More news10 October 2005
Chartering or even owning a private jet is not just for the rich and infamous - there are plenty of valid reasons to fly employees on them and it may even work out cheaper than business class travel
It is no coincidence that this article does not contain a comment from a named purchaser. Discussing private jets is taboo in the business world.
A glance at press coverage of the subject explains why. "Shell bosses live high life on oil profits," screamed The Sunday Times in August when the oil company ordered three new aircraft for its private fleet. Flying around the world in her own Gulfstream did the image of former Hewlett-Packard boss Carly Fiorina no good either, and the fact that executives at companies such as Enron and Tyco had company jets at their disposal did not go unnoticed.
One study in the US last year even suggested a correlation between corporate jet ownership and stock market under-performance. Such is the case for the prosecution.
There is, however, a sound argument to be made in defence of using a business jet, especially if it is for occasional chartering, which is a four or five-figure expense, rather than ownership, which is a seven-figure one.
A procurement department looking at the private option would conclude that it proves directly cheaper than the scheduled business class alternative if a minimum of six people fly together, especially if they are on a complex itinerary and avoid at least one night's worth of hotel bills.
Judith Moreton, managing director of the membership charter programme Bombardier Skyjet International, says although she works increasingly with purchasers, they do not make the decisions about private jets. "The initiative comes from senior management who are keen to use them," she says. "Procurement is expected to follow up with the analysis and information."
Tangible benefitsWhile egotism may play some part, senior executives are factoring indirect costs into their considerations, principally the value of their own time, for it is the saving on time that lies at the heart of business jet usage.
"Any good company executive is worth six times his salary," claims Brian Humphries, chief executive of the European Business Aviation Association and, ironically, the former flight manager at Shell.
If one accepts Humphries' equation, the economics can start to look different. Private aviation allows travellers to create their own itineraries, flying at a time of their own choosing and on any routing. Check-in is less than half an hour, parking is not a problem and there are other tangible benefits, such as greater security and confidentiality.
Another advantage, says Moreton, is that shortened trips make life easier for executives - and that is important at a time when companies are giving greater consideration to the work/life balance.
Even if such an argument sounds too wishy-washy for procurement, there are occasions when a private jet may well be the only practical option.
"One example is when a CEO has to be in two places at almost the same time and only a private jet will be quick enough," explains Alex Woodworth, director of account management for travel management company FCm Travel Solutions UK. "They can also work well for taking groups to trade fairs when scheduled flights are very expensive or there is little availability."
There are other examples. Business jets have 10 times as many airports and airfields at their disposal in Europe compared with those used by scheduled carriers, so the time saving for companies with remote locations can be particularly significant. Moreton also reports a growing uptake in business to destinations where security checks and other procedures on scheduled flights are particularly time-consuming, such as Israel.
Meanwhile, some companies will look at private jets as a sound marketing investment, using them to whisk clients away for corporate entertainment (if you need one around the time of next year's World Cup, book now). Still others will lease or buy larger aircraft to operate as corporate shuttles if employees regularly fly the same routes in large volumes.
Be ready to take offEven if a company will only occasionally hire a private jet, David Macdonald, sales and marketing director for Air Partner, the world's largest flight broker, urges buyers to build a process into the regular travel programme and bring their procurement expertise to bear.
He also recommends rooting out and consolidating what frequently proves to be a hidden cost around a company. "You often find there are seven or eight people in an organisation all booking private jets separately," he says, pointing out that larger clients can expect corporate discounts from their brokers.
Macdonald also claims that spend is often unanticipated. "One travel manager told me his company never used private jets, but one day his chief executive needed one at very short notice," he says. "He ended up paying double because he had no procedures in place."
Macdonald has seen procurement become far more involved over the past two years, bringing some
welcome professionalism. In particular, it has improved legal scrutiny of contracts.
"Clients never even used to ask for them, but now we are seeing a big move to contracts and service level agreements," he says.
Whether purchasers believe the expense of the contracts they are scanning is justified is another matter. It probably depends on whether they incline more towards judging price or value and if the value of using jets can be quantified.
"Private jets cost more but you get more," Macdonald concludes. "If you make your decision on direct costs alone, it won't work."
PRIVATE JETS - THE OPTIONS1. Ad hoc charterPros: Usually the cheapest option;
no fly, no pay
Cons: No guarantee of availability; less economical if mainly taking one-way flights
2. Membership programme (commitment to minimum number of hours' flying per year - for example, Air Partner charges ?112,500 for 25 hours)
Pros: Broker guarantees to find aircraft; guaranteed price; consolidates chartering into one programme
Cons: Often more expensive than ad hoc; requires minimum hours commitment; need to be wary of contracts from unscrupulous brokers
3. Fractional ownershipPros: Gives sense of ownership without cost of full ownership; very high level
of availability
Cons: Generally considered economically unviable in Europe; locked in for three to five years; difficult to budget (for example, depreciation is hard to calculate); unanticipated costs
4. Full ownershipPros: Wouldn't you like your own jet?
Cons: Cost ($5 million starting price plus maintenance) - only worth considering for companies clocking 400 hours-plus of private flying annually; negative perceptions of extravagance
CASE STUDYManufacturing company"We lease aircraft which we use for employee shuttles and we also use smaller business jets for our top executives," says the company's travel manager. "Our shuttles fly more than 100 people a day and it is a lot cheaper than using scheduled aircraft. On one route, we charge internally £250 for a seat, whereas it would cost £400 for a business-class ticket on a scheduled airline. Our smallest aircraft has 25 seats. Establishing viability is a question of looking at the load factor (percentage of seats filled). Our load factor is 60-80 per cent five days per week.
"Getting employees to use our aircraft is not a problem. They offer a cracking business-class service, including a hot breakfast, and check-in time is 20-30 minutes.
"As for the smaller jets, executives can choose where they are going to and from and the time at which they travel. That gives them far greater flexibility. You have to look at the total cost of an executive's time.
"We have integrated the booking service with our regular travel management company service so we can have a joined-up process. That is helpful for things such as onward flights and hotel bookings, as well as ensuring safety and security."
SMoct2005