Jet-Sharing Market: Cleared for Takeoff?
The market for used jets appears to have stabilized and prices are climbing again. The hourly costs of chartering or flying a business jet (a good proxy for the fractional jet market) are growing at a double-digit clip year-over-year. And fractional jet companies are cautiously predicting a return to profitability.
A Once and Future Goldmine?
If there was one industry that took a serious nosedive in the downturn, it was the fractional jet sector. Once considered a goldmine serving the world's burgeoning wealthy class (wealthy enough, that is, to fly private but not wealthy enough to buy their own jet), fractional companies seemed like such a sure thing that even the Oracle of Omaha himself, Warren Buffet, bought one. (That would be NetJets, a company he purchased in 1998 for $725 million and continues to own in its entirety.)
Riding a massive stock market tide and the bubble of money burbling from Wall Street, Geneva, London, Dubai and Shanghai, fractional jet firms multiplied quickly with dozens of players -- Marquis was a prominent one -- blasting into the market. This despite jet-share prices starting at well over $200,000 (not including monthly maintenance, catering fees, and other sundry costs) and easily clearing $1 million for larger ownership stakes.
What Goes Up ...
The crash was momentous, with the entire business jet sector contracting by nearly 40% as big corporations cut orders as fast as possible during 2008 and throughout 2009. The fractional industry, likewise, suffered as the used jet market inventory grew sharply, putting tremendous pressure on the fractionals. The market was so grim that NetJets, the biggest player in the space, posted a $96 million loss in the first quarter of 2009 due to the collapse of demand. There were even whispers that NetJets would cease to exist.
But as the world economy slowly recovered and business profitability grew, NetJets came back to log a $57 million pre-tax profit in the first quarter of 2010. Other major players, including FlexJet, recorded stronger financial results, partly based on cost-cutting and trimmed down fleet sizes.
To be clear, prices remain depressed. There are now a number of businesses specifically catering to the secondary market for fractional jet ownership and NetJets is offering even smaller slivers of a jet (1/32nd ownership) in response to the continued reluctance of the not-quite-as-rich-as-they-used-to-be to open their purse strings. Still, the battered industry appears cleared for takeoff and the fractional jet market could be poised to soar, powered by restored bonuses in the financial sector and fat profits for big banks. Additionally, rapid growth of economies in the BRIC sector is helping the market recover, as are the sustained higher oil prices that are filling coffers throughout the Middle East.