October 20, 2024
Private Jet Services Group is getting hammered in the media for Twitter’s assertion that the ‘market rate’ was ‘substantially less’ than the private jet charter broker charged.
Was Twitter overcharged for private jet charter flights booked on short notice?
In December, Private Jet Services Group, or PJS for short, sued Twitter to recover for private jet charter flights it had booked for an executive of the social media company that were not paid.
The flights were for a since-fired Twitter executive. They were booked as the sale to new Twitter owner Elon Musk was being consummated.
Twitter’s defense for not paying is that non-authorized Twitter employees booked the flights. PJS’s assertion was, in part, that the flights were approved by Twitter’s former CEO while he was still CEO.
I won’t address the approval process.
It may reflect poor business practices on the part of PJS. It is also an example of how the industry sometimes works. That means helping clients get where they are going on short notice with the trust of being paid.
Indeed, there are clients that look for excuses not to pay bills or seek post-flight discounts. After a while, they find that their phone calls aren’t being returned when they call for quotes. Or, they are told the provider can’t find a suitable aircraft to be more polite.
It’s believed the flights in question were for an executive integral to closing the $44 billion deal.
It’s also worth noting New Hampshire-based PJS apparently didn’t require Twitter to keep funds on account.
Many memberships and jet card programs require clients to deposit funds. Flight costs are deducted from the balance.
Clients lose the interest or benefits of having that money in their own bank accounts. PJS was working on an invoice basis, much like the way you might pay the guy who cuts your lawn.
It’s not standard, but it’s not atypical for brokers to have such arrangements with big-spending clients.
Either way, it’s for the benefit of the client, not the provider.
However, the inference made in Tuesday’s filing from Twitter was that PJS overcharged the social media company for the flights.
It has already generated headlines in Fortune, Business Insider, and Bloomberg saying as much.
It’s only a footnote in the 13-page filing, but clearly, it is explosive based on how the media picked up on it.
More importantly, it highlights some important issues for private aviation users about how the charter industry works, including pricing.
Twitter’s filing states, “Market rate for next-day private air charter services, roundtrip, coast-to-coast on midsize jets are estimated at $70,000 to $96,000, and on large jets, $88,000 to $156,000. These ranges are substantially less than the $194,000 total invoices PJS sent Twitter.”
I’ve highlighted “market rate for next-day,” as well as “roundtrip,” and finally, “midsize.”
But first, let’s get to the details as outlined as we know them so far.
The first flight was booked and billed for $103,850 from Teterboro Airport in New Jersey, just outside New York City, to San Francisco.
A second flight was booked and billed at $93,875 for a flight from San Francisco back to Teterboro.
Here’s what happened, according to the original PJS filing, which is not being debated:
“During the evening October 25, 2022, via email and text, Twitter employee Taylor DeLorenzo booked air charter passenger transportation services for Twitter executive Leslie Berland from Teterboro to San Francisco for the morning of October 26, 2022.
“PJS arranged, confirmed, and provided to Twitter’s executive the air charter passenger transportation services that Twitter requested from Teterboro to San Francisco.
“On October 26, 2022, PJS invoiced Twitter $103,850 for its executive’s air charter passenger transportation services from Teterboro to San Francisco, with payment due by November 2, 2022.
“During the afternoon of October 27, 2022, via email, Twitter employee Cynthia Ancheta booked air charter passenger transportation services for Twitter executive Leslie Berland from San Francisco to Teterboro for the evening of October 27, 2022.
“PJS arranged, confirmed, and provided to Twitter’s executive the air charter passenger transportation services that Twitter requested from San Francisco to Teterboro.
On October 27, 2022, PJS invoiced Twitter $93,875 for its executive’s air charter passenger transportation services from San Francisco to Teterboro, with payment due by November 3, 2022.”
Again, the Twitter filing, asking the Court to dismiss the PJS lawsuit, asserts, “Market rate for next-day private air charter services, roundtrip, coast-to-coast on midsize jets are estimated at $70,000 to $96,000, and on large jets, $88,000 to $156,000. These ranges are substantially less than the $194,000 total invoices PJS sent Twitter.”
First, let’s address roundtrip as it relates to private jet charter pricing.
The former Twitter employee did, in fact, travel from New York to San Francisco and back. However, it was not booked as a roundtrip.
In the lingo of private jet charters, roundtrips usually require all flights for the trip to be booked at the same time. The mission is then flown by the same aircraft. Generally, the same crew flies all segments, returning to base within a specified time, usually a day or two.
Roundtrip pricing can be cheaper because you don’t have as much repositioning.
Repositioning is when the airplane flies empty, either to pick up the passengers or after it drops them off.
