ABACE Convention News

Shared-Jet Option Emerges As Alternative To Ownership and Charter

 - April 14, 2013, 9:30 PM
Wealthy Chinese travelers are starting to better understand the various options for using private aircraft.

With the rapid development of China’s economy and accumulation of personal wealth, traditional transportation means such as civil airliners and high-speed railways are no longer sufficient to meet the needs of high-end business people. Business and private aviation is increasingly emerging as an option for the wealthy, who are now having to decide on how best to access this mode of transportation.

There are already more than 20 domestic business aircraft operators in China with fleets ranging from one or two aircraft up to a few dozen. Generally, these operators are offering fairly straightforward aircraft management and charter options.

In the popular Chinese TV show I Am a Singer there is a scene where, upon finishing recording in a studio, singer Baoliang Sha rushes onto a business jet he has chartered to take him to Beijing for a rehearsal of another TV show, the Spring Festival Evening. This has helped the concept of chartering jets to enter the national psyche. Prominent examples where aircraft are managed on behalf of a celebrity include the Embraer Legacy aircraft used by movie star Jackie Chan.

However, alternatives to full aircraft ownership and charter are now emerging in China. “If you do not want to buy an aircraft and charter is too expensive for you, you still have a third option,” said Xuefeng Li, president of Freesky Aviation CAEA Aviation. This is a reference to the Private Plane Club, a shared-use service introduced by Freesky Aviation, where members of the club purchase the right to enjoy and use the whole fleet. “This is similar to fractional ownership which is popular in the West,” explained Xuefeng Li.

Freesky Aviation claims that its core competence is the member group and that is why it introduced the mode of Private Plane Club. Under this mode, if one pays 30 million renminbi ($4.8 million) membership fee, then each flight he or she takes will be charged only at cost. However, additionally, the company will charge an additional service fee accounting for 10 to 15 percent of the flight cost.

Xuefeng gave an illustration: assume you are buying an aircraft on your own. On top of the purchase price, the new owner would face taxes and operating costs. On top of that there is also risk that the residual value of the aircraft could decrease.

With charter there is no investment risk, but the unit price per flight can be higher. Xuefeng believes the average aircraft usage cost is lower under the “club” mode. Take a Piaggio P180 Avanti, for example. Once a member pays their membership fee of 30 million renminbi ($4.8 million), he or she will need to pay only around 1,300 renminbi ($207) per flight hour, according to Freesky. And in contrast to buying an airplane, the member can select different models, according to their travel needs.

According to Xuefeng, Freesky has more than 40 members. To maintain the exclusivity of membership, the club will limit the number of members to 200. According to a ratio of one airplane serving four-to-five members, the fleet should expand to 50 aircraft in five years.

Some Chinese operators have told AIN that “aircraft management is the only way to make money.” In their view, other modes require large customer bases to support them.

What remains to be seen is whether China’s emerging jet-set will be willing to share aircraft or, as is commonly believed, they will prefer to retain full control of their investment. Freesky’s business model would appear to depend on a high level of use to the extent that the bottom line cost per seat on each flight will not be too different from that of a first-class airline ticket.

What is clear is that new participants in business aviation in China are exploring the various operating modes to see which can be profitable. Ultimately the market will decide, and as demand and innovation increase, the right balance may be found.o

This article originally appeared in World Flight magazine published by World Flight Ltd.