How Russian millionaires lose money on private flights

Annually, at the brokers' margins, customers using charter business jets lose up to $ 1.2 billion.
16.01.2020
Forbes
Origin source
Since the creation of the first Learjet 23 business jet by American inventor William Lear in 1963, private aviation has grown into a large-scale industry. At the end of 2018, its volume was estimated at $ 27.5 billion, and growth is expected to reach $ 36.2 billion by 2026. An impressive share of this industry falls on charter flights, in which the board does not belong to the client, but is leased for a specific flight. According to WingX estimates, in 2018 private charters accounted for about $ 12 billion. And of the 500,000 private flights in Europe last year, 60% were charter.

Despite the scale and relevance of charter flights, the lack of transparency in this market often causes wealthy clients to face extra payments. On average, according to our estimates, this increases the price of private flights by 10%. So, customers lose about $ 1.2 billion per year.

Why it happens? The market was formed in the 1970s, and since then its model has not changed much and is similar to the one used by resellers. The client buys the flight he needs from the broker at the same price. The broker, in turn, purchases a flight at a lower price from the aircraft operator. It is clear that the existence of a broker in this chain - in the absence of regulation of their work - leads to opaque margins and commissions wired in their model. Here are just a few examples.

More than half of the charters are bought by customers shortly before the flight date or on the same week. This creates a problem for brokers - the client transfer has not yet been credited by the bank, and the operator already needs to pay for the flight. Therefore, brokers without a sufficient amount of equity require customers to pay for flights with credit cards. Banks charge 3-5% for such transactions. With an average private flight cost of € 12,500, customers lose the extra € 600 on each flight.

A significant part of the extra spending arises due to the sky-high margins of brokers. For example, the cost for an extra passenger on a flight to Vnukovo is € 305, some brokers charge customers these costs twice as much. The figure is insignificant, but this is only one of the margins that can be encountered with brokers. So, the main revaluation losses occur when something goes wrong with the flight. For example, a flight on the Moscow-Nice-Moscow route to the Bombardier Challenger 300 during Formula 1 in Monaco can cost about € 30,000. In case the airport does not provide parking, the operator asks for an additional about € 3,000 for departure / arrival. From the client, brokers in such situations ask on average about € 6000. Customers pay - for the most part, they have no choice but to fly back. Similar margins arise in cases of technical problems with the aircraft. Markups can be up to three times if the client asks the broker to replace the board with the rest of the route.

An additional risk is the financial reliability of brokers. For the majority, client money is not credited to special escrow accounts (from which they cannot be spent for any purpose) and are not separated from the broker's operating expenses. This means that a situation is not ruled out in which, even after receiving payment from a client, the broker does not transfer money to the aircraft operator. He, in turn, refuses to fly. A recent example is the bankruptcy in 2017 of the American broker Zetta Jet, which has accumulated more than $ 100 million of obligations to customers. An investigation into the company's collapse by the FBI showed that Zetta Jet received money from customers for flights, but did not fully service the lease payments for their Bombardier Global 6000.

How to deal with this? Obviously, all of the above risks can be reduced by directly ordering flights from operators. There are already startups that allow you to rent planes directly at operator prices. With the development of the market, information becomes more transparent, and perhaps in the next few years, the $ 1.2 billion that customers and the market lose due to outdated business models will return to the pockets of their owners.

The 50 most expensive aircraft of Russian billionaires. Forbes Rating

1. Airbus A340

Release Year: 2008
Estimated owner: Alisher Usmanov
Country of registration: Isle of Man
Estimated Cost: $ 150,000,000

Usmanov’s four-engine airliner is the largest of all aircraft belonging to members of the Forbes Russian rating. Usmanov prefers to fly on a wide-body Airbus A340. In honor of the father of Alisher Usmanov, the liner is called Bourkhan, this name is written on board. The registration number can be decoded as "I, Alisher Burkhanovich Usmanov (I, Alischer Burchanovich Usmanov)." The board is longer than the plane of Roman Abramovich. Usmanov could buy it for $ 300-350 million. The board is based in Moscow. A340 is characterized by very high fuel consumption, because of this, demand for it has fallen sharply.

