Should Your Company Be Using Business Aircraft?

By Mark Bethea

The business jet industry has been experiencing record growth over the past several years, and most business jet manufacturers have orders stacked up well into the next millennium. If your business is not currently using business jets, you are probably wondering how so many businesses can afford such an extravagance. Are people calling business jets a “productivity tool” in order to justify the expense to stockholders? You might be surprised at the answer.

Don’t rely on conventional wisdom and stereotypes of the “rich and famous” to color your impression of private jets. If you can answer, “YES” to any of the questions in this survey, you should explore the business aircraft solution. Whether you charter, lease, purchase or buy into a fractional ownership program, the questions below are the first questions asked in a detailed Business Travel Analysis. Take the test and make a call — you may be surprised at what you discover.

1) Does your company currently have offices in a different city or state? Are any out of town offices planned for the near future?

Key Considerations

Companies with multiple locations face a variety of challenges. One of the most costly challenges is the hiring of effective managers and executives for new locations. Many companies duplicate executive staffs in each location. The increased payroll costs, reduction in effective management and decentralized chain of command can be significant. These challenges are even more pronounced during the opening of a new location.

The use of a business aircraft allows the company to have immediate and/or daily interaction with new facilities and locations whenever necessary. The ability to get key managers from the home office to new locations and back within the same working day can help the company immeasurably. Using business aircraft also eliminates the need to recruit, hire, train and place a completely new management team in each location. The expertise and experience of the company’s existing management can be used to bring new locations on-line quickly and efficiently. The reduced cycle time to bring new locations on-line can fuel explosive growth and allow the company to fully reach its potential.

Case Study

A technical service company here in Los Angeles acquired a similar company in Arizona as part of a regional expansion. The management of the Arizona company was used to doing business one way, and the Los Angeles company wanted common standards. The decision was made to have one of the Senior managers in Los Angeles commute back and forth to Arizona to bring the new company in line with company policies and practices. Since there are no direct flights from Los Angeles to Flagstaff, the commute took over 5 hours each way, necessitating overnight stays and wasted days. After a month, the manager was physically and emotionally drained and virtually ineffective.

The president of the company called a jet charter company to see if there was a practical and cost-effective means of shuttling the manager to and from Arizona. After a thorough analysis of the company’s needs, they decided to utilize a King Air (twin-engine turbo-prop) once or twice a week. After two weeks, the manager was traveling to Arizona with 4 other managers. More people could travel since they would only be out of the Los Angeles office for 1 day and the Arizona office was quickly brought on-line and made profitable. Since then, the company has expanded to Las Vegas, Northern California and Oregon. They use the King Air for trips under 2 hours and use jets when time or distance dictates. While the charters are more expensive than airline fares, the company avoided hiring new management teams for each location and is able to bring new acquisitions on line much faster than otherwise possible.

2) Does your company have executives and/or managers ($100,000/year or more) that travel for more than one day at a time on company business?

3) Would your company benefit from top executives traveling more for customer meetings, trade shows and sales meetings?

Key Considerations (Questions 2 & 3)

Traveling executives can end up spending the equivalent of weeks or months each year sitting in airports during business travel. Many people do not realize how much this down-time is actually costing the company in lost productivity and executive “burn-out”. Airline schedules sometimes require two travel days for each workday on the road. If the executive was on the same schedule at the office, it would equate to a two day workweek.

Business aircraft allow for near total flexibility and efficient scheduling for traveling executives. The benefits are multiplied when there are teams of executives traveling or when technical personnel would benefit a presentation. This flexibility can also reduce or eliminate “post-flight fatigue”, which often results in poor productivity at the office immediately after late night airline schedules. Morale also will remain high when executives are able to spend more time at home with their families and friends, further increasing productivity.

A medical equipment manufacturer experienced the gradual erosion of nationwide sales. Two years ago, the CEO decided to put three of his top executives on the road to visit former, current and potential clients. The executives traveled with their assistants and were scheduled to spend from 100 to 150 days out of the year on the road. For all of this effort, revenues improved only marginally.

The CEO received a detailed Business Travel Analysis from Ultimate Jet which revealed that the executives were costing the company twice as much as they were bringing in. The reason was that their travel schedules were so inefficient on the airlines that they were averaging 1.7 days on the road for every 8 hours of meetings they held. In effect, the company was paying them to sit in hotels and airports!

