We all love a great story. Even the mundane gets better, as long as the story “sauce” is adequate and flavorful. And fractional was too good to not discuss back in the day: “Hey…I don’t need the whole thing, I’ll just buy a share.”
Selling spoons on Ebay? Well, they are always worth a wee bit more if you can add the story about the family that faced incredible hardship when they lost the other half of this set aboard the Titanic, which sailed from their nearby Southampton home. True? Who cares.. the spoons just went up in price.
Same goes for most well marketed and overpriced fractional solutions: It is a club and by definition the most expensive way to access an aircraft.
Refined story telling came into its own around those first chats around the fire. Fireside lore was a great place to swap stories about the hunt, animals, the other gender and the general highs and lows of neolithic life. Eventually those stories would grow to include the highs and lows of one’s air charter experience and jet ownership.
One of the biggest stories of the present era in private aviation was the purported success of fractional ownership. Not only will it save you money, give you unparalleled convenience, and safe aircraft to fly in — but you can actually tell your friends that you own a jet - because, on paper, you do!
However, as Seth Godin will tell you in his many books, beware the siren song of telling the story that lacks authenticity.
The mainstream media is finally beginning to probe the unsavory topic that fractional is a bit of a mess. A lot of wealthy people bought into a great story, yet they continue to leave the industry as fast as they join. This NY Times is one of the first mainstream pieces that might indicate the wheels are coming off the wagon.
It is impossible to make money with a fractional ownership company.
Unless the ranks of potential charter folks reproduce, earn and succeed faster than jets are made. (They don’t.)
It gets worse: As an fractional operator, when it is busy you need to outsource (rent other people’s planes) and when it is quiet you continue to pay giant fixed overhead and just when you set your prices, your competition lowers them or your pilots join the teamsters, threaten a strike, and you have to pay them more.
Let’s be clear, the basics smell like a great story: Rich Santulli and NetJets pioneered an industry that is woefully in need of leaders and new ideas. He saw an opportunity, and took advantage of it. They built an industry, not just a company.
And that is a great story. What the rest of the highly fragmented, weakly disciplined and confused air charter industry needs to learn from the above is simply that many great stories are incredibly expensive to maintain, and, at the end of the day, not sustainable.
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David Gentry Said:
I appreciate people who tell the truth, as you did in this story about fractional ownership.
Harold Coghlan Said:
Adam, I think you are right on as far as the fractionals. They are all “growing”…right to the poorhouse. All we read is that they have increased their fleets by X%, or have added X number of clients, yet, every year they seem to report financial losses. If i did that, I would go out of business (I know, I flew for enough Chapter 11 Airlines to know that you can’t continually loose money and survive). The real question is, How do they stay in business? At first (long time ago), they said they would make money “as soon as we grow to have critical mass” (where have we heard that before…People Express or Presidential or Midway?). But now, in 2006, some of these large fractionals have hundreds of aircraft (bigger than some large 121 airlines), yet are still reporting losses! What’s the trick? I do believe the standard charter industry can learn some valuable lessons from the fractionals, such as how clients like to have standarized fleets, uniforms, aircraft interiors, etc. Just can’t have all those horrible financial losses. Is there something I’m missing? Keep on aviating!
adam Said:
Harold,
Thanks for the excellent feedback - the answers (as I see them) are quite simple: The manufacturers bleed money to extend their brand into fractional (Bombardier, Cessna, Raytheon)… NetJets is another story..they just raid Mr. Buffett’s coffers and hope to show him a profit some day. Actually their ability to survive is one of the things that I debate with http://www.richardaboulafia.com occasionally, since he thinks they have a shot. I think that they have no idea what kind of mess they have created.. but hey!.. that’s just me.
The reality is that your Part 121 experience tells you WHO will survive = The word COMMERCIAL aircraft implies they make money or have the ability to do so. Most of the aircraft that NetJets operates by definition are not commercial aircraft. (Namely they are not about efficiency and optimization - more like a limo service that operates Rolls’ which I would still not equip my fleet with …even if the clients demanded Rolls’.) The fact is that too many aircraft types, too many variables and too many fussy clients with strange non-scalable needs is a recipe for the POORHOUSE.
Re: learning from FRAX.. yes, for sure.. they have taught us Part 135 folks that standardization, best practices, consistency of equipment, service and contractual terms are what effectively stunt the growth of Part 135. Believe it or not.. the big change will come from the profitability and development of businesses like yours and probably not http://www.dayjet.com … though they are the most scientific group I have seen so far.
adam Said:
David,
Thank you.. truth telling is very important (and rare) in business aviation. It is unfortunate, but our industry is still a hobby on steroids. Once we bring more real business people (like bankers who leave banking to operate Barons!) enter the space.. the more it will change.
Much of the woes of Part 135 / GA … and even fractional I see as a cultural problem, not so much technological. In other words, once pilots, operators, etc. stop treating everything they do as the “best” and a “secret” and the more they talk openly in public forums.. the faster the industry will advance, based on one thing that the web really promotes - HONESTY.
Piers Brown Said:
Makes interesting reading, but surely your ‘fractional’ thoughts are eroding with time. Fractional ownership is becoming accepted in the UK and around the world, not just in aviation and entry level costs are reducing - VLJ’s at $1million, well I never!
People have less time to indulge, but still want luxuries here and now hence fractional ownership makes sense…..
Aviation Marketing Intelligence » Blog Archive » Fractional Jet Ownership Dying? Pinged With:
[…] Are the wheels coming of the fractional jet ownership wagon? Some think so. Private jet gurus who claim to be “in the know” worry about the viability of an industry that just doesn’t seem to make sense, or money.read more | digg story February 24th, 2007 at 9:47 am […]
adam Said:
Piers,
While your site is sexy and I am sure you mean well, the fact is that fractional ownership makes sense in some models, but not others. Name one fractional jet operator that makes money, and I’ll FedEx you a nice flat warm beer, ok?
All the best,
Adam
Piers Brown Said:
Hey Adam - it’s coming and that’s why http://fractionallife.com is there, so feel free to wait and see - I’ll Fed Ex you a bottle of champagne!
Best
Piers
Steve Woodhead Said:
I agree with Piers. The fractional model works for many but not all markets. Aircraft operators are particularly vulnerable to ‘deadhead’ flights and overall efficiency issues, whereas other areas such as yachts, exotic cars and apartments have far better allocation cycles.
Put us on the list for a bottle of champagne Piers!
Regards
Steve
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[…] co-founder of Marcil Tech Group, whose subsidiaries include the Jet Owner Group and RSVPair, predicted the fall of fractional ownership companies back in 2006, and even before then, the lack of profits […]