Fractional Market Shaking Out

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A business aviation analyst says fractional ownership companies will have to charge more for operating costs to make up for the loss of revenue due to the lack of fleet expansion. Brian Foley says fractionals used to make a lot of their money by paying discounted fleet prices for aircraft and then charging customers full retail. But he says the economic turndown has slowed or stalled expansion and the revenue shortfall has to come from somewhere if companies are to survive. "With fleet size very nearly constant, the emphasis must be on making the operational side profitable -- or changing the business model altogether," he said.

Foley says the failure of Jet Republic last week likely won't be the last, particularly among startups who are trying to break into the business when times are tough. But he said the good news for companies that weather the economic storm is that the bad publicity that surrounded business aviation earlier this year will likely continue to drive customers to fractionals and charters and that rationalization will mean a bigger piece of the pie for those that survive. "We're predicting double-digit percentage gains in year-over-year fractional flight activity (operations) later this year, which will be a healthy sign the slump has bottomed out and turned the corner," he said.