Canadian Aviation: Dogfight

A Canadian company makes its mark in the highly competitive fractional ownership aircraft business.

When University of Alberta law school graduates Judson Macor and Phil Dewsnap abandoned promising careers to kick-start a fractional-ownership aircraft company, the two friends never imagined their napkin-hatched idea would take off so quickly. In just six years, AirSprint Inc. has grown from a two-man outfit to a burgeoning business with 70 employees, 50 pilots, 15 aircraft, 70 clients and annual revenues that have doubled over the past year to reach the $35-million-to-$50-million mark.

The concept behind AirSprint is simple: a sort of time-share for frequent fliers, fractional ownership allows several people to split the cost of buying and operating a private jet. AirSprint charges a management fee for operating a fleet of aircraft, performing maintenance and hiring pilots. In return, owners are guaranteed a certain number of hours of flying time, provided they give four to eight hours' notice. Although a relatively new concept in Canada, fractional ownership has already found its fair share of enthusiasts in the United States through providers such as NetJets, Bombardier Flexjet and Flight Options. In fact, according to the Aviation Data Service, the number of U.S. fractional owners surged to 4,910 in September 2005, up 75% from five years ago. Now, AirSprint is cashing in on the growing number of Canadian executives eager to forfeit commercial cattle cars for catered meals and designer cabin interiors.

Early entry into Canada's nascent fractional ownership industry isn't the only ace up AirSprint's sleeve. Fuelling interest in the company's business model is the current state of the commercial airline industry. As if two-hour terminal wait times and shoeless security checks aren't aggravating enough, many of today's top airlines have shifted their focus from luring first-class fliers to launching rewards programs and discount packages. “Domestically, we're offering something that has fallen through the cracks with [commercial] airlines: service for the high-net-worth traveller,” says Macor who, along with Dewsnap, has a pilot's licence.

AirSprint's fractional owners may choose from 15 luxury aircraft, including four jets and 11 turboprops, with features varying from plush leather seats to a fully stocked mini-bar. The company works with caterers across the country to supply passengers with gourmet meals, and a customer service operator is available 24/7 to field questions and book flights. Whereas there are about 500 commercial airports across North America, AirSprint's fleet enjoys access to nearly 5,000 private airports for practically door-to-door service.

Travel-weary executives have been quick to jump aboard AirSprint's business plan. That's especially so in western urban centres such as Edmonton and Calgary, where Canada's oil boom beneficiaries have discovered an increased need–and just the right pocket change–for last-minute luxury travel, according to Mike Knapp, the company's president. Although headquartered in Calgary, in 2002 AirSprint expanded its service to the east where Montrealers and Torontonians are now frequently whisked to cross-border destinations such as New York and Boston.

But hassle-free travel doesn't come cheap. A minimum one-eighth fraction of ownership, which includes 100 hours of flying time annually in a Pilatus PC12, costs US$435,000 plus a monthly management fee of $4,350 and an hourly direct operating charge of $850. Prices may also vary according to fluctuations in fuel charges and inflation. At any time, owners may sell their interest in the aircraft back to AirSprint, which will then remarket the share at its current value. “You're not spending the money,” says Macor, putting a positive spin on what could be perceived as a rather exorbitant one-time capital expenditure. “You're parking your capital in an asset.”

In fact, half-a-million dollars for a slice of a luxury aircraft compares rather favourably to the $7-million-to-$40-million price tag that accompanies today's business jets, not to mention the added financial burden of management expenses, pilot salaries and licensing fees. Just ask Gary Stern, CEO of Crawford Metal, a Toronto-based steel company. For years, Stern relied on a company-owned jet to shuttle senior managers back and forth between Crawford's headquarters and its geographically scattered plants throughout North America. That is, until nearly two years ago, when Stern traded in his executive jet to become an AirSprint fractional owner. “When you own aircraft outright, you spend a lot more time managing a plane and not conducting your business,” says Stern, who estimates saving anywhere from 10% to 25% on aircraft expenses as a fractional owner.

Although Crawford Metal is privately owned, in these days of corporate governance, CEOs of public companies are far more likely to win shareholder approval through fractional ownership than with a multimillion-dollar airborne accoutrement. “It's much easier to justify the expense of owning part of a jet rather than the entire plane, especially for medium- and small-sized companies,” says Fred Lazar, an aviation expert and associate economics professor at York University's Schulich School of Business in Toronto.

But AirSprint's founding members shouldn't unfasten their seatbelts just yet. For all the strides the company has made in the fractional ownership arena, there could be turbulence ahead. In the United States, NetJets, owned by Warren Buffett-controlled Berkshire Hathaway, plans to bolster its current stable of about 2,300 pilots with an additional 450 new hires this year to accommodate an uptick in consumer demand. Based in New Jersey, NetJets now has 624 planes, having added 73 planes to its fleet in the past year, representing a 13% increase. Canadian clients can fly NetJets in the United States.

Competition is also mounting on the domestic front. In Burlington, Ont., private pilot and Canadian entrepreneur Edward Furtak recently launched JetSet Fractions, a fractional ownership program with an introductory offer of US$60,000, plus management and operating fees, for a one-sixteenth share in a JetSet MS760x–a four-seat, twin-engine jet that Furtak refers to as “the Ferrari of aviation aircraft.”

And in February, Bombardier Flexjet, the Dallas-based fractional ownership arm of Bombardier Aerospace, expanded its services in Canada with the addition of three Canadian-registered aircraft and 10 Montreal-based pilots. Although considerably more expensive than AirSprint–US$660,000 buys you a one-sixteenth share and 50 hours of annual flying time in a Learjet 45 XR– Bombardier Flexjet has a distinct advantage over its competitors. The new Flexjet Canada service enables travel between locations within Canada–point-to-point travel that Canadian commercial operations are restricted from offering in the United States in accordance with current airline cabotage regulations.

Cabotage is the regulation of transport services between two points in the same country. In the case of AirSprint, a flight must either originate or complete its rotation in Canada. For example, while a fractional owner is permitted to fly from Edmonton to New York, he may not, under usual circumstances, use the aircraft to fly from New York to Los Angeles. The same rules apply to U.S. fractional ownership companies in Canada. With the launch of its Canadian program, however, Bombardier's Flexjet Canada service will be able to provide its 20 Canadian owners– among them Aldo Bensadoun, CEO of Aldo Group in Montreal–with point-to-point travel within Canada on Canadian-registered aircraft. What's more, because Burlington-based JetSet's aircraft are classified as privately owned, rather than used for commercial purposes like AirSprint, they are also excluded from existing cabotage regulations.

Not that Knapp is overly concerned with losing market share to his city-hopping competitors. To begin with, 70% of AirSprint's traffic is cross-border. And while the company has entertained the notion of one day teaming up with a U.S. carrier, Knapp says that generating awareness–not partnerships–is chief among AirSprint's strategies for continued growth. “There's a huge market out there full of people that don't even know we exist,” he says. “That's the biggest challenge for us.” Given the state of commercial air travel, and the high-priced perks of fractional ownership, AirSprint is unlikely to fly under the radar for long.