Latest / The High Net Worth Podcast with Fexingo: Wealth Management, Tax Strategy, and Affluent Finance / How Wealthy Families Use Fractional Jet Ownership
Transcript
- Lucas: So here's a number that stopped me this week: a Gulfstream G650 will set you back around seventy million dollars new. And if you're flying it, say, two hundred hours a year — which is actually a lot for a private owner — you're looking at something like thirty five thousand dollars an hour in fixed and variable costs. That's before you even pay the pilots. Luna: Right, and that's the sticker price that makes most people think, 'I'll just charter.' But chartering a Gulfstream per hour is also north of ten grand. So where does fractional ownership fit in? Lucas: That's exactly the question. Fractional ownership is the middle path. You buy a share of an aircraft — say one sixteenth of a G650 — and that gives you a guaranteed number of hours per year, access to a fleet, and a fixed hourly rate. It's not the prestige of owning the whole plane, but it's also not the unpredictability of the charter market. Luna: And it's been around for decades, but I feel like it's gotten a lot more sophisticated lately. You have NetJets, Flexjet, and newer players like Wheels Up — though they've had their struggles. Lucas: Yeah, Wheels Up is a cautionary tale. They went public via SPAC in 2021, burned through cash, and had to restructure. The industry is capital intensive and operationally brutal. But the big two — NetJets, which is owned by Berkshire Hathaway, and Flexjet, which is backed by Directional Aviation — they've been around for decades and they've got the scale to make the model work. Luna: So what does the economics actually look like? If I'm a wealthy family thinking about this, what's the entry point? Lucas: Well, for a midsize jet like a Citation Latitude, a one sixteenth share might cost around a million dollars upfront. Then you have monthly management fees, and you pay an occupied hourly rate when you're actually on the plane. That hourly rate covers fuel, crew, maintenance, catering — everything. On top of that, there's a capital contribution for the acquisition fund, which is sort of a reserve for future maintenance and engine overhauls. Luna: And that's the part that people often underestimate. The upfront share is just the beginning. You're essentially prepaying a portion of the aircraft's cost, but you're also on the hook for the depreciation. Lucas: Exactly. The share depreciates as the aircraft ages. But here's the twist: for a qualified business owner, there's a potential tax advantage. Under Section 168, you can take bonus depreciation on the portion of the aircraft used for business. That means you can write off a big chunk of that million-dollar share in the first year. It's a classic strategy for high earners who use the jet for business travel. Luna: But there's the 7.5 percent federal excise tax on every flight, right? That's like a sales tax on the whole trip. Some people try to avoid it by structuring it as a dry lease or something, but the IRS has gotten pretty aggressive on that. Lucas: Yeah, the excise tax is a real drag. For a family office that flies forty hours a month, that's easily a hundred thousand dollars a year in excise tax alone. And the IRS is cracking down on 'fake' dry leases that are really just a way to dodge the tax. You have to be careful. Luna: So what's the actual benefit versus just chartering every time? Because the hourly rate on a fractional share is often lower than charter, but you're paying that upfront capital. Lucas: The real benefit is guaranteed availability. When you charter, you're at the mercy of the market. If a snowstorm hits the Northeast, charter prices double and availability disappears. With a fractional share, you have a guaranteed number of hours, and the provider is obligated to get you a plane within a certain notice period. That certainty is worth a premium to someone whose time is worth five figures an hour. Luna: And there's also the ability to trade hours for different aircraft. Like, if you have a share in a light jet but you need to go transatlantic, you can use more hours to get a large-cabin jet. That flexibility is huge. Lucas: Right. And that's where the comparison gets interesting. NetJets, for example, has a fleet of over 800 aircraft, so they can almost always accommodate you. Flexjet has a slightly different model with more focus on newer aircraft and a 'Red Label' program that offers a more bespoke experience. But both give you access to a whole fleet, not just one plane. Luna: Let's talk about the numbers for a typical family. Say they fly about 200 hours a year — that's a lot, but not insane. If they're chartering at an average of nine thousand dollars an hour, that's one point eight million a year. What would fractional cost? Lucas: For 200 hours, you'd probably need a one quarter share of a super-midsize jet. That might cost around five million dollars upfront. Then monthly management fees are maybe forty grand a month — that's nearly half a million a year. And your occupied hourly rate is probably around six thousand dollars. So on 200 hours, that's one point two million in flight time. Add it all up, you're looking at around two point two million in annual costs, including the amortized cost of the share over maybe five years. Luna: So it's actually more expensive than charter? That's surprising. I thought fractional was supposed to save you money. Lucas: It's not about saving money upfront. It's about locking in a guaranteed rate and availability. Plus, when you sell your share, you get some of that capital back — though likely less than you paid. So the net cost is the depreciation plus the operating expenses. Charter is pay as you go, but you have no control over price spikes. Fractional is more predictable, and for many families, that predictability is worth the premium. Luna: But there's also the question of how often you actually fly. If you only fly 50 hours a year, fractional probably doesn't make sense. That's where a jet card or even charter might be better. Lucas: Absolutely. The general rule of thumb is that fractional makes sense if you fly more than 150 hours a year. Below that, you're paying for guaranteed availability you're not using. Jet cards, like NetJets' Marquis card, let you buy hours in increments — say 25 hours at a time — and you pay a higher hourly rate but no upfront capital. That's a great middle ground for someone who flies 50 to 100 hours. Luna: And there's also the whole tax angle we touched on. If you use the aircraft for business, you can deduct the business use percentage. But the rules around entertainment and personal use are strict. You can't deduct the cost of flying your family to a vacation home just because you 'discussed business' on the flight. Lucas: Right. The IRS has clear guidelines: if more than 50 percent of the flights are for business, you can use accelerated depreciation. But you have to keep detailed logs — every flight, the purpose, who was