Arturo Weiss

You may hear the terms fractional operator, charter, and air taxi used frequently and, sometimes, interchangeably. While each type of operation shares similarities with the others, there are subtle differences. Learning which travel option is right for you is much easier once you understand the pros and cons of each type of service.

A Popular Alternative to Commercial Travel
Charter flights offer comfort and convenience, allowing busy executives to escape the security hassles and rigid schedules of airline travel without much advance notice. Charters also allow travelers to access areas not normally served by the airlines. Rural communities often depend on charters for their air travel needs. While the image of Hawaiian shirt-clad tourists, 35 mm cameras in hand, boarding a small airplane bound for outlying villages in the middle of nowhere may initially come to mind, vital transport services are often served only by air charters.

The U.S. charter flight industry has grown 25% since 2001 and continues to grow steadily despite depressed travel markets, financially-challenged scheduled carriers, and a volatile economy. Over 70% of 100 U.S. charter operators surveyed, reported increased bookings in the second quarter of 2004 over the same quarter a year ago, with an average increase of 8% in jet aircraft preferred by business travelers. National Air Transportation Association (NATA) spokesman Cliff Stroud also sees the trend in air charter use. "The air charter market has seen a noticeable increase of 20-30% over the past few years," he says.

A Simple Process
Unlike the airlines, charter operators do not fly scheduled service, but rather plan their flights around a specific client's demand. While there is no guarantee that an aircraft will be available, it is not likely that supply will be an issue, particularly given the current economic climate. This is how it works. A group of oil engineers may need to fly over a drilling area in rural Texas. So, they would call the charter company and book a specific amount of flight time in an airplane or perhaps a helicopter, which is best suited for this type of mission. A specific hourly rate, overnight charges, and handling expenses (if required) may be charged for the flight. Once the flight is complete (and paid for) the engineering team is free of any further obligation to the charter company. There are typically no membership fees or other upfront charges. This is one of the main differences between charter and fractional operators. (We'll discuss fractionals in just a minute.)

 Despite the substantial time and cost savings, company executives, board members, and stockholders sometimes target flying the chartered skies as an unnecessary corporate expense. But the charter business is definitely on the rise. New charter firms are being formed such as Pogo - an air taxi service formed by former American Airlines head Robert Crandall and People Express founder Donald Burr. That company plans to offer point-to-point flights to airports from North Carolina to Maine next year. Their advantage is the low operational cost: $6.50 per mile. The average national aircraft hourly rate lists as follows: helicopter $924; single engine piston $188; multi-engine piston $440; turboprop $948; small jets $1,653; medium jets $2,500; and large jets $4,305.

Some charter companies charter their own airplanes. Others, like Executive Jet and Jet Aviation, operate charter services through their management subsidiaries. Charter management companies operate much as tourist charters do, but rather than coordinating leisure travel they coordinate business travel. These companies lease out free time available on the jets they already manage as an infrastructure free entity.

The Downside to Air Charters
To operate an aircraft, for what is considered "on demand charter" a company must comply with certain restrictions cited by federal regulations listed under FAR Part 135. Aircraft maintenance, pilot qualifications, training, records, etc., all add up to high costs. These companies then market their aircraft to individuals or companies who might fill a void by using their aircraft. A major pitfall here is that a large capital investment must first be made to provide the service; a large return on the charter rate (hourly) is then required to make the venture profitable. In other words, the customer will indirectly help pay for these overhead costs. Another pitfall is that once the aircraft and pilots are available, the aircraft must meet the needs of the client, and airplanes, like automobiles, are very different in their "mission profiles."

For instance, a particular jet might be able to transport eight people from Los Angeles to Houston, but could not take six people from Aspen to Las Vegas. Perhaps a midsize jet advertises a 2500-mile range, but cannot travel from New York to the Los Angeles Basin with 80% reliability due to changing winds. Another downside is that the aircraft used by charter operators are typically owned by a client and are "managed" by the charter company and chartered when they're not in use by the client. Because of this, the airplanes available for charter are not always the best fit for the charter client. Therefore when a client begins looking for a charter flight, some knowledge of the available aircraft is invaluable.

Other potential disadvantages to chartering include the possibility of not being guaranteed the same aircraft, not knowing the crew, maintenance history, and general condition of the aircraft. Selecting a good charter company is critical to addressing these issues.

