The Economics of Private Jets
In this article, I look at specific scenarios where the outrageous costs of private jets can be justified along with other aspects of business aviation.
Private jets represent an incomprehensible level of wealth and opulence, available only to the topic echelon of people in this world. For most people, the maximum they will get is the view of a private jet as they are taxing to the runway in their cramped economy seat with no leg room. In fact, if an average American citizen were to spend their yearly income on a private jet, they would only make it New York City to Utah. A private jet from London to Dubai would cost $55,000. In the same amount, you can fly between the cities over 20 times in an Emirates seat. Yet, there are people who are willing to spend tens, or even hundreds of thousands of dollars on sone single flight. In our minds, there is no way that this is justifiable other than the fact that they do it because they can. However, I am going to try to explain in this article why business aviation is essential and that private jets sometimes, actually do make economic sense.
First, let us put into perspective the true expense of private jets. The first option is buying a private jet which can range anywhere from $3 million to $90 million, sometimes even more. However, the real cost comes once you buy it. The yearly cost of owing this jet will set you back anywhere from $700,000 to $4 million. Additionally, like cars, private jets start depreciating the moment that they are bought. Not only that, you need to pay hangar fees to store the airplane, insurance and crew salaries that can be well into the millions. On the other hand, to avoid all this hassle, you can rent a private jet. It saves these additional costs since you are only paying for it when it is in use. Depending on the size and model of a jet, renting can cost anywhere between $4000 and $20,000 per hour.
Despite the exuberant costs, there are advantages to flying privately, and is sometimes a necessity for executives. Top executives of companies cannot afford to be wait at crowded airport for hours only for their flight to be delayed. They need to be at their destination on time and the consequences of showing up late to a meeting are far worse than that of using a private jet. Additionally, using private jets offers a level of flexibility that commercial travel does not offer. Because these small planes can fly to a wider range of airports, executives can choose to land at airports that are closer to their destination. This is most clearly seen in London. The distance from Heathrow airport, the primary hub for commercial airlines, to Canary Wharf, which is the business district is over an hour, excluding wait times at airports. However, private jets can land at the much smaller, London City airport which is a mere 12 minutes from Canary Wharf. Another aspect of flexibility is time. In case a meeting runs late, or gets over earlier than expected, the private jet will always be ready at the airport whereas a commercial jet might leave. Furthermore, commercial travel can be much more physically and mentally draining for reasons such as uncomfortable seats. This problem is solved by private jets since CEOs cannot afford to be drowsy at important meetings. In fact, they can work comfortably in an office environment while flying.
A prime example of a company that effectively uses private jets is Walmart. With a fleet of over 20 jets, they have America’s biggest corporate jet fleet. This comes a shock to everyone, since Walmart is a company focused on keeping costs down and maximising profits. In fact, using these jets, however absurd it may seem, is their way of cutting costs. Walmart has their headquarters in Bentonville, Arkansas which is a small isolate city with a population of 50,000 people. The local airport has a decent amount of air service because of the company with flight to LA and NYC, above average for a city of this size. However, for top executives, flying commercial simply doesn’t cut it. To understand why, we will look at two realistic scenarios in which flying private is much more economical than flying commercial.
The first is for the regional vice presidents that are in charge of specific parts of the country but sit in Bentonville. These people need to make multiple store visits a month. For example, let us look at the case of a regional vice president in charge of the northwest region. Let us assume they need to visit three stores: Rock Springs (Wyoming), Spokane (Washington) and Great Falls (Montana). Flying commercial would start with a 7-hour itinerary from Bentonville to Rock Springs via Denver. After an approximate store visit of 2 hours, the executive would be forced to stay the night since there are no flights out of Rock Springs in the night. The next day, they would have to wait till noon to take a flight back to Denver which would then connect them to Spokane. They would complete their store visit, and have to spend the night to wait for their next flight the following day. The next day would include a 5:50 pm flight to Great Falls via Salt Lake City, which would mean they reach in the night. The next day they would complete their store visit and take the afternoon flight back to Denver, connecting to Bentonville. These 3 store visits have taken up 4 days. However, with the use of private jets, this can be done in one day. A 2 hour flight to Rock Springs, followed by a 2 hour store visit. Then, another hour fight to Spokane, a 2-hour store visit and a 45-minute flight to Great Falls. After a 2-hour store visit there, the 3-hour flight back to Bentonville ensures they finish these 3 store visits in 1 day. The most common airplane used for this kind of travel is the LearJet 450 which costs $4 per mile. They 2900 mile trip of the 3 store visits would cost $11600. Since this saves 3 days, the employee would have to make $1 million per year for this trip to be worth it, a figure well in the realm of possibilities for top employees. However, these jets are normally flown with more than one passenger. Assuming it is filled to capacity with 9 passengers, each employee would only have to make $111,000 for the private jet to make economic sense.
The second scenario when private jets are useful is for international travel. Continuing with the example of Walmart, let us assume they want to expand to a developing country like the Philippines. The itinerary from Bentonville to Manila includes a 3 stops and 26 hours. However, a long range private jet, like the Bombardier Global 7500 can do this non-stop in 15 hours. Since Walmart does not own this model, they would likely charter one for $10000 per hour, making the cost of the trip $150,000. Of course, this value is more than commercial airfare, but taking into consideration that the CEO of Walmart makes $24 million per year, the 11 hours saves means savings of $97,000.
However, the financial crisis and Covid-19 has hit the private jet market hard and they have not been able to fully recover. In most cases, companies have stopped using private jets because of optics. Even though they make economic sense, companies need to be seen to be cutting down luxuries in the public eye. Additionally, private jets are horrendous for the environment. The Bombardier Global 7500 flying from Bentonville to Manila would only be able to South Dakota before exceeding an average person’s yearly carbon footprint. There is simply no way to justify this environmental cost. Yet, many top executives used this simply because they can. They do this for their own luxury and justify this saying that in case there is an emergency, they would need a quick way to get back to the office. In most cases, the explanation is not economical, it is societal.
In general, the economics of private jets are vastly complex and very difficult for the common man to understand. They are used by the top 0.1% and only by people who have more money than they could possibly spend. More 99.9% of people, commercial flying will have to make do.