Charter companies actually charge thier customers what it costs to fly and make a profit.

 

They don't.

Just so this misconception goes any further, they don't.

This is all you need to know, they under charge because the owners of the aircraft are funding it. If you're going to pay $2, $3, $4M a year to own and operate a jet, its nice to make some money back and you're making money back as long as you're making more than you spend in fuel... at least in some people's view.

Look at a GV for instance, say you bought within the last year and not at the pre 2008 $60M+ range, but lets go with $40M. They charter for $8000/hr, you're total DOC is about $3000, maybe $2200 if you get a hefty Netjets/EJM fuel discount at Signature or something. So you're contribution is at best around $6000. Divide a typical loan or lease out and you're looking at 600, 700, 800 hours just to pay the note.

Airliners fly 3, 4, 5K hours a year, but not charter aircraft. And not in this economy. But put yourself in the owners shoes, you're paying $4.4M a year on a note for a hangar queen, you have two punk cry baby pilots that hardly ever have to work anyways so put it out for charter and earn a modest $1.5-$2.5M back in income.

Hence why you don't see people starting charter companies and buying aircraft on their own and making a go at it like you do in the cargo and airline world. It's got to be subsidized in some way. Airplanes suck, they're very expensive to buy, maintain and the regulatory world is suffocating even if you do things on the up and up.

And if you look at Netjets, well, go look at the fractional threads. Ponzi schemes work until people want what they thought they bought.

Airlines and cargo is where you see airplanes make money for flying, thats the key, for flying. The only other time I see commercial planes make money is doing what they do best and reaching into places people can't reach- DHC2 in Alaska for instance... as long as the pilot is poorly paid.

 

Having worked for three charter operations thus far, I have trouble believing your generalization applies. One went out of business because the owner was a crook who lied to the FAA too many times and the other two owned all their airplanes out right and all three have (and had) been making large profits, regardless of the economy.

I think the end of your comment was more applicable - if you understand your niche, it's not hard to make a profit. The -200s have a niche but have been expanded far beyond that and will not be truly profitable for the airlines until they have been culled back appropriately!

 

I managed and flew a business jet for several years...there is no way to make money from charter unless you fly hundreds of hours before requiring any maintenance. All the airplane does is draw down the owners assets. They get some of it back in depreciation, but if they are not making money, what do they need more losses for?

 

I'm intrigued, a business jet operation that owned their aircraft?

I worked for 2 part 135 operators, the first was a charter company that owned small turbine planes out right and went out of business because the competitive price point was so articially low that the B/E was well over 1,000 hours a year. And again that doesn't happen with on-demand passenger charter companies. Had they sold the aircraft and leased them back or something and collected a management fee spread out over a fleet they could've made it but I doubt they'd make it through this recession as their prime income source was home developers.

The other charter company I flew for was one of the largest and it didn't own anything. It simply managed them or allowed them on their charter certificate for a monthly management fee and 15% of the charter rate. There is a company nearby that does the same, fights for the same charter revenue when the first is oversold and they nickle and dime the owners to death.

I knew of a lot of other charter companies and the only one I can think of that owned its fleet was one in Atlanta but they laid some pilots off earlier this year and I don't know if they actually own their aircraft or not. And there was something about having them for sale that allowed some sort of tax discount or substantial cost savings or something. Not sure. Never wanted to get close enough to ask or find out.

But I have never known anyone who made a "large profit" except for those who didn't own their aircraft.

The charter rates are based on price points that come from owners wanting to make some money back and not owners who want to clear all costs plus profit. Airlines who fly their aircraft nonstop are running on a small margin bolstered by volume. Cargo is where the money is... as long as you're flying C310s, BE58s and big planes like a LR35.

I agree, 50 seaters have a niche, but there are more jets than niches and they'd be better served with ATR 42-500s or 70 seaters, airplanes that have a lower block hour rate and/or casm.

 

I wonder if propfan will ever make it here in the US.

"However, propfan research has continued under the direction of NASA in the United States and other research institutions in Europe and Russia throughout the 1990s. Because these engines offer significant improvements in fuel efficiency, they have been seriously considered by a number of aircraft manufacturers. Only Antonov in Ukraine has gone so far as to incorporate propfans into a production aircraft called the An-70, but several other manufacturers may follow suit. The propfan may be particularly attractive to the commuter aircraft market. "
Aerospaceweb.org | Ask Us - Propfan Engines

 

All of XOJet's 35 aircraft are financed by the company that owns XOJet. They are one of the largest charter companies in the country and seem to be doing OK. They are a purely a charter company and make money through alliances, relationships, and various marketing strategies (i.e. SentientJet). They do focus on a niche however, flying primarily coast to coast domestic which keeps their inefficiant and unpaid for headhead down. They also received some pretty sweet deals on AC from Citation and Bombardier, including great rates on power by the hour maintenance, so that helps.
A "couple" of the fracs have been and continue to be profitable, despite the downturn. The rates that they charge are still pretty favorable, allowing somewhat marginal profits. Many owners still find value in owning a fraction of the plane. Not really "pyramidish" as the alternative during the economic downturn and associated collapse in values was losing 50% of $12MM (versus 60% of $750K. The aircraft, aircrew, and operational standards were near impossible to duplicate in the general charter market which provided value to the end user.

