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The best BizAv model – is it charter or fractional?

These huge dollar figures, more typical of the airline world than general aviation, would make headlines for their size alone. But what’s even more significant is that these buyers have staked their fortunes on two fundamentally different, and at times competing, business models. Whose solution will prevail?

NetJets made its mark by developing the fractional business model back in 1986. It works rather like a condo timeshare: clients buy a “fraction” of an aircraft in the NetJets fleet and then pay hourly and monthly fees for the company to crew, fly and maintain it; clients owning larger shares can fly more hours. NetJets makes upfront money by buying in bulk from business jet manufacturers at a discount and then selling the fractions at full retail. Historically, both NetJets and other fractional providers (which tend to follow the same basic operating formula) found it challenging to make money operating the aircraft once their fractional shares were sold. But recent changes in fee structures and operational efficiencies have been turning the tide on that. According to AMSTAT, NetJets now has a fleet of 392 aircraft and a commanding 67% share of the US fractional jet market.

VistaJet is betting an equivalent fortune on the charter business model, a completely different and often competing approach to fractionals. For the end user, it's as easy as calling a limo service to go from Point A to Point B. Costs are based on flying time alone, with none of the up-front capital that fractional entails, but the hourly rates can be quite high. Clients typically buy blocks of charter hours in 25, 50 or even 100 hour increments.

Obviously both NetJets and VistaJet are confident enough in their respective business models to risk billions on them, but how can that be? After all, these models are not just different but competing and, in a certain sense, even contradictory. Perhaps the market wants enough variety to leave room for both. But industry consultant Brian Foley lofts the notion that worldwide market forces will gradually compel providers to meet in the middle with a hybrid charter-fractional model — or “chactional,” as he calls it. Indeed, NetJets, though primarily established as a fractional provider, has already taken a step in this direction with its Marquis Jet Card program aimed at charter customers. And in China, NetJets’ focus is less on selling shares than on helping owners with the nuances of maintaining and operating their aircraft.

“For right now, fractional and charter are both solid business models," Foley said. "But to enable future growth, both will inevitably adapt and evolve. In my view this means moving toward each other, particularly as they tailor their offerings to suit varying regional needs and tastes throughout the world. Just to choose one business model or the other won't ensure success, and the same solutions may not work everywhere. That's why branding is so vitally important. NetJets and VistaJet have taken different approaches but have similarly recognized a need for private air travel that is both worldwide in scope and under the auspices of their respected brands."