Private-jet operators are offering lower prices, thanks to the bailout
Quick summary
One surprising consequence of the airline bailout: Private-jet operators are offering lower prices.
U.S. airlines are not the only beneficiaries of the aid package meant to save them from going under as the coronavirus crisis obliterates demand. Other operators in the aviation sector, including private-jet companies, benefit from the $2 trillion rescue package meant to sustain the economy while most of the nation stays at home to fight COVID-19.
As well as airlines, private-jet operators and other companies in the so-called "general aviation" sector have access to $50 billion in aid through the CARES Act, half of which is in the form of grants and half in loans. Every company that flies airplanes and is not an airline or the military will also enjoy a tax holiday through the end of the year.
That holiday includes taxes on fuel, a major cost for airlines and other operators; fuel can account for up to 20% of yearly expenses. Then there's a Federal Excise Tax of 7.5% on airfare, which is collected on most domestic tickets issued in the U.S. including private-jet ones, which is also suspended until next year.
That's translating immediately into lower prices from some private-jet operators.
For example, Magellan Jets, a Massachusetts-based private-jet operator, is offering trips for $8,950 between Teterboro, New Jersey, to Atlanta in a Bombardier Challenger 601. With a typical capacity of 10 seats and a full plane, that would mean a price of $895 per person. In private-aviation terms, that's relatively cheap. Estimates for comparable trips available online are generally much higher; for example, the cost of a trip in a similarly-sized aircraft from New York to Miami can be as high as $35,000.
Even those cheaper private-jet trips are still three times as expensive, per person, as the $300 average for a one-way ticket from New York airports to Atlanta in first class during the week of April 13. But well-heeled flyers are still opting to use private jets as a means to avoid potential exposure to the coronavirus.
In fact, private-jet users polled by Private Jet Card Comparisons, a firm that compares memberships in fractional ownership programs for private jets, are optimistic about the future of the industry. Two-thirds of those who responded to the poll, taken in the third week of March, said they expected private-jet travel to increase or at least remain flat for the rest of 2020; most cited reducing potential exposure to the coronavirus as the reason for an increase.
The inclusion of pivate-jet operators in the relief bill came after the National Business Aviation Association and other industry groups lobbied for the industry to be added, with a letter sent to House and Senate leaders on March 17. The lobbying effort was successful; as reported by CNBC, private-jet operators will also be eligible for funds from a $50 billion pool that includes $25 billion in grants for wage payments to workers and $25 billion in loans and loan guarantees from the federal government.
But that relief would not go only to private-jet operators, the letter pointed out.
"The United States business and general aviation industry, which includes all operations other than the scheduled commercial airlines and military, supports 1.2 million jobs and $247 billion in economic impact," the letter said. "Across the country, thousands of small and mid-size businesses generate $77 billion in labor income."
Despite those numbers, the inclusion of businesses that cater to the wealthy among those receiving federal aid has been criticized. Even before the COVID-19 crisis, The Economist — not a publication prone to calling for class warfare — unequivocally called last year for scrapping "ludicrous tax breaks" for private jets, on the grounds that they hurt the environment. (In terms of emissions per passenger flown, private jets pollute far more than commercial ones.)
After the passage of the coronavirus relief package, Dean Baker, senior economist at the Center for Economic Policy, told CNBC that "it's hard to imagine anything worse. Putting up public money to support an industry that serves the rich would be hard to justify. It's absurd."