Elite Traveler January-February 2017

INFLUENCE PRIVATE JET COLUMN

elite traveler JAN/FEB 2017 58

Bill Papariella on the private jet marketplace

In a constantly evolving industry, Jet Edge’s CEOBill Papariella explains how staying ahead of themarket makes all the difference in finding private aviation success

cities. Big bets are being placed on the success of the ridesharing market. This trend is beginning to pay off for aircraft owners and operators looking for additional revenue through expanding their customer demographic and better utilization of an already congested domestic charter market. Until recently, flying on large-cabin private jets was reserved for wealthy business executives and leisure travelers who made a minimum of $2m annually and had more than $10m net-worth. For nearly two decades, we have experienced almost zero growth on the approximately 140,000 Americans who have the ability to purchase private air travel. However, by democratizing the airways, this market has expanded to well above one million consumers with a potential domestic fiscal impact of more than $10bn by introducing ridesharing as a viable option for new private business and leisure travelers. Technology and market leading companies have started to find their niche. With the growth of such new private jet companies, aircraft operators can look for a steady stream of incremental revenue and ROI for plane owners. This type of service doesn’t come without challenges, but the success of the ridesharing technology driven ventures is crucial to the thriving growth and future of the private jet industry. I anticipate that, within the next five years, the industry will be predominantly delivered digitally and ridesharing will evolve into more than a $10bn industry. Although some companies in the past have failed with the ridesharing model, it appears the timing and alignment of private equity investors and technology companies has never been more promising. The new model of ridesharing and digitally delivered private jet servicing is here to stay and will continue to create business opportunities for the US private jet aviation market within the next few years. Bill Papariella is the co-founder and CEO of Jet Edge International, flyjetedge.com

the fixed cost of operating the aircraft has remained unchanged relative to inflation, charter returns have diminished due to this glut in the market. In response, aircraft owners and operators have turned to new and alternative sources of revenue, including incremental income from an emerging new sector in business aviation: the per-seat membership (commonly referred to as “ridesharing” in the post-Uber era) as well as modified one-way flights to major “The newmodel of ridesharing and digitally delivered private jet servicing is here to stay and will continue to create business opportunities for the US private jet aviationmarket”

Following the economic downturns due to the bursting of the tech bubble in 2000 and the financial sector meltdown in 2008, the private jet marketplace has experienced a slow return towards full strength and profitability. Flying in the face of that trend are two groups of consumers – private jet owners and charter users – who have experienced a robust market of used aircraft available, falling residual values and the maturity of narrow niche-focused charter service providers. Having a good advisor that understands how to make the most of the various market conditions is imperative to make informed decisions about your flying portfolio. The current private-jet ownership market is facing unusual drops in residual value due to increased production of new aircraft since 2009, and the entry of foreign-owned aircraft into the US market due to uncertainty in countries such as China, Russia and Brazil. The overproduction of aircraft combined with more used options has contributed to the cost of existing

inventory plunging to historic lows. As a result, the barrier for entry into private jet ownership for many prospective buyers has never been more economical. Used aircraft inventory that once ran $18m to $20m is now entering the market as low as $5.5m, fully loaded with clean and current maintenance records. When considering the tax benefits, convenience, and lowered barrier of entry into ownership, acquiring an aircraft has become a more attractive and logical decision for businesses that may have once spent around $500,000 annually on charter travel. On the flipside, aircraft oversupply in the US market has created deflation on revenue and margin for the jet charter business. For example, 18 months ago a Gulfstream V would operate at $7,400 per hour for a charter customer. This figure has now dropped unilaterally in the market to $6,600 to $6,800. This is due in part to the introduction of cheap, used, ultra-long aircraft in the US market and the entry of the same type of aircraft from foreign owners. While