When U.K. private jet charter broker Victor launched in the U.S. several years ago, it promoted a novel concept: Booking fees would be capped at 10%. As a broker, Victor doesn’t own or operate private jets. Brokers instead work with the actual aircraft operators who provide a wholesale price the broker marks up and sells to you. How much is the markup? It varies by broker and trip. Brokers will say in some cases it might be a few hundred dollars while on others it could be as much as 50%.
Victor says it caps markup fro charter flights at 10%.
“Pricing for on-demand charters is determined by several factors including aircraft type, routing, and supply in the marketplace, but Victor’s booking fees are always capped at 10%,” says Clive Jackson, Victor’s founder and CEO, adding, “With brokers, the customer does not always know what kind of deal they’re getting. Many brokers will renegotiate the wholesale prices from operators to deliver competitive quotes, but more often than not, brokers will protect their own margin instead of working with the operator to find a better value for the customer. As a result, opaque pricing within the industry has led to increased frustration amongst customers.”
Getting the best price is one reason many consumers call several brokers to get quotes. Three brokers will likely offer different prices for the exact same aircraft for the same flights at the same time. However, until last year the concept of a fixed markup or fixed fees hadn’t gained much traction. That now may be changing.
Wholesale Jet Club is one of several companies offering fixed markups for private jet charter.
Giving the fixed markup model another look is Wholesale Jet Club, launched last year by Blue Star Jets alum Steve Orfali. There are three membership options: A full year for $999 per month, six months for $1,249 per month or $1,499 per month for three months. These memberships offer operator pricing – the wholesale cost plus a 3.5% administrative fee tacked on. Of course, you have to factor in the membership fee – which if you are flying five hours per month, would mean an extra $200 to $300 per hour. On an aircraft where you are paying $5,000 per hour, that would mean four to six percent over wholesale pricing, but still possibly less than the typical markups from brokers and at least transparent.
“For us, it’s a bulk model. We’re not going to make a ton of money, but it’s designed to attract members,” Orfali says. In terms of how it’s going, he adds, “We’ve gotten good press. We’ve grown faster than we projected in year one.”
Is the model sustainable? “Because the annual fee, that takes care of some of the overhead (and) being a broker it doesn’t take huge expenses, it’s working nicely,” Orfali says.
Does he expect others to join the fray? “It’s in the first couple innings for the idea and business model, but I think it’s going to gain a lot of traction. When people hear about it, they really like it. You’re pulling from the same aircraft pool, so you are still getting the same plane, just at a lower cost.”
Is 3.5% plus the membership fee enough of a margin? “We don’t have a ton overhead. We have a small team. We don’t spend lots on advertising. It’s not an introductory rate, it’s sustainable,” Orfali says.
Jettly charges a membership fee, then gives members wholesale pricing without markups.
Canada-based Jettly’s model goes even further. For each flight or trip, there are no commission, markup or service fees paid by the consumer. Jettly serves as a matchmaker for members. It provides customers five to 10 options for each quote request. Members can see the operator and details on aircraft. While members use an online interface, Crabbe says Jettly sources jets in the same way as traditional brokers. Once a member selects an operator for his or her trip, the actual contract is between the consumer and the aircraft operator at the wholesale price.
Jettly generates revenue two ways: Consumers sign up for a membership providing up to three charters per month for $370, or annually $3,552. Its business program, which allows 10 charters per month, is priced at $670 per month or $7,152 per year. You can make as many requests as you want and each quote can include multiple legs. On the other side, operators pay a joining fee on a similar scale.
Jettly’s founder and CEO Justin Crabbe says, “The idea came about as a pure need to differentiate ourselves and provide more value. I followed Victor, and we think we’ve taken it further by offering even more transparency, replacing the commission with a flat membership fee.”
With its recently launched jet card, Jettly acts as a traditional broker, however instead of fixed or dynamic pricing, it charges a fixed 5% management fee based on the wholesale rate for each flight.
Crabbe says he has signed up over 1,500 members in just over a year. He adds, “We’re not competing against NetJets, Flexjet or XOJET. With charter, the aircraft you get for each trip is going to vary, not just age or operator, but also the interiors and layout.” He thinks Jettly is tapping into experienced charter customers who are looking for better pricing and more transparency. “Everyone is working off the same pool of aircraft. Everyone is tapping into the same network. We tell members – take (our quotes) to their regular broker and compare,” he says, adding, “We’re not making a lot of friends with brokers, but that’s what happens when an industry is being disrupted.”
Paramount Business Jets launched a fixed markup model for charter and jet cards in 2010.
The fixed markup concept isn’t new. Paramount Business Jets says it has been operating with the fixed markup over wholesale since 2010 for both on-demand charter and jet cards. Richard Zaher, the founder and CEO is also president of the Air Charter Association of North America and was a winner of the Embry-Riddle Eagle Excellence Award in 2012. Paramount’s markup ranges from 11% to as low as 3%. The more expensive the trip, the lower the percentage of the markup, says Zaher. He says the pricing strategy was a response to the poor reputation of brokers at the time.
Not surprisingly, traditional brokers don’t believe the concept is going to work. “Nobody is getting rich selling charter,” says one broker, who says providing service takes people and money. “There’s a tremendous amount of work that goes on behind the curtain, from coordinating ground transportations and FBOs to catering and last minute changes to departure time or even routing. All jets, pilots and operators are not created equal. You pay for the expertise of your broker.” He goes on, “Rich people use wealth advisors. They have gardeners. They have people who take care of their pool. They use interior decorators. Sure you can do it yourself, but can you do it as well as a professional who knows the ins and outs, and do you want to spend the time when for the private jet user demographic, time is money.”
That said, Jettly, Wholesale Jet Club, Victor and Paramount all argue they provide the same level of high touch service that traditional brokers offer, just with pricing transparency. Will there be more new pricing models? One private aviation executive forecasts fixed dollar markups where what you pay above wholesale is based on how complicated your itinerary is. “The costs for a broker is based on rent, marketing and the time you need to spend sourcing aircraft, planning and monitoring a trip, so it’s quite possible to figure out a true value for the service your broker is providing,” he says. Of these new concepts, he adds, “Directionally they make sense, but I think it’s just the start of an evolution where you might see different pricing – if you want to book online, you pay less. If you want an experienced broker to help with your trip, you will pay a fee based on the service you are receiving. It could even be an hourly rate just like you pay your lawyer.” To be continued.