Buying a Piece of Corporate Aviation
Fractional ownership of a jet is a tempting option for individuals or companies that are currently chartering an aircraft more than once a month or are considering purchasing their own aircraft. Fractional ownership was created to attract clients who are not interested in paying for the expenses of owning an entire aircraft, but would like some ownership interest and access to a fleet at reduced hourly rates. Of course, chartering a jet can satisfy many of your traveling needs, but if you charter aircraft frequently, it may be less expensive to actually purchase a fraction of an aircraft. The following guide will explain fractional ownership and help you determine if this option is right for you.

 What's It All About?
In the fractional ownership model, a company coordinates fractional (or partial) ownership of airplanes among several owners - typically, there are two, four, or eight owners to a plane, depending on the size of the aircraft and of the company. The company also undertakes all management and maintenance functions and employs the pilots or hires them from a third-party flight crew outsourcer.

Fractional Ownership vs Complete Purchase
If you were to purchase an aircraft, you would most likely secure a loan and make the purchase. Then, you need to find appropriate insurance coverage, qualified flight crews, and hangar space for the aircraft. That being done, you could now fly the aircraft under FAR Part 91 but remain 100% responsible for all of the above costs in addition to maintenance and other operating expenses.

 The good news is that fractional ownership gives you many more benefits than a complete aircraft purchase, yet with a substantially smaller investment. Here is a partial list of benefits to keep in mind when choosing fractional deals over a complete purchase option:

• Your initial investment is substantially less expensive because you are only purchasing "part" of the aircraft.
• Through a monthly management fee, the fractional operator will provide many supporting functions of the aircraft such as hangar fees, maintenance, cleaning, basic snack/drink stock, and insurance.
• You have a low cost per hour rate that covers additional fees like pilot training and pay, airport and landing fees, engine reserves, and fuel.
• Even though more fees are assessed through the fractional program, the total cost is less per hour than to charter the aircraft.

There are several other benefits available to some fractional clients:

• Even though you may purchase a share of one aircraft, some operators will allow you to use other aircraft at comparable rates. For example, if you were to purchase a share of a Learjet, you could also use a Sabreliner or Hawker at reduced rates compared to traditional charter rates.
• Fractional operators usually offer flexible scheduling options and have many aircraft available for backup.
• In some cases, buyers that purchase a half share or more of an aircraft may participate in the revenue created when the aircraft is operated in FAR Part 135 charter operations.

In most cases, professional aircraft and flight management companies take over the management of business jets owned by various corporations, doing absolutely everything except for actually financing or owning the plane. These companies typically do have some limited infrastructure for maintenance etc., but this could be outsourced to a third party that does aircraft maintenance, thus leaving them "infrastructure free." Such companies employ the pilots while others require that the corporation, which owns the jet, handle the flight crew hiring and training.

The Downside to Fractional Ownership
There are a few considerations to keep in mind when thinking about joining a fractional program. Once you sign on the "dotted line" it is hard to pull out of a fractional ownership without incurring substantial penalty fees. For one thing, fractional ownership has a large amount of management fees associated with it as well as usually limiting you to one specific type of aircraft. This may not be a major concern for some, but it's nice to know about these issues before jumping into a legal contract. Fractional owners pay an acquisition fee (typically 1/16 of the value of the aircraft), the monthly management fee, plus an hourly rate typically equal to the direct operating costs of the aircraft.

There are several other disadvantages to fractional programs. One of the major concerns with this type of travel service is that there is no guarantee you will always fly the aircraft you have an ownership interest in. If that aircraft is not available, the fractional company will try to find a comparable plane in its fleet. If nothing is available, they will look for aircraft from charter operators to provide extra lift. This is a very common occurrence during busy periods, such as holidays. The good news is that reputable fractional companies will be very selective of the charter operators they use to provide extra lift to their fractional owners.

So, Which Is Best?
Choosing the right travel option depends on the needs of each customer. Some require more flexible scheduling, while others prefer to fly long-term pre-planned trips. Clients who are not interested in paying for the expenses of owning an entire aircraft may choose to join the fractional world, while others may have no interest in the contractual ties that come with this option. The bottom line is that each type of air service offers its own sets of benefits and drawbacks. Doing your homework is the key to making sure you've made the right choice.