 25-hour blocks, with no long-term commitment. Partnering with NetJets, the world's largest fractional ownership provider, Marquis' Jet Card Program has become the brand name that most consumers know - and competitors target - when it comes to 25-hour fractional programs. "The beauty of this card is that you get the same rights and privileges as any NetJets owner," says Allard. "But it's a fraction of the cost of full fractional ownership."
According to Allard, the company sold over 1,000 jet cards in 2003, up 300% over the previous year. He also said that 90% of card holders either renewed their cards in 2004 or purchased a full fractional share with NetJets.
Values for the cards range according to jet type - $109,000 for a light jet Citation V Ultra up to $299,900 for a heavy jet Gulfstream IV-SP - but are significantly less than the $500,000 to $3 million you might pay in a full fractional ownership program. While Marquis has helped drive this growth market, Allard is first to point out that its success is underpinned by the relationship with NetJets, a subsidiary of Warren Buffett's Berkshire-Hathaway. "We have an exclusive partnership with them," says Allard. "They own and manage their own fleet of 500 planes, and in this field, he who owns the asset wins the game."
The world's largest private air fleet includes 13 types of business jets, with an average age of four years, and 2,800 pilots (10 of whom were formerly Air Force One pilots) who fly over 250,000 flights per year in 140 countries. "Having full access to this network lets us guarantee that you'll always get your specific aircraft type, and if that aircraft is not available, then you will be upgraded," says Allard.
Other perks: only 10 hours' notice required to book a flight; 24/7 guaranteed availability; pay only the cost of "occupied" flight time (wheels up-wheels down, but no waiting or positioning time); choice of specific jet type (as opposed to general class); ability to change jet types with trips; no monthly fees; and no empty-leg fees.
Plus, since NetJet's planes are relatively new (they average four years versus the national charter fleet average of 16 years) and extremely well-maintained, Allard says Marquis can offer its members extra peace of mind. "Charter brokers aren't necessarily aligned with their clients," he says. "What they provide you isn't always what you want, and they don't necessarily control the operators. Our members' interests, however, are directly aligned with NetJets, which controls its fleet."
Fractional ownership provider Flexjet is also very closely "aligned" with Bombardier Aerospace, its parent company, which manufactures Learjets and Challenger aircraft. Flexjet's Membership card program is similar to the Marquis program, with 25-hour blocks of flight time devoted to four specific jets. The 25-hour rates range from $109,000 for a Learjet 31A to $274,900 for a large Challenger 604.
Flexjet is also comarketing the card program with Delta under its Delta Air Elite program. The Flexjet card has the same benefits as NetJets: a single purchase with no major capital outlay or long-term commitment, the ability to change aircraft sizes, and no deadleg or repositioning charges.
Though its fleet is significantly smaller than NetJets, Flexjet's Steve Phillips says that his program offers extra perks like an extended amount of time to use up the hours (24 months as opposed to NetJets' 12-month contract) and a 12-hour cancellation policy (as opposed to 48 hours). "We also don't charge an additional fuel adjustment fee for each hour flown," says Phillips. And if the card is purchased through Delta (prices are the same as Flexjet), the buyer receives Platinum Medallion status in Delta's SkyMiles program.
Before choosing any program, it's important to dig beaneath the hype and uncover any potential financial landmines - or even speed bumps. Are there surcharges for fuel or insurance? Does the company charge extra for deadlegs? How about fees for upgrading aircraft or making last-minute changes to the schedule? And will you definitely use the flight time within the specified time period, or do you want a program where you can withdraw your money any time without penalty?
Sentient Jet, saying it pioneered the jet membership program five years ago, arranges its card program a bit differently than the fractional providers. Instead of buying 25-hour shares for specific airplanes, you buy cards valued at $100,000 and $250,000. Unlike the other two fractional programs that work with company-owned fleets, Sentient works with a network of about 400 charter operators that provide classes of "light, mid-sized and heavy jet aircraft" with a guaranteed response time anywhere in the U.S.
Sentient says that it offers the same advantages as the other two programs - including no blackout periods, no maintenance fees, no deadleg fees, and no repositioning fees - but has the benefits of being completely refundable, with no exit penalties. "This works like a debit card," says Sentient CEO Steve Hankin. "Any time you want out, you can get out. There's no risk." It's also transferable to other people, and there's no time limitation on when the balance must be used.
While a member can request a specific type of aircraft, he or she actually chooses a general class that includes five or six planes that are divided into "Select" or "Preferred" categories. The list in the Heavy Jet "Select" class, for instance, includes the Gulfstream II and Gulfstream III, while the Preferred list has the newer Gulfstream IV-SP and Falcon 900C, among others. Of course, you pay more for Preferred than Select. In the Heavy Jet category, Preferred jets cost $9,800/hr for a one-way trip and $8,200/hr round-trip. The Select planes cost $7,400/hr one-way and $5,150/hr round-trip. In Light jets, Select planes are $3,200/hr one-way and $2,150/hr round-trip. Preferred is $3,800/hr one-way and $2,850/hr round-trip.
The $250,000 "Gold" membership has one benefit over the $100,000 "Silver": it requires an hour of flight time as the minimum for one-way trips on light and medium jets, while the Silver requires two hours on any category.
Marquis' Allard argues that charter-based programs like Sentient "lose control of the assets" because they are reliant on independent charter operators. But Sentient says that its internal team inspects the network operators, aircraft and crews, and all of its operators must be FAA Part 135 carriers, which conform to the industry's highest safety standards. Joe Moeggenberg, president of Aviation Research Group (ARG/US), an independent company that rates charter operators, says that Sentient "is aggressively improving private aviation safety." Hankin says his company is also dedicated to customer service, and that Sentient maintains a 97% retention rate among its members.
Quincy, Massachusetts-based CharterAuction.com also claims a very high loyalty rate among its members, and among its services is its Titanium Luxury Club Program. It's similar to the Sentient program in that customers pay $100,000 (into an escrow account that the owner controls) to become a member, and the account is debited as hours are flown. It's also divided into Light, Medium, and Large-Sized jet categories, though without the Sentient distinction between "Select" and "Preferred" planes.
In the large-sized jets category, prices range from $6,850/hr for one-way trips to $4,500/hr for round-trips. Light jets are $2,950/hr one-way and $2,050 round-trip. The company also maintains what it calls "the world's largest database of empty-leg segments," which could result in cost savings, if a charter flight suddenly has an empty cabin on a return deadleg trip that matches a member's itinerary.
Cost savings could be even more significant if the company's online auction service finds a lower bidder. The company launched its innovative online auction system in 1999, in which clients submit trip itineraries and up to 250 charter operators bid on it. Members can watch live bids on the company Web site.
"The technology enables the customer to get bids from several operators offering a variety of jets," says Nate McKelvey, president. "Instead of being tied to a local operator, it gives our members a market-driven price, with a choice of operators and aircraft. That lets you choose the jet that fits your needs for a particular trip." If bids don't result in cost savings, says McKelvey, then the fixed member pricing determines final cost.
McKelvey is also quick to point out that he uses ARG/US and another agency called Wyvern to rate pilots and aircraft, and he also does independent audits of charter operators. "This process ensures the safest standards in the industry," he says. "Beyond that, we have our own customer feedback surveys to give us more information on the customer experience."
Customer experience. These two golden words will ensure that this competitive card business will keep its standards high. Customer experience is also why people choose to fly privately and bypass the many hassles of commercial flight. So whether you choose the extremely value-oriented approach of CharterAuction .com's membership program, or the variety of jets and large fleet size of the Marquis/NetJets program, remember this phrase: Membership has its privileges.
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