Flying Private Could Make More Financial Sense

Contrary to the general notion around business aviation industry, owning or chartering a private jet has notably been a more viable option in view of economic efficiency of the businesses

Issue: 3 / 2020By Ayushee ChaudharyPhoto(s): By Embraer, Dassault Falcon
Private travel gets preference to ensure on-time arrival at a destination, and in the best possible shape (physically as well as mentally) accompanied by comfort.

Luxury, opulence, grandeur, extravagance, money are some of the terms that come to our mind the moment we spot or think about a private business jet. Owning a business jet has always been looked at as a very wealthy person’s affair. We often assume that it’s mainly meant for only celebrities or rich businessmen who have too much money to spend. However, what if we told you that business jets could actually make better financial sense even if the ownership amounts to millions and millions of dollars? It doesn’t sound quite right, isn’t it? Let us help you understand the above statement better and give you reasons why owning a private jet is not just about having those extra pennies to spend, especially for companies.

The ownership of a private jet has often been overpowered by societal explanations rather than the economic ones. However, the advancement of globalisation has been seemingly beneficial for the private jet market as businesses are now required to travel far off places and reach out beyond their local area. Especially as more and more companies are beginning to outsource manufacturing and other operations into developing countries, which don’t necessary have much air service, many companies have determined that private jets are a better way to get where they need to go.

If, for instance, one was to charter a Gulfstream from London to Dubai, it would cost about $55,000 at rack rate. However, if you fly Emirates First Class, which is almost similarly luxurious, you could fly between the two cities roughly twenty times for the same price. It thus comes across as a bit strange when businesses that are supposed to maximise profits for their shareholders are able to justify this enormous expense as worthwhile. How it that there’s still a class of people is are okay spending tens or even hundreds of thousands of dollars on just one single flight? It could practically not be just for showing off luxury.

This is so because, for CEOs (Chief Executive Officers) and other higher executives, private jets work as risk mitigators in a way. Private travel gets preference to ensure on-time arrival at a destination, and in the best possible shape (physically as well as mentally) accompanied by comfort. Busy executives on top levels of a company cannot afford to show up late for an important meeting or to feel sluggish due to the adversities of commercial travel. For them and their company, the cost of failure largely exceeds the cost of private jet travel.

Here are some reasons why private jets are an efficient way to conduct business and hence make more sense:

  • One major reason that companies use private jets is the time that they save. If you fly private, you can save all the hassle and time needed at the airport for check-in, securities, and other formalities. All you need to do is arrive, get on the plane, and fly rather than having to navigate your way through a busy terminal for fixed flight time.
  • The comfort and convenience that the private planes guarantee is surely worth the journey. Hence, they, in turn, ensure an increase in productivity, protection of intellectual property, improved customer service, etc. Certain jets are even equipped with fax machines, Wi-Fi, and other office amenities that allow the executives to work while en route in a safe and secure environment.
  • Private jets can access more airports. For instance, in the US, private jets have accessibility to over 5,000 airports in comparison to only about 500 airports served by regular airlines. About 42 per cent of business jet flights are to places with little or no airline service, and as many as 80 per cent of flights are into airports in small towns and communities, reports ‘No Plane, No Gain’, an advocacy group supported by the National Business Aviation Association (NBAA) and General Aviation Manufacturers Association (GAMA). Not just that, most of the business aviation routes also involve multiple destinations. Hence they are a preferred choice to have a geographical expansion of business deals.
  • Another big advantage is the flexibility that comes with travelling private. This is a huge advantage for big companies as this enhances the efficiency of conducting business. It also gives the freedom to return in case of emergency, or stay over during extended meetings, etc. Travelling private also lets you visit three or four places in a day, a trip that might take an entire week using commercial airlines.
  • If you have a big group that needs to travel far-off for work then flying private makes more financial sense again. Not just with cost-cutting, it also helps in people having important discussions while conveniently travelling together.
  • Also when you need to make it to a meeting which you cannot afford to reschedule and the weather is not looking that great; a private plane is more likely to fly around while local storms will ground commercial aircraft.
  • Companies that use private aviation have been noted to perform better than the non-users by 23 per cent in revenue growth and 95 of Fortune magazine’s “100 Best Places to Work” companies use business aircraft.
  • Chartering a plane rather than buying a plan is also an option gaining popularity and proving worthy enough in a more suitable financial manner. As the cost given to charter a plane for one hour allows you to have multiple people of the company travel together instead of booking many individual tickets. So now no matter how many people travel, the price stays the same unlike in commercial aviation. Since this also allows the flexibility to travel on your own schedule, it even lets the company save on individual hotel stays.
  • There is obviously no denying that travelling in a private jet certainly raises the standards of the company. It tends to take their market value higher and help them be more presentable in front of a new prospective client, hence again helping in the business.

