The Jet-card Effect

 - October 4, 2006, 11:15 AM

All of the major providers have jet-card programs: NetJets has Marquis, Flight Options has JetPass, CitationShares has Vector and Flexjet has Premier Fleet. It should be noted that the Marquis program is unique among the card programs because it is run by an outside party that buys shares in NetJets aircraft and resells blocks of time in them. The other three fractional providers administer their respective jet-card programs themselves.

In short, the fractionals’ jet cards have proved to be both a blessing and a curse, depending on whom you ask. For the fractionals it’s mostly a blessing, and for the shareowners it’s largely a curse.

Gangbuster sales of jet cards–which command a premium price–have boosted fractionals’ revenues at a time when share sales are down sharply from previous years. None of the fractional providers actually released jet-card sales numbers, though all said the programs were selling quite well.

The jet cards also allow the fractionals to squeeze more utilization out of the fleet, and more flying means more revenue with the same fleet and personnel–meaning higher profits without additional overhead.

However, the nature of the jet-card users puts extreme strain on aircraft availability at the fractionals. “Jet-card owners tend to fly in a compressed time frame, which puts much stress on operations,” says Fractional Insider president Mike Riegel. This compressed demand means “jet-card owners are competing heavily for the same aircraft as the fractional operations,” adds Shaircraft Solutions CEO James Butler.

Since many of the jet cards are sold based on the available core fleet, aircraft availability becomes an issue because these provider-owned aircraft are often needed for fractional lift. This means that the fractionals require more charter outsourcing, which is expensive for the providers but more than offset by the higher jet-card income.

For sure, shareowners get the short end of the stick, especially when their trips, not the jet-card customers’ trips, are outsourced to a charter company. Many shareowners contend, some quite loudly, that they didn’t buy a pricey aircraft share only to be riding aboard a charter airplane. They simply want what they bought–a flight on “their” aircraft.

Then there’s the fallout from increased aircraft utilization due to jet cards as fractional aircraft are logging more hours than they were before. And more hours in an aircraft’s logbook generally translate to lower resale values–something that hits shareowners directly in the pocketbook at renewal time.

“The increased aircraft usage due to jet cards is imposing a double whammy for owners–it’s decreasing aircraft availability and diminishing resale values,” Butler points out.

According to Riegel, “NetJets has been affected most negatively by jet cards over the past six months. There are too many ‘owners’ per aircraft since 25-hour jet cards are in essence selling one-thirty-second shares. Such high demand has resulted in service failures, and premium service is what the fractionals sell and the customers have bought.”

In a move to control the situation somewhat, in June NetJets placed new restrictions on Marquis Jet Card customers, requiring that they book flights further in advance during peak travel times. NetJets chairman Richard Santulli said NetJets is flying about 20 percent more than expected year-to-date, which is putting “significant pressure on [NetJets’] fleet.”

To relieve this pressure during peak travel periods, which results in delays and charter outsourcing, several new rules will take effect. Now, Marquis cardholders have to book five days in advance (one more day than the previous requirement) to travel on peak days, which are increasing to between 15 and 20 days per year, versus 10 days for NetJets shareowners.

To prevent what Santulli called the “tremendous influx” of card purchases just before peak period days, Marquis owners wishing to fly in a peak period must own the card 60 days in advance. Cardholders also are not guaranteed their selected airplane model on peak days, rather only onein its size group.

Finally, “On peak travel days we will also have the right to move a [cardholder’s] trip three hours either way,” Santulli said. “What we’re trying to do is manage our demand and know what it is going into the peak travel days better than we did last year.”

Like NetJets, Flight Options has also oversold jet cards, Riegel noted. “What these providers need to do is manage the risk of jet cards. They have to limit jet-card sales and buy more core aircraft to increase availability,” he told AIN.

Flexjet and CitationShares seem to have a firm handle on the jet-card effect, with the latter provider perhaps being the most proactive. “At CitationShares,” noted company president Steven O’Neill, “we have dedicated aircraft for our jet-card program, in addition to our existing core fleet. Vector is only a client-acquisition strategy–a foot in the door for fractional share sales. So far, 30 percent of Vector card customers have purchased fractional shares from us.

“We also carefully manage Vector supply and demand to ensure that all customers’ service level expectations are met for every trip. And at some point Vector cards will be unavailable due to our limiting their availability, so we’ll never oversell our jet cards. When we reach that point, jet cards will be sold on a one-for-one basis as card customers exit for whatever reason. However, very few Vector card customers leave the program, which is reflected by high renewal rates.”