While the majority of the Fortune 500 companies engage in Business Aviation, their reasons for having access to business aircraft may not coincide with your own reasons.
How do you justify the use of a business aircraft?
A rational, well constructed justification for employing Business Aviation is no longer an option. It is a necessity. It should be clear to your shareholders and others that the business aircraft is an essential business tool. One way to help in this approach is to have some means to support the value of the aircraft to your organization and enable you to state “Yes, our aircraft is an essential business tool without which our company would be a competitive disadvantage in today’s rapidly changing economic environment.”
With the inevitable change of Board leadership, someone will ask the question “Why do we have the aircraft?” There needs to be an answer.
There are many tangible benefits to having an aircraft. These include, but are not limited to:
• Time Savings
• Flexibility and Reliability of Operations
• Ability to attract and retain key personnel
• Ability to support customers in an effective manner
Some or all of these will apply to your situation. No one will deny the ability of the business aircraft to serve, but the question that still gets asked is “Are the benefits worth the cost?”
As an example, assume a trip is needed from New York City to San Antonio. Bus fare is $219, and the travel time, 50 hours. Via the airlines, you can make the trip in 5.5 hours flying, plus airport time, for about an 8-hour travel day. Business airfare for last minute travel may run $1,200 per person, or $4,800 for four persons. On the business jet, a charter may take less than 4 hours total time and cost may be about $10,000 for up to six persons.
No one will say that the bus is the “best value” way to travel, even though it is “cheaper.” However, many may question the value of the business aircraft. The business jet fee is eight times the airline ticket for a savings of “just” four hours. However, when evaluating the travel in greater detail, you may need an overnight stay (or two) at San Antonio versus having the ability to return late in the same day on the business jet. Furthermore, you can conduct business with your travel associates without concern that company business will be overheard by a stranger.
In order to determine the value of the business jet over the airline, you need to understand both the total time needed for the travel and the lost opportunity cost of that travel.
The business aircraft has but one master, you. It will travel on your schedule and thus, offers significant time flexibility. The airlines have set schedules in order to try and fulfill most travelers’ schedules. How can we compare the time and cost of both alternatives?
The National Business Aviation Association (NBAA) has a tool called Travel$ense . It is software that calculates the actual hours spent in travel, productivity advantages and trip expenses. Travel$Sense uses actual airline data to allow your travel specialist to compare the time it takes the business aircraft to complete your trip, and the time needed on the airline.. In addition to calculation the total travel time, it also has user-defined inputs for productivity and salary.
Using such a tool, you may calculate that the San Antonio trip takes 40 hours round trip on the airlines while the business jet takes 16 hours. But the next step is the critical one, the value of the time.
Time can never be saved. It can only be spent wisely.
In spending less time in airports and in airline seats, you can be more productive. However, you need to recognize some value to that time. In 1987 a company called PRC produced a study that looked at the benefits of business aircraft travel versus the airlines. It looked at both the tangible and intangible benefits. It then went a step further to try and assign a value (or cost) of the time spent (or not spent). It used business school research, industry data and insurance data to assign a salary multiplier to an executive’s time. The PRC study was further reinforced in 2001 by a similar study performed by Andersen Consulting that looked at the impact of business aviation on shareholder value.
While an executive is worth more than his or her salary, whether that value to a company is two times or five times greater is a subject for much discussion and controversy. A senior executive with a seven-figure salary and benefits package has to be worth at least $500 per business-hour to the firm. Business-hours spent in the office, with a client, or working somewhere quietly without disruption are more productive than business hours spent waiting at the airport. Whether it is Travel$ense or a spreadsheet, such an analysis can show that the time spent not traveling can be put to productive use, and that increased productivity can offset the added cost of using the business aircraft option.