Save money, buy a plane
Private planes look better as commercial air travel grows ever more nightmarish.
(FORTUNE Small Business) - Richard Arroyo was sitting in his Phoenix office when he learned that one of his company's drivers had rolled her beverage delivery truck off an icy road and into a ditch while traveling through Flagstaff, Ariz. Although the driver was uninjured, Arroyo's insurance policy required that a senior executive assess damaged inventory at the scene of the accident. But sending a supervisor out to Flagstaff entailed a two-hour, 145-mile drive from Phoenix. Fortunately, Arroyo had a high-speed solution. "I jumped in my airplane and was in Flagstaff in 45 minutes," he recalls.
Arroyo, 63, owns RB Desert Sales, a Corona, Calif., beverage distributor that sold $47 million worth of Red Bull energy drink last year. He's also the proud owner of a four-seat, single-engine airplane that he uses to tool around his vast sales territory. Arroyo's steed is a 2002 Cessna Skylane 182 whose propeller runs off a piston engine. While not quite as glamorous as, say, a Lear jet, piston planes such as the Cessna are a cost-effective alternative for small-business owners who are content to fly below 20,000 feet at modest speeds of as fast as 140 knots.
Small planes, big productivity gains
An increasing number of small-business owners are using piston aircraft to cut costs and improve productivity. According to the General Aviation Manufacturers Association (GAMA), 165,000 pistons are flown in the U.S. every year, and nearly two-thirds of all hours flown are for business purposes. Since 1994 the piston-airplane manufacturing industry has grown by close to 310%. And manufacturers shipped a total of 2,465 pistons in 2005 - a 20-year industry peak and a 20% increase over the previous year.
Arroyo has been fascinated by flying since childhood and earned his pilot's license in 1995. In 2001, RB's rapid geographic expansion gave him the perfect excuse to shell out $310,000 for a company plane. In less than three years, RB Desert Sales had grown from a five-person office in Corona with a warehouse in Banning, Calif., into a burgeoning business with an ancillary office in Phoenix and warehouse locations throughout Arizona. Covering the largest territory of any Red Bull distributor in the U.S., Arroyo needed to make frequent in-person warehouse inspections, employee performance reviews, and account manager meetings at far-flung locations. These trips were costing him time and money.
A last-minute commercial flight to Lake Havasu City, for example, could cost upwards of $300 a ticket, assuming you could find a reservation. Tack on hotel and car rental expenses and a 24-hour business trip could cost as much as $500. The 200-mile drive from Phoenix to Lake Havasu took four hours. But today Arroyo can fly from Phoenix to Lake Havasu in less than hour at an incremental of cost of just $30 in fuel.
Arroyo typically spends nine hours a week airborne, vs. 24 hours a week driving before he bought the Cessna. "Prior to buying a plane, traveling was extremely difficult," he says. "It would take me all day just to drive down to Yuma and back. In an aircraft I can fly to Yuma, Lake Havasu, and then Flagstaff, and come back in a day."
After test-flying planes from Mooney (Charts) and Cirrus, Arroyo selected the Cessna Skylane 182 for its turbocharged engine, known for delivering improved takeoff and climbing performance in dense air such as that above the Arizona desert. Arroyo put down $31,000 on the Cessna. He spends another $31,000 a year to run the plane, including finance charges, maintenance, fuel, inspections, and insurance. But Arroyo saves nearly $80,000 a year on airline, hotel, and car-rental expenses. Throw in $250,000 in annual productivity savings, and the Cessna paid for itself in less than a year.
Other entrepreneurs are flying in Arroyo's slipstream. Anxious to "establish credibility" in a competitive marketplace, Dan Thurlow bought a four-seat Mooney Bravo M20 to ferry prospects to his company's headquarters in Grand Junction, Colo. Thurlow, 58, owns Colorado Printing, a $15-million-a-year commercial printer that specializes in marketing materials. Although Grand Junction lies far off the beaten track, Thurlow says that flying in potential customers for plant tours has allowed Colorado Printing to hold its own against Denver-based competitors.
No more delayed departures
Private planes look better as commercial air travel grows ever more nightmarish. No sane traveler wants to suck his kneecaps for six hours after enduring Kremlinesque security checks, late departures, and surly flight attendants with nothing to offer but stale pretzels. Comfort aside, a private plane makes it easier to get where you want to go. Fewer than 500 U.S. airports serve commercial airlines. Small piston aircraft enjoy access to nearly 5,000 airports for practically door-to-door service across the country. "Pistons are very attractive for the small-business owner who needs to move about efficiently," says GAMA president and CEO Pete Bunce.
Of course, flying a small plane can be risky. Most private airfields lack the long runways and sophisticated air traffic control systems of commercial airports. And small aircraft can't always cope with ice and other hazardous weather conditions. Although general aviation accidents declined by 6.7% between 2003 and 2004, private-plane accidents continue to outnumber commercial airline accidents, according to the 2005 Nall Report. U.S. airlines recorded just 0.171 accidents per 100,000 flight hours in 2004, compared with 6.83 accidents per 100,000 flight hours for general aviation.
If you're comfortable with that level of risk, piston aircraft might just make sense for your business travel needs. Arroyo, for his part, says years of flying experience give him "an extra margin of safety."
Fractional ownership slashes private-plane costs
Laurence Sperry's love of flying comes naturally. His great uncle was an audacious aviator who also invented the autopilot and the seat-pack parachute. But despite his daredevil pedigree, Sperry wasn't willing to spend money on a private plane. That's why he turned to fractional ownership, which allows several partners to split the cost of buying and operating a private aircraft.
The number of U.S. fractional owners surged to 4,910 in September 2005, up 75% since 2000, according to the Aviation Data Service. NetJets is the market leader with more than a 50% U.S. share, but competitors such as AirShares Elite, CitationShares, and Flight Options are fast gaining ground.
Sperry, 41, owns Sperry Product Innovation, a product development firm based in Woburn, Mass. In June 2004 he bought a one-eighth share of a four-seat, single-engine Cirrus SR 22 from Atlanta's AirShares Elite. He uses the plane to visit clients and conduct field tests all over the Northeast. In exchange for 75 hours of annual flying time, Sperry agreed to an upfront equity charge of $60,000, a $698 monthly management fee, and an $80 hourly fuel and oil fee. That's a total investment of $88,752 over two years.
Without the plane, Sperry estimates he would be spending $21,680 a year on business travel. But he saves about 100 hours a year by avoiding traffic and airline delays. Because Sperry values his time at $350 an hour, he calculates that fractional plane ownership saved him $24,608 over the first two years.
Not to mention the intangible benefits. "I love to look down at the stopped traffic while I fly overhead at more than 200 mph," Sperry says. What's the ROI on that? Priceless.