November 2, 2020
Aircraft owners routinely ask aircraft management companies: How can I maximize charter revenue for my aircraft? The most common answer is often something like “charter the aircraft more hours.” It is a simple answer—it is also wrong. While flying more hours increases gross revenue, you will sacrifice hourly profit margin which does not maximize revenue for the aircraft owner. Why? The rules of supply and demand, and variable expenses. The largest variable cost, accounting for 51 percent, is fuel. More fuel is burned in the first hour of flight, due to climb, than in hours two, three, four and so on, which means the owner earns less revenue on that first hour. Monitoring average leg segments is something your manager needs to manage.
Historically, aircraft owners will require approval for each charter before it happens—often adding surcharges to make the trip more profitable. This owner release, as it is known in the industry, makes the plane less competitive in the market and drives charter customers to the next best alternative.
The recent introduction of the branded charter model (Wheels Up, XO, VistaJet) has made owner approval charters even less competitive. Branded charter jets are owned by the company, dedicated to charter and do not need additional barriers. It is an attractive proposition for the customer.
So how can aircraft owners maximize charter revenue and compete in the current market? Here are four actions to take.
One: Establish clear revenue expectations.
Establish clear revenue expectations for each annual period, with your management company. Then ask for quarterly reports to track how the aircraft is performing. Quality management companies will dynamically flex pricing on a trip-by-trip basis. Giving the company this flexibility will ultimately provide the aircraft owner with higher hourly returns, more consistent revenue and allow the aircraft to compete in a rapidly changing market.
For each aircraft, there is an optimal rate where the contribution margin is highest and most efficient. But owners have two options to pursue when offering their aircraft for charter: One, the optimal margin or two, operating cashflow goals. Just be aware that adding hours beyond the most efficient price will diminish returns.
Two: Keep restrictions to a minimum.
The more restrictions you place on the aircraft and management company, the less attractive your aircraft will be in the highly competitive charter market. A long, detailed list prohibiting things like red wine, children under eight, pets, short cycles and so forth will make your aircraft nearly impossible to charter. Instead, trust your management company to protect and maintain your aircraft properly. If the plane requires additional cleaning or a repair, the management company should cover the cost and charge the charter customer accordingly. Lastly, check your aviation services agreement to make sure that is defined for your protection.
Three: Co-locate your pilots with your aircraft.
Owners often allow their pilots to live in cities far from where the aircraft is located. While this is a perk for the pilots, it means they must fly commercially to and from the jet’s location before and after every charter flight. This not only adds additional cost to the charter, making it less competitive, it also significantly reduces the duty time and/or availability of the aircraft. The smarter and far more profitable move is to co-locate plane and pilots. If your aircraft is based in a city with multiple airports, there is usually one airport with significantly higher demand, but correspondingly higher parking and fuel prices. Your manager can provide an airport base comparison to help you make an informed decision (demand, fuel, hangar, maintenance resources and repositioning costs) if that relocation would help achieve your goals.
Four: Release owner approval of individual charters
Finally, remove the sales barrier created by owner releases. Instead, require quarterly trend analysis on the hourly contribution margins. This simple and profound adjustment allows flexibility of the sales process, optimizes availability and allows adequate time to generate trends. In today’s highly competitive “look-and-book” market, where charters are increasingly confirmed online in real time, this gives your aircraft a competitive advantage.
The best path to getting quality charter revenue is to partner with a quality aircraft management company—a company that has grown a loyal client following, establishes clear expectations, provides regular, transparent reporting, and properly protects and maintains your aircraft.
If you would like to speak with a Clay Lacy aircraft management professional about your jet and your charter revenue goals, send us an email and let us know a convenient time to talk, or let us know any challenges we can help you resolve.