This video was made possible by Curiosity
Stream. Watch over 2,400 documentaries for free for
a month at CuriosityStream.com/Wendover. Private jets represent an inconceivable level
of opulence. If the average American were to spend their
entire year’s salary to charter a Gulfstream G550 from New York, they would just barely
make it to Utah, and yet, there’s a class of people who use these planes to fly not
just from New York to Utah, but rather routes like New York to Beijing. There’s a class of people who will spend
tens or hundreds of thousands of dollars on just one single flight. Now, there are a few reasons this is strange
beyond just the sheer price of things. Chartering that Gulfstream from London to
Dubai, for example, you’d end up paying about $55,000 at rack rate. Meanwhile, if you were to fly Emirates First
Class, which is just, if not more opulent, you could fly between the cities twenty times
for the same price. What’s even stranger about this kind of
expense is that businesses, which are intended to maximize profits for their shareholders,
are able to justify this enormous expense as worthwhile. So, when is it that paying $8,000 or more
an hour to fly makes money? There’s a pretty simple way of figuring
this out. Out of the 8,760 hours in a year, the average
CEO works 2,716 of them. For a CEO that’s paid $1 million a year,
that makes an hour of their time worth $368. Among America’s largest companies, though,
the average CEO earns $15.6 million. That makes their hour worth $5,750. For the most part, though, private jets fly
about the same speed as commercial planes so when flying a route like London to Dubai,
the time savings come at the airports on each end. It comes from being able to arrive, get on
a plane, and fly—rather than having to navigate one’s way through a busy terminal for a
fixed flight time. But still, flying private versus commercial
from London to Dubai would save, at most, about three hours in airport time. With the cost of $55,000 for the flight, that
would mean the CEO’s time would have to be worth $18,300 per hour. That wouldn’t be true until they earned
$50 million a year—a salary earned only by the upper echelon of CEO’s. But the truth is that, for the most part,
private jets do not make economic sense when flying routes with plenty of commercial service
like London to Dubai. One of the larger corporate jet fleets out
there belongs to Walmart. Now, this might come as a surprise considering
that this is a company so focused on keeping costs low. You see, Walmart is headquartered in Bentonville,
AR—a relatively small city of 50,000. Their airport does have a surprising amount
of service for such a small city with flights all the way to Los Angeles and New York, largely
propped up the company’s traffic, but for the higher ups, commercial doesn’t cut it. That’s why the company has a fleet of 20
corporate jets—the largest of any American company. These are most frequently flown by the company’s
Regional Vice Presidents who are in charge of a specific area of the country and will
have to make frequent store visits within this region. The company apparently has a goal that nobody
spends a night away from Bentonville—they want as many trips as possible to be day trips. Now, let’s say that one of these executive
vice presidents needs to take a trip to three stores—one in Rock Springs, Wyoming; one
in Spokane, Washington; and the last in Great Falls, Montana. Getting to Rock Springs requires a seven hour
itinerary through Denver that would get this executive in at 9:30 pm therefore already
requiring an overnight stop. Then, the next day, they would do their store
visit in the morning and, as there are only two flights a day from Rock Springs, they
would have to wait until 4:50 pm to catch a flight back to Denver then another one to
Spokane, getting in at 8:30 pm local time, therefore requiring another overnight stop. The next morning they would do their site
visit, but once again, flight schedules dictate that the first itinerary to Great Falls would
leave at 5:05 pm through Salt Lake City, getting in at 10:04 pm local time, thereby requiring
another overnight stop. Following the next morning’s store visit,
this executive would catch a noon flight to Denver and, after a three hour layover, another
to finally get into Bentonville at 8pm. These three store visits would therefore take
up four whole working days, but what if this executive flew private? Leaving at 9am, the first flight direct to
Rock Springs would take an hour and 45 minutes getting in, with the hour’s time change,
at 9:45 am local time. After a two hour store visit, the plane would
take off again at 11:45 am, flying an hour and 15 minutes to Spokane, getting in at noon
local time. After another two hour store visit, the plane
would take off at 2 pm for a quick 45 minute flight to Great Falls, getting in at 3:45
pm local time. After a final two hours at this store, the
plane would take off its final time at 5:45 pm bound for Bentonville. 2 hours and 15 minutes of flight time later,
it would land at 9 pm local time, exactly 12 hours after leaving. What was a four day trip on commercial flights
becomes a day trip on private, and that’s why Walmart decided private jets are worth
it for them. It’s all about valuing the time of their
employees and they’ve determined that, even for the relatively low level vice presidents,
their time is valuable enough that it’s worth flying them private. For example, one of the aircraft Walmart owns
and operates is the Learjet 45. It costs the company about $4 per mile to
operate this aircraft including crew, fuel, insurance, maintenance, and all other variable
costs. Therefore, the 2,900 miles flown on that day-trip
to the north-east would cost them about $11,600. Saving three days, that places a value of
$3,900 per day which means that, assuming the executive onboard works every single one
of the 260 workdays per year, they would have to make almost exactly $1 million per year
for this private jet ride to be worth it to Walmart—an amount within the realm of possibility
for upper management at such a large company. Of course, that’s not factoring in the alternative
option’s hotel, food, and airline transport costs which would likely sum in the thousands
and it’s also assuming there’s just one passenger. If the plane were to be filled to its maximum
capacity of nine, each passenger would only need to be paid $111,000 per year for the
expense to be worth it to the company which is less than an average Walmart store manager
makes. Now, there’s one other case where private