As more and more companies are beginning to outsource manufacturing and other operations into developing countries, which don’t necessary have much air service, many companies have determined that private jets are a better way to get where they need to go.

For huge companies like India’s Reliance Industries also private jets aid in better productivity. For instance, to expand their business, the manufacturing units or factories tend to be located in remote areas. The lifestyle in these places is poles apart in comparison to the life that an employee might experience in a metropolitan city like Mumbai. Hence, it becomes difficult to have a senior-level employee shift base to such an extreme place and start a life there. Instead of paying him more to convince him to stay there and help him with other amenities, it makes more sense for Reliance to have a group of senior executives travel in the private jet to that location for a visit and return back in a couple of hours and continue with their regular office and stay in the metropolitan area.

Another good detailed example of this can be illustrated with Walmart. Walmart has one of the larger corporate jet fleets of about 20 corporate jets which can be surprising considering that it is a company that is so focused on keeping costs low. Walmart is headquartered in Bentonville which is a relatively small city. Most of these jets are used frequently by the company’s regional vice presidents who are responsible for a specific area of the country and need to make frequent store visits within the region. The company has almost never has anybody spend a night away from Bentonville and try to day trips to the maximum possibility.

If proper risk analysis and planning is done by a company, private jets could actually help the company grow its business, enhance its presence in the market and expand its reach

To understand the economics of this situation better, let’s say that one of these executive vice presidents is required to take a trip to three stores—one in Wyoming; one in Washington; and the last in Montana. Getting to Rock Springs in Wyoming from Bentonville would take about seven hours through Denver and the executive would reach at about 9:30 pm, already requiring an overnight stop. Then, the next day, they would do the store visit in the morning and since there are only two flights a day from Rock Springs, they would have to wait until 4:50 pm to catch a flight back to Denver than another one to Spokane in Washington. Hence reaching time would be about 8:30 pm local time, needing another overnight stop. After the store visits the next morning, they would again have to wait according to the flight schedules and are most likely to reach Great Falls in Montana at about 10 pm local time, thereby needing another overnight stop. After the next morning’s store visit, the executive would catch a noon flight to Denver and, after a three-hour layover, another to flight to finally get into Bentonville at about 8 pm. Hence this would take up to four whole working days.

If you fly private, you can save all the hassle and time needed at the airport for check-in, securities, and other formalities. All you need to do is arrive, get on the plane, and fly rather than having to navigate your way through a busy terminal for a fixed flight time

Now, let’s look at the scenario if this executive flew private. Leaving at 9 am, the first flight to Rock Springs directly would take an hour and 45 minutes, managing to reach at 9:45 am local time. After a two-hour store visit, the plane can take off again at about 11:45 am, and get to Spokane in an hour and 15 minutes to reach at noon local time. Following another twohour store visit, the plane would take off at 2 pm for a quick 45 minute flight to Great Falls and reach at 3:45 pm local time. After a final two hours visit at this store, the plane can take off its final time at 5:45 pm for Bentonville and 2 hours and 15 minutes later, the executive can land back at 9 pm local time. What was a four day trip on commercial flights becomes a day trip on private, and that’s why Walmart decided private jets are worth it for them. It’s all about valuing the time of their employees and also enhancing productivity. Of course, it also saves the alternative cost of multiple tickets, hotel, food, and airline transport costs. This also allows the company to send multiple employees at the same cost.

Hence if proper risk analysis and planning is done by a company, private jets could actually help the company grow its business, enhance its presence in the market and expand its reach. After all, the purpose of business aviation is to benefit businesses and not just be confined as being a luxury symbol for celebrities, politicians and other eminent personalities.