On deals and deadheads

Business Jet Traveler » June 2007
What this means for you is that you have a reasonable chance of getting a dea
Friday, June 1, 2007 - 5:00am

When I founded The Air Charter Guide in 1985, almost all charter companies expressed prices in dollars and cents per statute mile to the destination, with the operator's cost to return included. Operators found it easy to present prices that way. And passengers could look at any map, see the distance to their destination and calculate the cost. If the price was $3.16 a mile and the trip was 500 miles, the flight would run you $1,580. Want a one-way ride? $1,580. Want to come home after your meeting? Still $1,580. Want to bring the whole sales crew? Still $1,580. Life was simple.



Some operators, however, were quoting $1.58 per flown mile but applying this rate to the return trip as well as the outbound leg to make it look as if they had cheaper prices. Then with the arrival of turbojets, hourly rates started to appear. We had to organize all this for publishing purposes and converted everything to hourly prices. The market followed our lead.

By 2007, we'd been through some interesting changes in the charter/corporate jet market: fractional programs, block charter rates, jet card programs, increased amounts of brokerage and finally a much more prevalent effort to use the "backhaul" to boost operating efficiency. Depending on market-favored routes, operator initiated "one-way prices" have evolved as a competitive bet shared between charter operator and buyer.



Occupied use of the return leg is critical to some of these business models. And empty legs or "deadheads" have become easier to inventory and sell with the advent of the Internet and computer programs designed to track their whereabouts.

The brokers have learned that scale and critical mass of information allow them to trade in otherwise unoccupied "lift."



Consequently, companies such as Sentient Jet have evolved, with card programs that depend almost entirely on capturing the unused legs of a significant portion of the U.S. charter fleet. CharterX, which The Air Charter Guide helped launch at the beginning of this decade, is now completely dedicated to the trade of unused charter jet sorties.



Providing information by subscription to the industry of providers and brokers, CharterX has developed some interesting statistics over the years. With 1,082 trips in January, for instance, the New York-Miami route exceeded the popularity of the Miami-Los Angeles connection by a factor of 10. New York-Los Angeles, meanwhile, outsold Chicago-Las Vegas by 466 to 56. What does this mean for you as a consumer? Don't count on deadheads or favorable "one-way prices" for unpopular routes, but you have a reasonable chance of getting a deal from New York to Miami or L.A.



Views about the importance of deadheads, one-way prices and charter pricing in general vary greatly. Businesses like Nathan McKelvey's Jet International (launched as CharterAuction. com in 1999) tend to specialize in pricing because as brokers that's what they provide as value added. According to McKelvey, the market isn't moving "away from one-way pricing, but toward it."



Jim Segrave of Segrave Aviation in Kinston, N.C., cites the importance of understanding the metrics of one ways and deadheads, as well as designing a business plan around the concept: have the right number of aircraft positioned in the right places, with crew and passengers balanced to optimize profit. Not surprisingly, Segrave is a CharterX customer and depends on information about deadheads and a way to market them daily.



Still, many charter operators resist selling deadheads. Either they still have simple "out and back" business customers who don't give them these opportunities, or they have aircraft owners with passenger or usage restrictions who simply don't care. Most charter operators I spoke with for this article neither wanted to be quoted nor placed much importance on deadheads. They have aircraft owners who want a measured amount of profitable business on their jets, and they have charter customers who will pay top dollar to know exactly when and how they're taking an important flight and to be assured the details won't change. The operators and brokers who can't juggle the balls perfectly to fulfill their promises lose customers.



I remember a scene at Cincinnati's Lunken Airport last fall. A business couple on

a high-powered trip to China missed their airline flight because the brokered charter jet that was taking them to their connection never made the scene. "Damn it!" shrieked the woman. "That's why we bought a jet card from [insert name of well-known national broker] in the first place! They promised this sort of thing would never happen!"



There is no doubt that deadheads and one-way pricing have been a boon to certain operators and customers. By the same token, the well-heeled usually purchase charter because they want to have control over an important trip. And whether it's worth it to save $9,000 on a $32,000 charter trip depends entirely on the importance of that trip, because you can't cut the cost without taking on some risk. We all like bargains, but the Lunken Airport scene I witnessed resonated as the kind of fatal mistake that U.S. businesses make with increasing frequency. It also invoked all the tiresome old saws that nevertheless keep proving true. "Keep it simple, stupid" and "you get what you pay for" are right at the top of the list.

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