Why charter rates won't drop

Business Jet Traveler » August 2010
A handful of operators own their fleets and can set whatever prices they want
Sunday, August 1, 2010 - 5:00am

Say for a moment that you own an aircraft rather than simply fly on those you charter. Given the direct operating costs and all the other expenses of ownership, how much would you charge a stranger to use your airplane?

That's worth considering, because the charter aircraft you fly on are likely owned by individuals and companies that use them fairly regularly and rent them out to offset costs. And since owners must approve the rates and terms at which their airplanes are chartered-usually on a trip-by-trip basis-they drive prices.

If you think today's relatively soft demand gives you leverage to negotiate lowball rates, you're not thinking the way many business jet owners do.

"Some [owners] will tell you it's a matter of principle," said Robert Seidel, senior vice president and general manager of charter and aircraft management company Jet Aviation in Teterboro, N.J. "They're not going to, in essence, subsidize a cheap trip."

Jeff Vasey, founder and president of charter broker Beam Aviation, agreed. Asked about owners' reactions to requests for discounted rates, he said, "Even if it's an empty plane and it's almost a perfect [charter flight] match and pure money in the bank, a lot of owners will say flat out, 'No-no one should be able to fly for that little.'" For many owners, resistance to lower rates has more to do with economic reality than with principle; they've simply concluded that reduced prices won't cover their costs. Charter companies and owners stay in close contact, and both groups would rather hold the line on rates than chase bottom-fishing customers.

"The owners of the aircraft we manage are sophisticated, successful people," said David Rimmer, executive vice president of charter operator ExcelAire in Ronkonkoma, N.Y. "When we discuss what the market pricing has been, generally [owners] say, 'Why would we price it that way? Just to move the airplane? How do I benefit from that?'"

Added Toby Batchelder, sales manager of charter operator Elliott Aviation in Minneapolis: "For these owners to put their aircraft on someone's charter certificate, it's not a get-rich-quick scheme. The margins are thin. If I ask them to lower rates, they're going to say, 'Why do I even have it on a charter certificate?'"

True, a handful of charter operators own their fleets and can set whatever prices they want-and some have been cutting their rates. XOJet of San Carlos, Calif., for example, owns a fleet of Cessna Citation Xs and Bombardier Challenger 300s and offers discounted point-to-point transcontinental flights. But if you're hoping reduced rates will percolate through the rest of the charter fleet, you may have a long wait in the departure lounge.

"I think [discounted rates from a few charter operators] trained some people in the market to expect an unreasonably low price to fly on private jets," Rimmer said. "For a period of time, we had people asking for these low fares on our aircraft. I guess we're not getting the calls anymore. Our customers understand our pricing structure and that our obligation is to the owners of the aircraft we manage."

Echoed Batchelder, "You'll have a client or two, usually a first-time caller, who prices me against rates on the Internet or a national program. But most of my regular customers understand the business model: All the planes are privately owned, and most of the money I collect goes back to the airplane owner."

To be sure, some owners have made concessions in this market. Many, for example, are waiving minimum flight times, waiting times and fuel surcharges. And doubtless some are not holding as firm as others on rates. That means deals of various sorts are out there. But trolling for low rates has costs of its own.

"If [charter customers] want to go out and find what they think is absolutely the lowest price, going down that path becomes a very cumbersome process, which takes away a lot of the convenience of flying privately," noted Marty Guinoo, CEO of Sentient Jet in Weymouth, Mass., which  supplements its jet card offering with charter service.

It's a valid point. As a charter customer, you want a good deal but you likely don't want to invest lots of time searching for one. The optimum solution is to find one or two reliable providers who offer competitive prices rather than seeking the ultimate deal for every flight.

Keep in mind that while charter rates may not be going lower they remain well below what they were before the recession turned the economy upside down. If the cost of charter is headed anywhere, it's likely upward. Enjoy current pricing while you can.

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