Private jet charter cuts member fees on cheaper fuel

A Megellan Jet Gulfstream G550 Business Jet.
Source: Magellan Jets
A Megellan Jet Gulfstream G550 Business Jet.

Plummeting oil prices are turning out to be a boon for private jet aficionados.

In order to reflect the lower price of oil, private jet charter company Magellan Jets announced it is cutting fees for all membership contracts made after Jan. 15 by 16 percent.

U.S. crude tumbled to $46 this week, the lowest since April 2009, with Brent crude falling below $50 a barrel, the first time since May 2009.

The cost of Jet A, a type of fuel used by private jet aircraft, fell 7 percent to 9.5 percent in the past 12 months, based on research conducted by Jet Advisors, private jet brokerage and research firm. Magellan anticipates this trend to continue as the retail market catches up with wholesale oil prices.

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The company expects it will incur short-term losses due to the membership cuts because the membership discount far exceeds what the company is managing to save from cheaper fuel costs, said Joshua Hebert, Magellan Jets CEO. For instance, a new member card for 25 hours on a small jet has an hourly fuel rate of about $600 per hour. While this hourly rate will be cut by 16 percent, the fuel rate has only fallen by 7 to 9.5 percent.

Hebert said he believed cutting membership rates by the exact amount saved from cheaper jet fuel would not be low enough.

Why haven't airlines lowered ticket prices?
Why haven't airlines lowered ticket prices?   

Magellan's response to the oil price slump contrasts to the behavior of much of the aviation industry. Since oil prices started falling, airline ticket prices have not adjusted much because consumer demand for air travel has remained high at current unchanged ticket prices. Rather, airline shareholders have benefited more than passengers from cheap oil.

Hebert decided to lower fees on behalf of his customers, not because demand is falling. In fact, he said demand for private jet services is higher than before the Great Recession.

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"Customers are continuing to ask when our rates are going to go down. You can only hear that so many times until it makes us look bad."

"We think it's the right decision, and if we have to take a loss, it's still right. You and I, as consumers, we're not going to that gas station if they keep prices where they are. We're going down the street," said Hebert.

The company hopes to recoup its losses in the next three to six months.