Some flights could involve two repositioning flights. The first, from the airplane’s base to the customer, and then back to the base after dropping the customer off.
For example, if the aircraft PJS, a broker, was able to secure on short notice was based in New York, the cost for the outbound flight would also entail paying for the empty flight back after it dropped the customer off in San Francisco.
Those flights are called empty legs, which are thought to be upwards of one-third of all private jet flights.
So, the first thing to know is that one reason the PJS prices could have been above what Twitter’s lawyers call the “market rate” is since the two flights were booked separately, they were operated by separate airplanes.
The first flight was booked on the evening of Oct. 25 to fly Berland on the morning of Oct. 26 from New York to San Francisco.
Former Twitter employee Berland’s return flight was booked on the afternoon of Oct. 27 to fly back to New York from San Francisco later that evening.
By the 27th, the airplane that flew her out to San Francisco would likely have been back in New York or somewhere else.
On short notice, the return flight PJS booked could have meant a similar scenario.
The airplane that flew Berland back to the East Coast, if it was based in the Bay Area, would have flown back empty after dropping her off.
Who pays for empty legs? The customer who is chartering the airplane covers that cost.
In other words, while Berland only flew one way, securing the aircraft may have required paying for it to return to its base, even if there were no passengers aboard.
With enough notice, sometimes empty legs can be sold off. In some instances, the broker may refund that money back to the client, but that’s not standard.
If the flight is booked in advance, and the broker believes it can sell the other side of the flight, it will then reduce the quote to the first client and take the risk of selling the other side of the flight.
Either way, the flights returning to base or repositioning the aircraft while empty are baked into what the operator quotes the broker unless the operator thinks it can sell the other side.
It’s unlikely an operator would take that risk on such short notice. It’s also possible the operators had other commitments for the airplanes after Berland’s flight.
In other words, on such short notice, PJS was lucky to secure the aircraft at any price.
Crazy as it seems, if former Twitter employee Berland had been able to fly back on the jet that brought her out, it’s quite likely she would have paid the exact same $103,850 that was the cost of her New York to San Francisco flight.
There are floating fleets that offer one-way pricing. They don’t have a base they need to go back to. They hop from one revenue trip to another, hopefully cutting down on the length of their repositioning flights.
But with the short notice, an evening booking to fly early the next morning, and less than 12 hours for the second flight, an afternoon booking for an evening departure, I imagine PJS was scrambling to find an airplane.
I thought it was interesting that Twitter’s lawyers apparently overlooked that the two flights were booked separately. It was not a roundtrip in the sense the industry prices it.
In fact, one of the articles the Twitter lawyers source clearly states, “Your return plans are another key pricing element, so if the plane just takes you one way and has to fly back empty, you may end up covering the cost of that empty flight.”
Certainly, what Twitter’s lawyers wrote is something that the judge and the media could misinterpret. Judging by the headlines, the media believes Twitter is saying it was overcharged.
In fact, the footnote in Twitter’s filing appears to misrepresent some information. The footnote reads, “Market rate for next-day private air charter services.”
The fact is one flight was not “next day” but the same day.
When I reviewed the articles they referenced (more on that in a minute), I didn’t see any references to the pricing they cite as being based on any specific booking windows.
While much of the detail has yet to be disclosed, the PJS filing, not debated by Twitter, indicates one booking was overnight with less than 18 hours’ notice, evening to morning. The second was less than 12 hours’ notice – same afternoon to same evening.
The PJS agreement with Twitter was each flight request would be priced based on the market at the time of reservation.
In industry jargon, it’s called dynamic pricing.
It’s one reason people and companies use jet cards, membership, and fractional ownership with offers of fixed or capped hourly rates and guaranteed availability.
They want to know how much they will pay ahead of time instead of having each trip priced out based on whatever the market offers.
Most of those programs only charge for occupied hours. That’s when the customer is in the jet. In other words, hourly rates already account for repositioning flights. They don’t charge for them additionally.
At one point, you could find jet card and membership programs that offered a booking window with as little as eight hours’ notice. Current supply chain and availability issues mean providers have pushed it to anywhere from 24 to 96 hours before departure.
A major fractional share provider offers clients who buy at least 50 hours of flight time per year the ability to book on as little as six hours’ notice. However, that entails a five-year multi-million-dollar commitment.
The current all-in lease rate for a super-midsize aircraft from that provider that can fly nonstop is just under $20,000 per hour, so multiply by the approximately 11 hours of flight time between the outbound and return flight. You are talking about $220,000.
Currently, jet card rates range between $56,569 to $107,206 each way for a super-midsize jet. Large cabin jets range between $80,175 to $124,958.
