July 09, 2009
Another Look at the Private Jet Industry
Posted by Lisa Fairfax

Ever since the Detroit automakers’ CEOs took the ill-advised step of flying to DC on private jets to ask Congress for financial assistance, the private jet industry appears to have taken a hit.   To be sure, like other industries, the private jet industry already was experiencing difficulties as a result of the financial and economic crisis.  Moreover, business travel in general was suffering as a result of the crisis.  But that travel, along with the corporate jets sometimes used to facilitate that travel, also appears to have suffered from the negative image of corporate excess associated with such travel and private jets.  The president of the National Aviation Transportation Association is quoted as saying that “Most of us in the industry feel like we were the victims of a drive-by shooting.”  This gets reflected in the seeming decline of private jet use.  Hence, while companies have felt pressure to get rid of their corporate jets in the wake of public criticism, the public criticism has made it difficult for companies to sell their jets.  Illustrative of this point, a recent New York Post article lists several companies (including Coca Cola, Starbucks, and Xerox) seeking to unload their private jets without success—Citigroup’s jet had been on the market for 321 days.   News reports suggest that the waning use of corporate jets has had an impact on those who depend upon the industry, bankrupting some companies and prompting others to cut their workforce.  One industry expert notes that while 90% of the economic woes associated with the private jet industry stem from the general economic environment, the remainder results from the negative image associated with corporate jet use and companies resulting reluctance to be caught owning or using one.  To what extent is the image accurate?

Industry insiders say that the image has little connection with reality.  In February of 2009, the industry launched a campaign counteract the criticism of the private jet industry complete with numerous interviews and the unveiling of a website called “No Plane No Gain”.  The campaign is aimed at highlighting the importance of the industry to our economy, and thus notes, among other things, that private jets are used mainly by middle management.  According to the site, in contrast to the image of CEO’s excessive use of such jets, more that 70% of jets are used by “sales, technical and middle management employees.”  Moreover, the site insists that private jets are not just an unnecessary luxury, but instead are used to travel to cities not served by commercial airlines, or to provide service to cities for which commercial airlines only provide limited service, or to provide relatively short service to cities for which the commercial airline schedule generally involves hours or even day long connections.  In this regard, the jet industry saves corporations money by ensuring that corporate employees get to their destination in a timely and efficient manner.   Then too, the site notes that the industry employs more than 1.2 million people and generates some $150 billion a year for the economy.  The site even emphasizes the manner in which such jets help volunteer organizations bring critical supplies and services to communities in need.  Hence, the site paints a picture of a vital industry that has been unfairly criticized, while highlighting the concern that the criticism not only could hasten the industry’s downfall, but also could hamper its recovery.

By contrast, there are some who believe the industry should be curtailed, particularly in difficult economic times.  Certainly the auto executive’s trip to DC sparked a lot of outrage from the public and Congress.  Moreover, at least one researcher has argued that private jets really are not beneficial, and his (albeit criticized) study of the industry concludes that such jets harm the environment, cost shareholders unnecessary money, and that the industry does not pay its fair share of the costs associated with the traffic control system, and thus harms the public. 

And there is a new wrinkle in the debate about the industry.  A recent report reveals that CEO use of private jets actually rose in 2008.  In fact, the report suggest that, even if there is some genuine concern about excessive use of private jets, that concern has had little impact on corporate behavior.  As a New York Times article notes, if the report is accurate, it is certainly puzzling in light of the tales of plummeting use and sales and the general industry outrage about how public criticism is driving that decreased use and sales.   

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Comments (5)

1. Posted by Jake on July 9, 2009 @ 18:58 | Permalink

Private jets vastly enhance the efficiency of persons who travel on them. The absurd "one size fits all" TSA protocols do not add 2-3 hours (at a minimum) to a business trip. If private corporate jets were such a waste, shareholders would do away with them. Any idea that the Government should outlaw private corporate jets is tantamount to Communism.


2. Posted by Jake on July 9, 2009 @ 18:59 | Permalink

Pardon the typo. Here's what I meant to say:

Private jets vastly enhance the efficiency of persons who travel on them. The absurd "one size fits all" TSA protocols add 2-3 hours (at a minimum) to a business trip that private jet travel avoids. If private corporate jets were such a waste, shareholders would do away with them. Any idea that the Government should outlaw private corporate jets is tantamount to Communism.


3. Posted by ohwilleke on July 14, 2009 @ 19:43 | Permalink

This is an are that would be well served by a consumer co-op. The billing structure would be highly simplified ($x per passenger per mile) at a rate necessary to keep the service going, and then customers would get a percentage rebate of purchased service. A fleet of small planes would be employed for the purpose.

This would be more expensive than first class service, but a lot less expensive (and less ostentatious) than a private jet.

It would also not raise the serious tax break problems involved in private jets. Indeed, tax law may be the best explanation for why they persist.

Jake, by the way, is likely wrong in his reasoning. Shareholders don't have meaningful control over public corporations vis-a-vis management, and management which is perceived to benefit from private jets, has a self-dealing issue.


4. Posted by Maria on October 25, 2009 @ 19:48 | Permalink

There are some who believe the industry should be curtailed, particularly in difficult economic times. Get the best deals with private jets.
http://www.247jet.com/


5. Posted by Private Jet Charter Blog on March 28, 2012 @ 7:33 | Permalink

Before reading this, I had not thought that chartered jet services were significantly impacted by the economic downturn... worrying.

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