NetJets, an aircraft charter business owned by Berkshire Hathaway, has historically been and today remains a pioneer in the private business jet travel sector. NetJets represents an effective example of a company aligning its business and operating models.
Who is NetJets?
Founded in 1964 and headquartered in Columbus, Ohio, NetJets provides fractional aircraft ownership of private business jets. Owners can purchase merely a share (as small as 1/16) of an aircraft, as opposed to the entire jet. Additionally, through its Marquis Jet subsidiary, NetJets provides business jet leasing via its 25-hour leasing jet card program. The company’s fleet of over 650 business jets (the largest in the world) flies to 2,200 airports spanning 170 countries. The company’s core customers are corporations and high net worth individuals.
NetJets provides much more than just transportation services. The company offers a unique travel experience, characterized by convenience, safety and the highest level of customer service. The company actively manages its fleet for safety and quality. Planning personnel are actively managing jet location and availability. Jet owners can request a flight with only a few hours’ notice. The NetJets team handles scheduling and planning, as well as on-demand catering and other hospitality services. In terms of safety, NetJets ensures its fleet is the highest quality in the industry. And the company’s starting pilots average over 7,500 of flight experience and log the highest number of training hours in the industry. The NetJets team is also trained to provide emergency treatment, as needed. Fractional jet owners trust the entire NetJets team to ensure they, along with their families, friends and business partners, travel safely, comfortably, reliably, on time, and stress-free.
NetJets manages a fleet of 650 business jets (see below examples). The jets are either owned by fractional jet owners or, with respect to the aircraft used for its Marquis Jet aircraft leasing business, by NetJets. The company regularly purchases or sells aircraft based on forecasted demand. Collectively, NetJets operates over 300,000 flights annually.
To become a new customers, one must (1) purchase a fractional interest in a jet, (2) pay a monthly management fee (covers insurance, pilot compensation, fleet maintenance costs, etc.), and (2) pay an occupied hourly fee while using the aircraft (covers direct expenses such as food, fuel, etc.). Owners have access to anywhere from 50 – 400 hours of flight time per year. Owners can request a flight as close as four hours to departure time. Owners are guaranteed availability of a jet – i.e., if their owned aircraft is unavailable, NetJets will charter another aircraft of equal or greater size/value.
For customers seeking convenient and reliable air travel but not looking to purchase ownership in an aircraft, NetJets offers the Marquis Jet leasing card (see below). Cardholders have access to 25 hours of flight time per year. Similar to the fractional ownership program, cardholders are guaranteed a plane of equal or greater size/value to the extent their designated aircraft is unavailable.
The Company’s cost bar primarily consists of (1) pilot training and compensation, (2) sales staff and business development, (3) flight planning and logistics staff, and (4) aircraft maintenance. The company also regularly purchase new jets to replace aging aircraft to ensure it has the most up-to-date fleet in the industry. The company places the highest emphasis on customer service and satisfaction. As such, the company typically is more expensive than competitors.
The primary business risk is the fact that private business travel is a highly discretionary purchase. A small percentage of the broader population has the means to travel privately. As such, demand for the company’s services depend on net worth, discretionary income, and healthy equity and real estate markets.
Alignment of Business & Operating Model
NetJets is very effective at aligning its business and operating models. The company’s goal is to provide a quality, safe, convenient and reliable travel experience for its customers. The company benefits from being financially backed by Berkshire Hathaway, as the company is well-capitalized and has the financial and operational resources to efficiently allocate capital, labor and equipment to execute its strategy. The company has the largest, newest and highest quality fleet in the industry. NetJet’s unmatched fleet drives demand in the private jet community and provides the company with an advantage over its competitors. Furthermore, the company allocates substantial resources to ensuring passengers have the utmost flexibility in their flight locations and the fastest route to their destination. For travelers who value their time, NetJets provides the best alternative to outright owning and managing your own jet. Lastly, the company invests a great deal of time and capital in its work force. The company’s pilots and flight planning staff are the best in the industry. The pilots are the most highly trained and the ancillary service providers take the burden of traveling off of the customer. Together, the company’s employees contribute to the high quality and unique experience of NetJets and drive the brand equity that attracts and retains customers. Collectively, these competitive advantages create barriers for new entrants seeking to enter NetJet’s line of business.