 

Maybe the Lear has been the key? Dunno, I haven't flown charter except for Lear operators with balanced operations (a good mix of charter/cargo/med). Like you said, it definitely helps to have a good niche!

 

I think Aviation Week had a recent article on it, manufacturers are working on it but we shall see if they can be a better deal than what is currently on the market. I mean a 737-800 has a better fuel burn than an MD-82, but Allegiant bought MD-82s at $4M a pop. Saves a lot over a new 738. Engines are the same idea, you're going to have to tear people away from what they know works. If it happens, awesome, I miss props. I think someone should make a 100 seat Avantair.

Here is something interesting going on though, a modification to the MD80's thrust reverser that saves on fuel burn in a big way:
Dugan Kinetics

As to XOJET, I didn't know that. I guess the last I heard they were furlou... firing... some pilots but looking at the fractional thread I guess they're hiring.

My understanding is they're a block hour membership program but unlike Marquis that uses Netjets aircraft they buy their own. Block hour programs are great and you get a lot of cash up front. Its what I had at the first charter company I flew with, but, we ended up going out of business. It's too bad the people actually wanted to fly around in the aircraft they had prepaid for.

Membership programs are great in that you secure income which is hard to do. I looked at Marquis numbers one time and it, to me, was basically the charter hourly rate x 2. Now if XOJET claims they're 25% cheaper then they're the charter rate x 1.5. Tack on 15% fuel surcharge, if they're doing that too, and you've got the opportunity to make money, but not a license to print money.

What I'm getting at is the notion that airlines should be more like charter companies because charter companies charge thousands per hour, are cost + profit, and make money. But really, a vast majority, are nothing more than brokers who have a charter certificate and get sub prime aircraft owners to put the aircraft out for DOC x 2 - 15% commission.

Now I know x 2 looks good, but it isn't unless you fly a lot and you won't fly a lot unless its really less than x 2.... which means you have to fly more! The thing is the smaller the aircraft the more that margin is squeezed % wise because some small jets have lousy DOC's and the charter price on turboprops is about DOC + a fractional %.

If someone can figure out a way to shoehorn their cost so that they can compete at the below cost charter rates than that's amazing. It'd be even more amazing if they did it without prepaid membership programs, like airlines do. Again prepaid membership is about 2x charter rate and you can keep all that income IF you a) don't have to deadhead the plane and b) don't have to use a charter replacement and especially an "out-of-network" charter operation.

And for XOJET, I guess it also doesn't hurt to fly a direct replacement plane for Netjets (Citation X) and Flexjet (300). That'll get you a lot of income, if they're doing it that way. They love it when you offer something they offer, a 1:1 replacement jet for something in their fleet. I don't think the X and 300 were chosen solely on range performance and cabin size alone. BTW, the 300, sweet plane.

But getting back to airlines, an airline can't use many gimmicks and succeed. The best they can do is nickle and dime. They're not too unlike car dealerships. I used to work for one and I was shocked when I looked at invoices and they didn't make much money on a sale, it was only about $1500-$2000 a car- and I think that was before commissions. Thats not a whole heck of a lot unless you deal in volume. Airlines deal with volume and pennies per unit matter and while 50 seat aircraft have a niche, there numbers far exceed their value. You don't need as many of them as we have at todays prices.

If I were a regional pilot, I'd be so much happier if my airline was buying used Dash 8-300s or ATRs-500s. One of the first airlines to tout "WE HAVE AN ALL JET FLEET!", i.e. their fleet won't kill you, was Continental Airlines. And it didn't take long before B1900Ds showed up from Commutair after Coex parked theirs and then EMB120s from SKW in IAH after XJT parked theirs, Colgan 340s and today, I see Dash 8-400s and Dash 8-200s flying out of their precious hub in EWR. Airlines will take props.

Low utilization = buy cheap old jets, high utilization = buy new jets. Lear 35s are the way to go despite lacking in a big way behind newer aircraft but man are they cheap to buy.

Going back to the car dealership analogy above, guess where I did notice the bulk of the income coming from, cars under $10,000. Much higher margin than $30,000 cars. I think when you can get a plane with a healthy contribution margin then you can win.

Its all airlines are concerned about, RASM-CASM and not just CASM. The 50 seaters have an awful CASM, but if they fly ATL-ROA for $1300 then they have a fantastic contribution, better than an M88 would do. But put that 50 seater on ATL-DCA or ATL-LGA and you've lost a lot of money in a lot of ways.

The 50 seaters allow you access to a market and the opportunity to price gouge but if you have too many of them then that's not good and there is not only too many of them but the mainline carriers have signed contracts to keep too many of them and thats why mainline carriers want them parked. The sins of previous managers has come back to haunt the current managers.

Like I said, its better to dump 50 seaters and replace them with 70 seaters and turboprops. 50 seaters can be sold, chopped up or sunk for good coral reefs.

 

BTW, I do not think 50 seaters will become beer cans. I think aircraft aluminum is a different alloy than a beer can.

You basically, I guess, can use the metal to create a better airplane.