That’s based on at least 24 hours’ notice. But again, Twitter was booking with less than 24 hours’ notice.
At the time Twitter made those bookings, there was no better option for such short-notice bookings except to pay market pricing.
Last year, I got an evening call from a friend who is in the professional sports business. A major professional sports team client had just acquired a new player in a trade. They wanted to fly him from the East Coast to the West Coast the next morning, so he could play for his new team that day.
I was told that money wasn’t an object. When I reached out to a couple of brokers to see if they could help, they already knew about it. Hundreds of calls and emails were already out there trying to secure a flight before the request worked its way to me.
The net was that nobody could find a jet on such short notice. The player ended up joining his new team two days later instead of the next day, as was hoped.
The shorter the notice when booking a private jet, the smaller the supply.
You need an airplane with a legal crew to fly the jet. Like the airlines, charter pilots have duty limits and rest requirements.
An available airplane located at the departure airport may not have a legal crew on such short notice. A jet with a legal crew could be located someplace else. That means they then reposition to pick up the customer.
Any of these factors can increase the cost of the flight.
The filing from Twitter lawyers refers to midsize jets.
Nonstop flights, particularly westbound, from New York to San Francisco, require a super midsize or large cabin jet, not a midsize jet.
In fact, there are some super-midsize jets that can’t make it nonstop based on the winds.
So far, the filings haven’t revealed the details of the aircraft booked, but as they say, the devil is in the details.
On a time-sensitive mission to complete a $44 billion, I imagine PJS needed to find a jet that could easily fly nonstop.
Was it a large cabin jet?
Were there any other requirements, such as high-speed WiFi?
The flights took place as Musk’s deal to buy Twitter was about to be finalized. One would guess the executive needed to be in contact with people on the ground during the flight.
According to what I could ascertain, Musk closed his deal to buy the social media company on Thursday, Oct. 27, 2022.
Regarding pricing, the closer you get to departure, the smaller the pool of options. The more requirements, for example, high-speed WiFi, the pool gets reduce. Both can mean higher prices.
Private aviation providers depend on referrals for new business. Those are referrals from happy clients.
Lawsuits from clients create bad publicity.
I reached out to Twitter’s lawyers for comment, but they didn’t respond.
I couldn’t figure out why they would include an inference that PJS was overcharging Twitter. After all, their motion to dismiss is based, as best I could see, that the flights hadn’t been properly authorized.
So far, for PJS, the possibly unfounded inference that they were overcharging Twitter is turning into a public relations nightmare.
Bloomberg headlined, “Twitter Claims Private Jet Service Overcharged for Flights,” continuing, “Social media giant claims flights billed at twice going rate.”
Business Insider put it this way, “Twitter hit back at a private jet company suing it over a $197,000 unpaid bill, saying it was overcharged for 2 flights that weren’t properly authorized.”
Fortune wrote, “Elon Musk’s Twitter says it has good reason not to pay for $200,000 private jet trip: The company overbilled.”
I reached out to PJS CEO Greg Raiff.
He told Bloomberg, “Suffice it to say, we offered Twitter a price, they agreed to the price, and then they decided afterwards they didn’t want to pay.”
He declined to provide additional comments.
The Twitter lawyers didn’t do much due diligence in checking the validity of their source information.
One of the articles the Twitter legal team cited was on Sherpa Report. It’s a lead generation website that sells contact information from website visitors to jet companies. The referenced article states it was updated on December 23, 2022.
I talked to the source for pricing in the article, Patrick Harris, the President of broker Velocity Jets. He told me the information was around 10 years old.
The other article, in Afar, was published on April 5, 2022.
It cited broker Air Charter Services, which estimated transcontinental rates “on a midsize private jet: $24,000 to $48,000; on a large private jet: $51,600 to $78,000.”
However, it doesn’t stipulate booking terms. I couldn’t find a reference to those prices being based on next-day or next month.
It’s also worth noting over the past year, fixed rates were up around 20%.
At the end of December, fixed hourly rates for jet cards with guaranteed availability were:
In any case, none of those rates would have been applicable to Twitter’s requests since they were booking flights within 24 hours before departure.
Dynamic pricing varies day-to-day.
I expect more details to come out. Twitter and its lawyers certainly have those details already.
It’s impossible at this point to say what PJS paid for those flights and what its markup was. That may come out. However, it doesn’t seem like that is the reason Twitter is seeking the lawsuit to be dismissed.
If what I laid out in terms of why the flights cost what they did is correct, Twitter’s inference of being overcharged is wrong. If Musk and his lawyers were aware of this, they may owe PJS more than an apology.
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