GRAHAM WARWICK / COLUMBUS
Losses in Europe hit performance as world's largest fractional ownership provider identifies $20m savings this year
NetJets has embarked on efforts to improve its performance amid concerns about the profitability of the business aircraft fractional ownership industry. While revenues from share sales continue to grow, earnings from operating the aircraft on behalf of owners remain slim.
The company has identified savings of almost $20 million this year at its Columbus, Ohio, operations centre and has launched initiatives to reduce aircraft direct operating costs by $20 million and cut the cost of external subcontracted aircraft by $30 million. "These actions are necessary to ensure financial success in 2002," says chief operating officer Steve Brechter.
NetJets is the largest fractional provider, but operated at a small loss last year, compared with a small profit in 2000, largely because of losses in its European operation. The company's owner, US investment firm Berkshire Hathaway, believes other fractional operators lost significant amounts last year. Berkshire Hathaway has warned shareholders that, while size gives NetJets a significant edge over its competition, the advantage "will at best produce modest profits" for the next few years.
The main competition comes from Flight Options, now merged with Raytheon Travel Air, which claims lower operating costs. NetJets chief executive Richard Santulli doubts such claims, saying: "To operate at the level of safety we do, you can't operate more efficiently than we do." He also says NetJets gives nothing away, compared with competitors offering share owners 10% more hours. "We will discount the purchase price, but not operations," he says.
NetJets will continue to grow at 10-15% a year in terms of net aircraft sales, says Santulli. The company manages 449 aircraft, and has another 562 on order and option, having committed to almost 90 additional aircraft in the past year. Brechter says NetJets must become more efficient as it continues to grow. He is spearheading a transformation "from old-world functional to new-world process thinking".
Source: Flight International