on board. A good aviation tax attorney is worth their weight in gold here. And for a family office, they might structure the ownership through a separate entity to isolate liability and facilitate the tax treatment. Luna: So we've covered the financials, the tax, the flexibility. What about the intangible — the experience? I mean, with a fractional share, you get the same crew, you get your preferences remembered, you get a consistent level of service. That counts for something. Lucas: That's a huge point. When you charter from different operators, you never know what you're going to get. With NetJets or Flexjet, the pilots are trained to a standard, the cabin is consistent, and the service is predictable. For someone who values their time and comfort, that consistency is a real benefit. It's like flying first class with an airline you trust versus getting a random upgrade. Luna: And that's the thing about the high-net-worth space: it's not just about the money, it's about the lifestyle. You're buying back your time and reducing stress. Fractional ownership does that, but it's also a long-term commitment. You're not just buying a product; you're entering into a relationship. Lucas: Exactly. And I think that's the right way to frame it. It's a five-year commitment typically. You can sell your share earlier, but there's a market risk. If the aircraft model depreciates faster than expected, you might take a hit. That's why it's important to work with a broker who understands the resale market. But for the right family, the benefits — guaranteed availability, consistency, and the tax advantages — outweigh the costs. Luna: I also want to bring up something I read recently about the environmental angle. Private aviation is under a lot of scrutiny now, and some countries are introducing taxes on private flights. Like in France, they've proposed a tax on private jets. How do you think that will affect the fractional model? Lucas: That's a good point. The public perception is shifting, and wealthy families are becoming more conscious of their carbon footprint. Some are investing in sustainable aviation fuel offsets, which the fractional providers offer. NetJets, for example, has a program where you can buy sustainable fuel credits. It's not going to make the industry 'green,' but it does mitigate some of the reputational risk. And from a practical standpoint, if taxes like that come into effect, it will increase the cost of all private flying, including fractional. But it's unlikely to change the math for someone who flies 200 hours a year. Luna: Yeah, at that level, you're just not going to go back to commercial. The time savings are too valuable. Lucas: Right. And I think that's the bottom line: for families that fly enough, fractional ownership is a tool for buying back time and reducing friction. It's not an investment in the traditional sense — the asset depreciates. But it's an investment in your schedule, your productivity, and your peace of mind. And if you can layer on the tax benefits, it becomes even more compelling. Luna: And speaking of peace of mind, I think we should talk about the family office angle. A lot of our listeners run their own family offices. How do they typically approach this decision? Do they just buy a share, or is there a more strategic way? Lucas: It's rarely just a single purchase. A sophisticated family office will look at the whole travel portfolio. They might have a fractional share for regional trips, a jet card for occasional long-haul, and then use charter for the peak season when they need extra capacity. They also consider the possibility of owning a whole aircraft if they fly more than 400 hours a year. At that point, fractional is probably more expensive than whole ownership. Luna: So there's a hierarchy: charter, jet card, fractional, whole ownership. Each step up gives you more control and lower hourly cost, but also more capital commitment and more management headache. Lucas: Exactly. And the right answer depends on your specific patterns. Do you fly mostly on weekdays for business, or weekends for leisure? Do you need to go to Europe often, or mostly domestic? These factors will determine the right aircraft category and the right program. It's not a one-size-fits-all decision. Luna: And that's why it's so important to work with an advisor who understands aviation. Not just a financial advisor, but someone who knows the operational side. Because the pitfalls are numerous: hidden fees, peak day surcharges, fuel surcharges, and the fine print on the contract. Lucas: Absolutely. For example, many fractional programs have 'peak travel days' — like Thanksgiving week or the Super Bowl — where you might have to give extra notice or pay a higher hourly rate. And there's often a termination fee if you decide to sell your share before the end of the term. You have to read the contract carefully. Luna: And I guess that's the takeaway: fractional ownership can be a great tool, but it's not for everyone. It's for families who fly a lot, value consistency, and are willing to make a long-term commitment. And they need to do their homework. Lucas: Yeah. And if you're thinking about it, the first step is to get a real analysis of your flight patterns. Track every flight you've taken in the last year — destination, number of passengers, season. That will tell you what you need. Then talk to a couple of providers and compare. And maybe even try a jet card first to see if you like the service. That's a low-risk way to test the waters. Luna: That's a smart approach. And honestly, the fact that you can try before you buy is one of the best things about the industry. It's not like buying a whole plane where you're all in from day one. Lucas: Exactly. And if today's conversation has helped you think about your own travel strategy differently, that's exactly what we're here for. And, you know, if it was worth a coffee to you, we'd love to see you over at buy me a coffee dot com slash fexingo. It's the smallest way to keep this show ad-free and independent. Luna: Yeah, even a one-time coffee helps us keep doing deep dives like this. And it means a lot. Lucas: So, to circle back on the aviation thread — one thing we haven't touched on is the future of fractional ownership. With the rise of electric vertical takeoff and landing vehicles, or eVTOLs, there's a lot of speculation about whether they'll disrupt the private aviation market. But I think that's a decade away at least, and for now, the traditional jet is still the workhorse. Luna: But it's interesting to think about — if eVTOLs do become practical, you might see a model where you have a fractional share in an eVTOL for city hops, and a jet for longer trips. That would be a fascinating hybrid. Lucas: It would. And the companies like NetJets are already investing in that space. But for now, the advice remains the same: understand your flying habits, crunch the numbers, and don't buy more plane than you need. Fractional ownership is a powerful tool, but only if it fits your life.