jets can make economic sense over flying commercial. Let’s say Walmart was looking to expand
into the Philippines. Flying business class, it would cost a minimum
of $5,000 roundtrip per person, require three stops, and take over 26 hours to get from
Bentonville to Manila. Flying private, though, a long range jet like
the Bombardier Global 7500 could make it there non-stop, in just 15 hours, carrying 19 of
the company’s top executives. Since the company does not own this type of
jet, it would likely charter one at a cost of about $10,000 an hour, or $150,000 for
the trip. While the cost of commercial airfare is less
than this, assuming the CEO, who makes $24 million a year, is onboard, the value of the
eleven hours of his time saved is worth $97,000—clearly tilting the math in favor of the private jet. The general phenomenon of globalization has
been great for the private jet market as businesses need to travel to far off places like this. Especially as companies outsource manufacturing
and other operations into developing countries, which don't necessary have much air service,
many companies have determined that private jets are the best way to get where they need
to go. But despite this, the private aviation industry
was hit hard but the global financial crisis and still has not fully recovered. While part of it was genuine cost cutting,
businesses also wanted to show that they were doubling down on luxuries by getting rid of
their jets, even if they could make economic sense in some cases. It was all about optics and nowadays, these
jets are coming with poorer and poorer optics, for good reason. Private jets are truly horrendous for the
environment. If one were to fly that Bombardier Global
7500, the one that could make it from Bentonville to Manila, with just one passenger onboard,
the jet would make it only to South Dakota before that passenger’s carbon footprint
exceeded that of the average person in one year. Increasingly, these jets are even being used
for purposes that cannot be justified economically. Since 2013, there has been about a 10% increase
among Fortune 100 executives of using their company’s corporate jets for personal, leisure
purposes. They apparently justify this by saying that,
in case of a work emergency, they might need to get back to the office quickly and commercial
air travel could hinder that. Firms that include this as a perk for their
executives, according to one set of research, under-perform against the market average in
terms of shareholder returns by about 4% each year. Of course, the real reason some companies
might have private jets is not because it makes economic sense, because it quite often
doesn’t. It’s because the people who decide whether
the firm will use these are the very people that will use them. In many instances, the explanation is not
economic, it’s societal. Now, many Wendover Productions viewers are
also probably the type of person who watches a lot of documentaries. If that’s you or if you’d like that to
be you, you should absolutely be subscribed to CuriosityStream. That’s because they have a library of over
2,400 documentaries and non-fiction titles that you can watch whenever, wherever. It’s available on the web, Apple TV, Roku,
Android, iOS, and plenty of other platforms. One series they have that I would highly recommend
is Innovation Nation with Mo Rocca who looks at new inventions in each episode and explains
the stories behind them. This, and the entire rest of CuriosityStream’s
library can be accessed for just $2.99 per month but, if you sign up at CuriosityStream.com/Wendover
and use the code, “wendover,” you will get your first month completely for free.
My dad used to fly these before going into the airlines.
My first job growing up was cleaning the Jets he flew\managed. I didn't quite understand how well I had it,making 350 bucks for about 6 hours of work, because compared to the money my dad made flying them it seemed like nothing.
Anyway, one day I went to clean a jet that had just come back from a trip to Vegas. In one of the trash bins I found 50 empty $10k dollar paper rolls (the things used to bundle bills together). I thought that it was from winnings at the casinos, but the co-pilot told me they used the money as a starting pot for a game of poker on the flight over to Vegas. One of the passengers was bragging about how they lost a million dollars and would win it back next time.
My mind exploded.
The issue with this is basing the first section on the Gulf Stream g550, a very large and expensive aircraft. Many companies are using much smaller/less expensive (relatively) planes that change the economics of this
It seems like he completely missed the fact, that many bigger companies use their jets to fly replacement-parts to other subsidiaries all the time.
If the production of a plant depends on a critical repair, its basically negligibly what the transport of this part costs.
Wendover makes some good stuff, it’s all pretty high level but the man knows his planes.
Didn’t watch the video, but I work in aerospace and make parts for Gulfstream. To say they’re picky about their parts would be a collosal understatement.
We have hard non-flight related parts be rejected because an area that no one will ever see had slight striations in the paint. When I asked my boss why Gulfstream is so picky, he said their customers are and they pay enough to be that way.
Ok. Nuff said.
My wife is a Pilot for corporate, this video left one big component out...security. Corporations do not want their competitors or any other type of security risk knowing when, where and why their executives are traveling to different locations.
Several American pastors fly their own jet. However the royal family of Norway (where I live) and our prime minister fly commercial. (I've been on the same flight as both our queen and prime minister in the past). Why someone would give their hard earned money to a pastor so they may own and fly their own jet is beyond me. Only in America...
The video completely misses one of the biggest economic factors in private aviation: Private jets get a huge tax break. It's often a 100% writeoff for the corporation.
For hedge fund managers and real estate developers, the tax loophole effectively provides a 37% discount on buying a personal plane.
This doesn't necessarily make the jets more competitive against flying commercial (tickets for business travel are also tax writeoffs). But it strongly incentivizes spending a lot on air travel.
$500/hr per engine for the insurance lmfao