Why Quarter Shares?

Why quarter shares anyway? If you notice the tail number of a NetJets fractional ownership jet, the serial number ends in “QS,” for “quarter shares.” This stems from a part of statistical mathematics known as a binomial distribution, a subject vaguely familiar from my college days, although I was more interested in Karen in the next seat than in this genre of mathematics.

The concept is that, given each event (or day, in the fractional jet ownership model) has equal level of desireability, the odds of any two (out of four total) people wanting the same item at the same time are statistically zero. The binomial distribution is a great tool in figuring out how to manage an asset that is subject to a time share, from vacation rentals to private jets and yachts, to even a parking space in a crowded city. In other words, if you have no more than four people vying for the same shared asset, the odds that any two of them want it at the same time are nil, meaning little, if any, scheduling difficulties.

Now, in reality, we know this is not true, as the assumption is that each day has equal weighting, i.e. Christmas is just as important as, say, October 19^th (which may be important to some for an unknown reason, but probably not important to the majority). But, the binomial distribution formula serves as a guide, and tells the fractional jet ownership management company that it is arguably a good idea not to have any more than four owners of the jet, for scheduling purposes.

The Santulli brothers, with backgrounds in mathematics, recognized this phenomena, hence the “QS” on the tail fin.

But, what about those operators/management companies that want more owners per jet, under the guise of increase revenues? Well, as history shows, revenues do increase, but so do costs. A casual review of Bershire-Hathaway’s 10K report to the Securities and Exchange Commission each year would show an annual net loss for NetJet for the years 1998 – 2009. Yes, revenues did increase each year, but so did costs.

With increased owners per jet come scheduling difficulties to the point that additional charter backup is needed. In their infancy, the major fractional jet providers often had deadhead rates of over 33%, sometimes over 40%.

Increased share owners per jet implies more legal costs to cover interchange agreements, which allow for substitution when a jet is not available. For those operators/companies offering 1/8^th or 1/16^th share, the scheduling problem is compounded even more.

But, the assumption on annual usage may need to be revisited. An original quarter-share implied an annual usage of 200 flight hours, or 800 flight hours for a full 4/4ths ownership usage. Is this realistic?

Another casual reading of annual flight department usage by wholly-owned aircraft show an average annual flight hours per aircraft of between 350 – 400 hours, not 800. The inference being that either the fractional jet ownership companies expect the owner to purchase a quarter-share, but not to use all those annual flight hours, or a marketing tool to encourage new entrants to the jet ownership market.

Bottom line analysis: increased share owners per jet has resulted in increased scheduling difficulties, as one can see from events such as the Master’s in Augusta or around holidays.

Next topic: scalability as a charter operator.

Michael Petridis Partner @ VIP Jets LLC
Dallas, TX

Michael has over 25 years industry experience with progressively increasing supervisory roles. He is an entrepreneurial, finance, sales, and operations executive with a broad range of experience in aerospace and finance-related companies. A proven self-starter, Michael has established and subsequently leveraged relationships with C-level clientele to lower barriers to entry and allow company access to new markets. Michael thrives in a dynamic, fast-paced environment. He is a team-player and key motivator of employee performance. His global experience spans over 50 countries across many diverse cultures.
Michael received his MBA degree from Southern Methodist University and a Masters of Aeronautical Science degree from Embry-Riddle Aeronautical University.
Receiving an honorable discharge from the USAF, Michael was one of the first several pilots to be combat-qualified in the F-15 Eagle and F/A-18 Hornet.
Michael volunteers with several local organizations, including Rotary International, and is active at the board level with local charities.
He is most recently the author of "Fighter Pilot Follies."