2. Boeing 767

Release year: 2003
Estimated owner: Roman Abramovich
Registration country: Aruba island
Estimated Cost: $ 120,000,000

The plane received the nickname “Bandit” for the characteristic black stripe near the cockpit; its smaller model is sold in souvenir shops. The modification of Abramovich’s board means an increased flight range, which allows non-stop flights to a distance of up to 11,000 km. Such a huge plane is bought by those who have to fly around the world with a large number of accompanying persons. More than 60 people can comfortably work on board this Boeing. The jet, on which Abramovich moves, can often be seen in photographs of spotters in different corners of the planet - in Nice, Salzburg, Saint-Martin, and Tel Aviv.

3. Airbus A319

Release year: 2014
Estimated owner: Alexander Abramov
Registration country: Germany
Estimated Cost: $ 85,000,000

The Airbus A319, developed in France, is a shortened version of the A320 airliner on a 4 m: wing span 34.1 m, maximum take-off weight 76,500 kg, cruising speed 820 km / h. The Airbus Corporate Jet version is designed for business aviation. This airliner can carry 19 VIP passengers. If necessary, the salons are easily dismantled, which can accommodate already 100 people. The maximum flight range with a VIP cabin is 12,000 km. In real-world flight conditions, the A319 can cover distances of up to 10,400 km. The aircraft is operated by Vertis Aviation.

4. Airbus A319

Release year: 2013
Estimated owner: Andrey Skoch and family
Registration country: Aruba island
Estimated Cost: $ 71,000,000

The side number of the MGU aircraft echoes the 99-meter yacht Madame Gu and Lady Gulya, which belonged to Skoch. The Madame Gu yacht was based on the Eurocopter Dauphin helicopter with the 3A-MGU regnomer. The aircraft comfortably carries 19 passengers; it was handed over to the customer in early 2014. The plane can be seen in cities such as London, Zurich or even Tashkent. The board is often in the Vnukovo business terminal, which is also considered the co-owner of the Skoch family.

Dmitry Rybolovlev, Alexander Abramov, Alexander Frolov, Viktor Vekselberg, Mikhail Prokhorov, Andrey Guryev can have the same aircraft.

5. Airbus A320

Release Year: 2008
Estimated owner: Andrey Kozitsyn
Registration country: Austria
Estimated Cost: $ 67,000,000

The plane and its unique livery with gold patterns and a bird on the tail went to the Russian billionaire from the previous owner - the Saudi Saad Group of the ruined billionaire Maan al-Sanea. The plane was relocated from Saudi Arabia to Yekaterinburg Koltsovo Airport. The aircraft can often be seen in European cities - Verona, Vienna and Paris. Also, this Airbus often visits the cities where the Yekaterinburg hockey club Avtomobilist holds its games, sponsored by the UMMC (Andrey Kozitsyn is a co-owner of the company). Sometimes the hockey team flies to them.

Gulfstream G650
Such an aircraft is supposedly owned by: Victor Rashnikov, Sergey Galitsky, Samvel Karapetyan, Iskander Makhmudov, God Nisanov, Roman Abramovich, Leonid Mikhelson, Vladimir Potanin.

Boeing 737 BBJ

This aircraft is allegedly owned by: Igor Makarov, Andrey Melnichenko, Vladimir Yevtushenkov, Vagit Alekperov.

Bombardier global 6000

This aircraft is allegedly owned by: Filaret Galchev, Vadim Moshkovich, Vasily Anisimov, Farhad Akhmedov, Victor Vekselberg, Sergey Adonyev, Albert Avdolyan, Alexey Mordashov, Igor Kesaev.

9. Airbus A318 Elite

This aircraft is supposedly owned by Zarah Iliev.

Dassault Falcon 7X

This aircraft is allegedly owned by: Oleg Tinkov, Alisher Usmanov, Alexander Dzhaparidze.

Gulfstream g550

This aircraft is allegedly owned by: Vladimir Potanin, Vladimir Bogdanov, Oleg Deripaska, Araz Agalarov, Alexander Ponomarenko, Victor Kharitonin.

Bombardier global 5000

This aircraft is supposedly owned by: Andrey Molchanov, Alexei Repik, Anatoly Sedykh, Alexander Svetakov, Vladimir Lisin.

Bombardier Global Express XRS

Presumably own such an aircraft: Musa Bazhaev, Mikhail Gutseriev, Alexander Abramov, Alexander Frolov.

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