Time is a precious, limited commodity and you realize that using private air travel is a very effective way to spend your limited time.
Within the confines of business air travel, you have many options, and many different costs associated with those options. These are “rules of thumb” to give you a quick overview of when these options might make sense.
Charter is good for limited flying (less than 50 hours per year) and for
- Two or more vastly different travel requirements (short and long trips)
- Doing “out and back” trips (not one-way)
- Needing to separate personal and business use of the aircraft (two different tax impacts)
Charter is the first step that you can take into business aircraft. You only pay for the time used, and there are no long term commitments. Charter is also a good alternative if you need a limited amount of flying per year. If you are flying more than 50 hours per year, there may be more cost effective ways to secure use of a business aircraft.
Charter offers a choice between many different aircraft types, so you can match the aircraft to the mission. Charter can provide you with a small, relatively low cost alternative for the short trip (think of a light jet flying New York to Portland, ME), and a bigger aircraft for the long range trip (think New York to Portland, OR).
With charter, you generally pay for every hour the aircraft is flying, whether you are on board or not. Other charges can include catering, landing fees, and taxes. Ground time, overnight fees, and minimum daily billings can make one-way trips costly. So unless you can nab a special one-way offer, charter may not be the best option for that type of trip.
The IRS looks at business use and personal use very differently. If you are using the personal aircraft for both business and personal trips, the charter may be an easy way to separate the two. Or, if the trip is of mixed use, the all-inclusive cost of the charter is a known value to use in computing the deductible cost.
Discounts are usually offered if you agree to purchase and use a set number of charter hours from a single provider within a specified amount of time. This is usually called block charter.
Jet Cards are good for use when your travel is in the range between 25 and 100 hours per year.
Jet cards are essentially block charter programs. You pay an upfront fee that guarantees you a set number of hours use of an aircraft. Most jet cards start at 25-hour blocks. These cards can be for a specific aircraft type (e.g., Citation X), or category (e.g., Mid-size jet). Depending on the program provider and promotion offered, there are both one-way cards (pay only for occupied legs) and round trip cards (pay all hours the aircraft flies). If your travel is mostly out and back the same day, the round trip prices are the better deal. Some jet cards also offer concierge services such as booking limousines, hotels, theatre tickets, etc.
Once you near the end of your 25-hour block, you can purchase an additional card. The cards do expire, but only in the sense that the rates expire. As with charter, you can select from different categories of aircraft in order to max and match to the type of air travel that you do.
With charter and jet cards, you have no ownership and no responsibilities (legal/operational), and no long term debt.
Fractional ownership is best for those who consistently fly 75 – 250 hours per year, fly a lot of one-way trips, and do not want the full responsibility of a whole aircraft.
Fractional aircraft ownership is a concept under which an aircraft management company facilitates the sale of shares of an aircraft to a number of co-owners, who in turn employ the management company to operate the aircraft on their behalf under a dry-lease exchange agreement. Hours are billed by block time, plus there is the acquisition cost and monthly management fee to consider.
Ownership contracts run typically for five years. Shares are normally sold in 50-hour/year increments (or one-sixteenth shares). Total share costs are proportional to the share size: 50-hours annually will cost half of what 100-hours annually will cost.
With charter, the commitment is for the individual flight, with jets cards, the commitment is for the block of hours, and with fractional ownership, the commitment is for the block of hours and a calendar period.
With a fractional program, you generally fly on the same type of aircraft. Those aircraft are outfitted almost identical to each other and the crews are trained to the same standards. Some fractional programs also offer concierge level services, one call for all the travel needs. If your business can use a tax deduction, the share’s acquisition cost can be 100% deductible if the aircraft is used for business.
As with charter and jet cards, you can select from different aircraft with different capabilities. You may trade up or down in aircraft size, and you may have access to multiple aircraft at the same time. Fractional ownership offers guaranteed aircraft availability when booked in advance.
If you like control, fly more than 250 hours per year and enjoy the pride of ownership, then whole aircraft ownership offers the highest levels of service and potentially the lowest costs.
With full ownership, you can select the aircraft; you can hire the crew, and leave “your stuff” on “your aircraft.” You have complete control, and responsibility, for the aircraft. If you work with a management company, they can assist you in the process.
With your own aircraft, the more flying you do, the lower the average cost per hour becomes. Whole aircraft ownership makes financial sense when annual usage exceeds somewhere around 250 to 300 hours.
How much flying and what types of flying you do will help frame the charter-jet card-fractional discussion. Charter is the best way to have access to many types of aircraft with no long term commitment. If your annual flying increases, jet cards may be a better deal with discounts for “buying in bulk.” Fractional ownership provides much of the benefits of whole aircraft ownership while sharing the fixed costs among multiple owners. Whole aircraft ownership offers the most control, and with sufficient annual flying, the potential for the lowest average total cost.
Charter, Jet Cards, Fractional And Full Ownership: It all starts with your requirements in terms of where, how often and how many people you need to transport.