Can you Afford a Private Jet? Cost Sensitivity Analysis Methods

It is important to perform a variety of sensitivity analyses to determine the impact that key variable direct operating costs (DOCs) will have on your aircraft’s projected budget and financial performance.

For example, prospective buyers should run multiple annual aircraft utilization scenarios. As we saw previously ‘Can you Afford a Private Jet: Variable Operating Costs’, fuel represents an average 47% of the total DOC for a Mid-Size Jet and is the main cost driver. 

Different annual aircraft utilization will have higher or lower impacts on fuel expense along with the overall DOC. For this reason, prospective aircraft buyers should focus on an aircraft’s hourly fuel consumption as some engines are ‘thirstier’ than others, and will therefore negatively impact your total DOC.

Within your analysis you should research historical fuel prices, such as Brent (oil) prices per barrel, and scheduled airline and Business Aviation Jet A prices per gallon as these are highly correlated, aviation fuel being a derivative product of oil.

Any escalation in oil prices will have a direct impact on aviation fuel prices. Figure 1, for example shows historical Brent oil prices while Figure 2 depicts the estimated average cost of US Jet A (based on a number of spread assumptions taken among commodities) for airline and Business Aviation. Both Figures cover the time period between January 2022 and December 2023.

In this scenario, the estimated historical 24-month average price of Jet A fuel for Business Aviation is shown to be $7.80 per gallon, which would be a key input number for your DOC cost structure projections and budgetary information.

However, Figure 1 reveals that oil prices remained less volatile from December 2022 through mid-January 2024 (circa $82.20 per barrel). So, an average of $6.60 seems more likely, which is 15% less than the average across the 24-month projection period.

Calculate the Variables to Business Aviation Fuel Cost Averages...

Using your average cost per gallon as a starting point, you will then need to account for the fact that Business Aviation jet fuel is priced differently, depending on location.

For example, according to AirNav.com (which offers a free Jet A fuel price report including a summary of fuel prices at 2,567 FBOs across the US), at Teterboro, New Jersey, Jet A fuel averaged $8.35 per gallon in May 2024, with low and high prices of $5.90 and $10.74. By comparison, at Miami-Opa Locka Executive Airport Jet A fuel averaged $6.51 per gallon with a low and high end of $4.76 and $9.96.

So, it is important to factor in the average costs of fuel at the destination airports you anticipate regularly flying to and from.

Of course, it’s also helpful to be proactive in anticipating future oil price peaks and troughs. The US Energy Information Administration runs a short-term energy outlook including Brent crude oil projection for at least two years into the future.

The US Energy Information Administration’s Brent crude oil estimate per barrel for 2024 is $82.5, which – after some assumptions and estimates – could translate to a Business Aviation Jet A average fuel price per gallon of $6.60 in the US for 2024.

Moreover, Argus has historical Jet A jet fuel data from 200-plus FBOs in the US which can be used to forecast future behaviors, based on various assumptions.

As anybody familiar with forecasting crude oil prices will know, however, it can be a daunting task even in the ‘normal’ times because inventories, supply and demand in addition to other ‘external’ and uncontrollable variables (such as conflicts and wars) are difficult to predict.

Such external factors can have an impact on the production of refined goods such as fuel. In fact, weaker travel airline demand (as was the case in the aftermath of Covid) gave less incentive for the production of Jet A fuel (compared to other oil products and derivatives) which can cause fuel prices to increase.

Of course, fuel is just one of the cost sensitivity analyses you should seek to conduct to establish whether the jet you’re considering comes within budget. Maintenance labor is another – and is impacted by increasing or decreasing maintenance labor rates, shop availability, as well as external factors like parts supply and supply chain issues.

Evaluation of Results

Having evaluated each of the aircrafts’ DOCs under consideration and exploring the key cost sensitivity points, it’s time to establish what the numbers are telling you.

Which aircraft shows a DOC advantage? The results may not be immediately straightforward if, for example, Aircraft B consumes 3% more fuel per hour than Aircraft A but flies 14kts faster. Moreover, if Aircraft B shows a cost advantage over Aircraft A in terms of spare parts, airframe, engine and avionics maintenance cost per hour, the case for Aircraft B could become compelling.

You are well advised to discover the high-, low- and mid-point DOC for each aircraft under consideration and explore the rationale behind those numbers, and how they contribute to the additional costs or efficiencies.

For a typical Mid-Size Jet operating 250 hours per year, the annual variable cost can easily represent between 40% and 45% of the cost of operation, depending on fuel price volatility and other variables. So, taking a thorough look at DOC makes good business sense.

Next time, we will explore how to reduce your top cost contributors from a fixed and variable cost point of view. Stay tuned!

Read more articles by Rene' Armas Maes