This is one of the more complicated issues involved in executive travel: The actual value of employee time. The actual dollar value of the employee’s compensation package is easily determined. The actual value of the employee’s contribution to the company is much more complex and often overlooked. Clearly, if every employee contributed only enough to cover his or her salary, there would be no money left for profit, equity or growth. The fact is that we expect our employees to contribute more than their actual salary. Even a commission-only sales representative pockets only a percentage of the revenues he generates.

In the case of executives, their knowledge, leadership and experience make them much more valuable to the company than the dollar value of their salary and benefits. The three executives were sent on the road to increase revenues, but were spending more time traveling than they were spending in productive meetings. Their airline tickets and hotel bills were less expensive than chartering a business aircraft, but what was the real cost to the company? One of the executives made approximately $500,000 per year in salary, bonuses and benefits. Based on a 50 week work year (52 weeks 2 weeks vacation), this executive worked approximately 250 days per year(50 weeks X 5 days per week). His daily compensation package was therefore $2,000 per day ($500,000 divided by 250 days).

On his required travel schedule, he was averaging for 1.7 days of travel to achieve one eight hour workday. He was being paid at the ratio of 2.7 days (1.7 travel days + 1 work day) for every day of work performed. At $2,000 per day, the company was spending $5,400 per day of work performed (2.7 days X $2,000). And this only accounts for his DIRECT compensation, not his actual value to the company (which is some multiple of his salary). Even more frustrating is the fact that for the 100 days he was on the road, he traveled for approximately 58 days (1.7 travel days/1 work day X 100 days = 58 travel days), leaving only 42 productive work days. This equates to a two month paid vacation.

Modern technology allows people to have some degree of productivity while on the road. But it is still only a fraction of the productivity experienced when in the office or in meetings. The following year, the company began mixing the use of business jets with the use of the commercial airlines and achieved much better results. Scheduling was much more efficient, allowing the executives to do more in less time and spend more time back at the office. The company’s revenues increased dramatically. Even the CEO, who never had time for out of town meetings, was traveling more often and achieving dramatic results.

Many top executives express frustration at not being able to get out of the office more often to meet key customers, attend sales meetings and other. Their time is just too valuable to be spent sitting in airports and hotels. The credibility and importance of a visit from a top executive or CEO can close a deal on the spot and communicate vital messages without room for misinterpretation. Business aircraft can take top executives and principals to a meeting across the country and bring them back home on the same day. The benefits of their presence almost always outweigh the additional cost. Consider the fact that they can start the day in the office, have an important meeting on the other side of the country during the day, and be home early enough to get a good nights’ sleep.

4) Would your company benefit from corporate “Roadshows” or “New Product Tours”?

Corporate “Roadshows” and “Product Tours” are an effective way to launch products, introduce new services, conduct public relations campaigns and introduce key executives to potential investors. Business aircraft allow your corporate team to travel to as many as 12 major cities in as little as five or six days. Schedules like this would be impossible on commercial airlines. Business aircraft allow efficient scheduling and a no-hassle itinerary that keeps everyone on the team awake, alert and at the top of their game. This maximizes the impact of the presentation and gets them back to the office as soon as possible.

Case Study

A high-tech manufacturing company developed a new manufacturing process for key computer components. This coincided with the company’s planned Initial Public Offering (IPO). The investment banker behind the IPO planned a corporate roadshow. The schedule covered 5 major cities in 10 days. The CEO and top engineers had other plans. They conceived a product tour to speak directly to the major computer manufacturers around the country. In this critical juncture for their business, they simply could not do both. The company’s travel agent called a jet charter company and began exploring the options available. After thorough planning between the company, the travel agent and the investment bankers, a 20 city tour was scheduled. This roadshow consumed only 12 days. While the schedule was stressful, it was also extremely successful. The new process was adopted by many of the computer manufacturers visited, the IPO exceeded expectations and they even managed key interviews with technology writers. This schedule would have required more than a month using commercial airlines. The success of the roadshow rendered the extra expense insignificant.

Mark Bethea is a business travel analyst and acquisition specialist for Ultimate Jet at Santa Monica airport. For more information, contact 310-915-7557.