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Exploring the economics of private jet charter business

Private jet demand is booming as charter rather than ownership is becoming a cost-cutting measure for the wealthy and busy CEOs, writes, WOLE SHADARE

Hard times

The reality of the harsh global economy is making the ownership of private jets no longer something multi-billionaires now fancy.

Even people who are not in the billionaire club but had once desired to own their jets as a result of the enormous financial resources they are surrounded with no longer consider owning private jets because of the enormous cost of maintenance.

“If you look at today compared to 2019, the market has almost exploded amid economic recession across the globe,” said an aviation expert, John Adeniji.

He disclosed that the tough economic condition has made many wealthy and busy CEOs jettison their luxurious aircraft for charter, leading to a huge demand for private air charter business.

NCAA battles rogue operators

In Nigeria, the Nigerian Civil Aviation Authority (NCAA) is battling with some owners of the glittering toys who probably are hit by the hard times or who are worried over the huge cost associated with owning jets and have clandestinely converted their airplanes to private charters.

Aviation regulatory body aside safety is equally worried that these owners have found a way to shortchange the system by not paying fees to the government for the secret charter services they provide to affluent Nigerians with many popularly calling them ‘Rogue Operators’.

The activities of these operators, according to the aviation regulatory body, may have cost the NCAA and the sector over $15 million yearly.

New Telegraph’s investigation shows that many owners of private jets clandestinely operate their jets as charter while denying the agency and the sector some revenue that should have accrued to it in the form of Ticket Sales Charge (TSC) and other taxes.

Hire and rewards, which the jet owners have engaged in, entails putting small aircraft into commercial operation and that is done with the permission of the aviation regulatory body

They convert their airplanes to charter when not flown as the aircraft and flights are not registered as commercial operations and not as private services.

The NCAA had in April this year suspended the permits for non-commercial flight licenses of three private jets for engaging in commercial operations.

Jets cost

The cost of a new jet will range from $5 million to $110 million or more. The cost to purchase a jet isn’t the real money drain. Operating it will set you back a minimum of $500,000 or more per year.

According to the founder and Chief Executive Officer of New Hampshire-based Private Jet Services, Greg Raiff, owning an aircraft isn’t a good financial decision for anybody.

Much like cars, planes start depreciating the minute they’re purchased. From the initial cost to ongoing maintenance, planes are not a wise investment for individuals.

You’re always losing money. When you own the aircraft you are always paying for it, even when it’s not in use. Not only is it depreciating, but you’re paying for hangar fees to store it, you’re paying insurance, and you’re paying to keep your crew around and at the ready.

“If you want to fly private but owning your private jet is out of the monetary question, then chartering a plane is an option. It saves the hassles that come with owning and operating your private jet and saves a considerable amount of money. Like renting a car, you only pay when you use it,” said Raiff.

Depending on the size of the jet, chartering one can range from $4,000 per hour to $20,000 an hour. Nobody is going to deny that a large part of the reason the rich fly privately is, because they can, but before you criticise them for not wanting to set foot on the same plane as ordinary people, industry experts point out the many advantages of flying privately.

For CEOs and other higher-up executives, private jets are a risk mitigator of sorts. According to Raiff, “Clients choose private travel to ensure they arrive at a destination on time, and in the best possible physical and mental shape. Busy executives cannot afford to show up late for an important meeting or to feel sluggish because of the rigours of commercial travel. They know that the cost of failure far exceeds the cost of private jet travel.”

Cost to charter a jet

If you’ve decided that purchasing a plane is a little out of your price range, you’re going to do what most of the world’s wealthy do: charter a plane. How much does that cost? Depending on the type of aircraft, costs could be $100 for a one-hour flight on a business commuter jet or $40,000 to fly across the United States.

According to the U.S. Air Charter Service, a light jet will cost you between $1,300 and $3,000 per hour, a medium jet will cost between $4,000 and $6,000 per hour, and a large jet will cost between $8,600 and $13,000 an hour.

Unlike commercial aviation, however, you’re not paying for a seat, you’re paying for the plane. That means no matter how many people you take with you, the price is the same. Therefore, the more people on the plane, the more cost-effective it becomes.

Vistajet to the rescue

Buttressing the advantages of private air charter rather than ownership of jets, VistaJet President of Europe and Africa, Philippe Scalabrini while briefing newsmen in Lagos after a static tour of Bombardier Challenger 605 aircraft at Muritala Muhammed Airport, Lagos said there is now an opportunity to have a private jet waiting to take an individual or company executives to anywhere they want to go without being the owner of the plane and paying airport charges and maintenance fees

He said all that is needed is for the individual or company executives to register and be a client of Vistajet and book a minimum of 50 flight hours.

Explaining the difference between the service and charter service, Scalabrini said: ” If a client is looking to charter an aircraft for example, the problem is that it is not consistent. You are not sure of what you are going to have. The aircraft is only available if the owner is not using it or the owner is not ready to let it go. It creates this problem when you want to go somewhere and you are not able to because the aircraft is not available. We give clients something close to aircraft ownership without the headaches that come with owning an aircraft.”

He further said, “We are providing flight services for our clients. We could get assets for the client. Instead of buying assets that become very complicated and have a lot of restrictions and a lot of regulations, we simply offer flight services based on purchasing block hours.

“Our clients are not faced with maintenance issues or dealing with depreciation of the assets. People can buy blocks of 50 hours and we can tailor our solutions for them. We simplify and make access to private aviation services as transparent as possible”.

On the ability of Vistajet to render such service, he said, “We are a global leader in private aviation. We have over 300 airplanes all over the world. We have been operating in West Africa for over 14 years. We have experience flying from all over the world including Africa and West Africa.

Last line

Reality: If you fly fewer than 300 hours per year, whole aircraft ownership is not a sound business investment. Most evaluations on the cost of a private jet do not account for depreciation, and the variable costs for maintaining and operating a private jet are considerable.

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