To Fractional or Not to Fractional

To understand fractional it is important to understand where fractional came from, why it happened, and where it is now.

When the price of new aircraft started to exceed $15 million dollars a copy, 20 plus years ago, it became more and more difficult to sell new aircraft. So it was determined in some circles that if 4 people owned one aircraft then the individual price for each owner would now be low enough to sell new aircraft easily.

Then each quarter share was wrapped into a turnkey operating system allowing the aircraft to be sold at full list price. The apparent theory was, with 4 owners each buying one quarter share of a full list priced aircraft inside of a turnkey operating system, no one would notice they just paid full retail for the aircraft. So fractional was born to be a high priced sales system, and it sold many expensive airplanes.

As a sales and marketing concept fractional was a complete and total success.

But there was and still is this one little problem. The very successful sales program did not have an efficient back end operating system to support the turnkey program. A big part of the sales program included the turnkey management program which meant operating the share owner’s aircraft for as long as the owner was in the program.

Of course our intrepid marketing folks had no idea how to actually operate corporate aircraft, they just wanted to sell corporate aircraft. These marketing people had no use for pilots other than to fly the aircraft and to stay out of their way. So they hired a boat load of wannabe aviation types and MBA’s they could easily control.

These junior airmen eagerly researched aviation operations, seeking to adopt the best systems. Obviously however, being easy to control had a serious downside. It seems these would-be aviation experts collectively did not have enough knowledge or understanding of aviation operations to actually comprehend what a good efficient operating system was. So they cobbled together a system that was far from the best or even close to the most efficient of any aspects of any aviation operating system. And they made it their own…and they called it “Fractional Operations”.

To this day this fractional operating system is copied by all fractional operating companies all of whom are enjoying exactly the same bad results.

Over the years, that colossal lack of operating know-how has cost fractional companies more in operating costs than they ever made selling the overpriced aircraft in the first place.

The results today are that while fractional aircraft are still being sold at higher prices to multiple end users, in the long run, most fractional companies lose money operating them. Meantime many of the actual fractional owners are now paying more per hour to use the quarter share of the aircraft they own, than if they just owned the whole aircraft.

This enigma comes about for a myriad of reasons. Fractional operators must have spare aircraft and crews in place and ready to go to provide for overlap use. Apparently it did not occur to the creators of the fractional concept that one aircraft cannot be in four places at the same time to service four different owners should they all want to fly on the same day. And there are always going to be days when they all want to fly. So fractional compaines have to maintain a large non-revenue producing fleet of reserve aircraft and crews available at all times to compensate for that oversight. At what cost? Who knows?

The next big problem is operations. Evidently fractional operators still have little idea of how to run an efficient flight operation. This is confirmed by their massive non-revenue dead head hours, as well as their monumental non-revenue repositioning costs for crews. This is all compounded by the fact that fractional operators seem to have more non-flying, non-essential, over paid executives per aircraft than most airlines.

Many of these costs are passed along to fractional owners. But even that is not enough to overcome the enormous overhead of fractional.  In my opinion from what I have seen, the fractional system has to be the most expensive aviation service to use for customers, and the least profitable business in aviation.

So the end result is the fractional user now pays more per hour to fly his hours than comparable aircraft…be it single jet aircraft owners, charter users, time share users, or any other known type of flight operation except maybe the U.S. military. OK prepaid flight cards are as high, but they use fractional aircraft which explains it.

Fractional can be fixed, of course, but obviously it is going to take serious aviation personnel. The problem is that serious, knowledgeable, and skilled aviation experts needed to remedy this unusual situation are not welcome into, nor do they chose to join the fractional hierarchy that dominates the fractional industry.

So if you are a fractional owner, sorry. There are no changes coming soon. Enjoy it.

Erudite Solutions for Business Aviation

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