could well have said, “To be or not to be paying a fixed hourly rate should be undoubtedly the most important question when researching a private jet account”.
(….well ok, maybe a bit too long of a sentence)
Globally, there are thousands of Jet Card clients in the market. Clients who have pre-purchased a pre-agreed amount of hours to fly within the year.
With Jet Cards gaining popularity it is important to question if actually, it makes any commercial sense for you?
Historically, the traditional pricing structure of these cards was to provide a fixed, non-negotiable, constant hourly rate (inclusive and irrespective of positioning fees). This idea enables you to budget for the individual’s flying needs. 25 hours at X per hour for example - simple, boom, done….
The problem however with any fixed rate which encompasses any positioning fees must be set commercially by the program provider to cover a positional leg whenever, wherever & however.
That commercial risk will be factored into your hourly rate however so eloquently placed in the contract.
Let us say for example purposes that a fixed hourly rate in a traditional fixed hourly program may actually be 1.7x the times of the true actual operational hourly rate – this means potentially the client could be always paying 70% more than is needed.
Conversely, you could argue on behalf of the provider that if in the real world, the aircraft had to position further than 0.7x for every hour used the client is actually better off in the Jet Card program than if paying the real-world price - in this scenario the provider loses out.
When you consider an hourly rate could be upwards of £5,000 per hour or part thereof, 70% or £1,750 per hour (that's £43,750 in a 25-hour contract) could be appropriated for positioning or incorporated as profit to the program provider.
Sounds a little cheeky, but remember the Jet Card provider takes the risk and responsibility to minimise positioning costs with the likely scenario is that some positioning will always be incurred – yet in this instance 70% is some margin to play with – they could, as mentioned, also totally lose out if on every flight the overall positioning was greater than 70%.
There is the balance, but is it fair?
As a client and even with appreciation that the provider may be taking the risk, we would be a little perturbed by overpaying. We certainly wouldn’t like to pay 70% more for a flight than we needed to, so is there a better way to look at this? Well, we certainly think so.
If you are following the point we're making, the question is finding the halfway house between eliminating a potential overcharge (that 70%), but having the reassurance of a price per hour inclusive of positioning that enables clients to budget accordingly.
One solution is to change from a fixed hourly rate to a Protected Hourly Rate (others may call capped rate) ‘≤’, or if we can recall from our days in the classroom the term ‘less than or equal to’.
This ensures that an upper rate is set for the client (that sorts out the budget on how much x amount of hours could cost) and yet when any possible option can be offered lower than the capped rate (i.e lower positioning charges) the differential between the upper rate and the real market price is returned to the client holder, to be used for additional flying – stretching the number of hours initially invested.
The Protected Hourly Rate provided 4 significant advantages between the client and the provider.
Namely;
1.) A protected maximum hourly to work against.
2.) The potential to be rewarded with a saving if positioning can be mitigated.
3.) The client should be more inclined to work with the provided to maximise their reward, and this should help providers avert last-minute rush bookings – lack of availability and higher positioning costs.
4.) At the end of the agreement the true efficiency is shown - did it work for everyone?
Perhaps to summarise it may just be better to review these two sentences. If we assume for a moment exactly the same service/aircraft be provided, which would you prefer?;
1.) A 25-hour flying program fixed at £5,000 per hour.
2.) A 25-hour flying program at less than or equal to (≤) £5,000 per hour.
Naturally, any way of controlling costs better is the right way to go, and why we think the traditional fixed rate is likely to evolve to a Protected Hourly Rate position.
For more information about our Protected Hourly Rate or if you thinking about changing to a Jet Members Protected Hourly Rate, please see the available tailored programs available at:
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