While it’s hard to decipher NetJets‘ financial performance from Berkshire Hathaway’s quarterly reports and other filings, it appears the world’s largest private aviation provider is weathering this recession much better than the last one.
In its 2009 annual report, Warren Buffett described the seller of fractional shares as “The major problem for Berkshire.” NetJets posted a $711 million loss, and Buffett said without Berkshire guaranteeing its debt, “NetJets would have been out of business.”
This time around, it looks like the fractional fleet operator is doing significantly better.
Berkshire’s Q3 filing reports “aggregate revenues of NetJets and FlightSafety declined 10.8% in the third quarter and 14.3% for the first nine months of 2020…Pre-tax earnings of the service group were $470 million in the third quarter and $1.2 billion in the first nine months of 2020, an increase of $19 million (4.2%) in the third quarter and a decrease of $270 million (18.9%) in the first nine months compared to 2019.”
The report states, “Service group revenues were $3.1 billion in the third quarter and $9.1 billion in the first nine months of 2020, decreases of 8.2% in the third quarter and 10.8% in the first nine months as compared to 2019.”
In addition to NetJets and FlightSafety, the group includes electronic components make TTI, Dairy Queen; Charter Brokerage, a third-party logistics services that serve the petroleum and chemical industries; transportation equipment leasing unit XTRA; CORT, which leases furniture; Business Wire; a television station in Miami, Florida, and until the time of their sale on March 16, 2020, a group of newspapers.
Patrick Gallagher, NetJets’ president, tells Private Jet Card Comparisons, “Our year-to-date new customer acquisition numbers are up more than three-fold versus 2019, and our customer retention rates are better than last year as well, so the decline in flight volume you see in Argus data and the reported lower demand for aviation services is a story of flight activity, not the overall strength of our business.”
He adds, “It’s the strength of our foundational shared ownership model which has kept revenues up even when flying was at its lowest point, and our strong brand and robust card business allowed us to tap into the pipeline of new entrants to the market. If our retention and graduation rates persist, and we have every reason to believe that they will, those new entrants will make us an even larger business in the future.”
NetJets didn’t sell jet cards back in 2009. That came with its 2010 acquisition of Marquis Jet Partners, which bought shares from NetJets and then sold them in 25-hour card units under an exclusive sales arrangement.
In June, Gallagher said May was the company’s best month for acquiring new customers since 2007. In addition to being able to tap entry-level flyers through its expanded jet card offerings, one industry executive said the relative health of its share customers is much different this time around.
“Last time you saw a lot of UHNWs who were overexposed, and you saw key sectors like financial services, automotive, and constructions in financial distress. If you think about who their customers are, companies and wealthy individuals are coming through this recession far less damaged and in some areas are doing quite well,” the person said.
In addition to selling shares and hourly flight fees, fractional share operators collect monthly management fees whether or not shareowners are flying. In other words, when flight owners don’t fly, it’s not as damaging to the bottom line as when customers go into arrears on their management fees.
For October, Argus data showed fractional operators pulling to within 11% of 2019 levels, a big rebound from the 80% decline in May. In 2019, NetJets had a 64% share of the market.