The Economics of Everyday Things - 25. Private Jets

Episode Date: November 13, 2023

Executives shell out millions of dollars for the privilege of flying private — but that convenience comes at a steep cost to the rest of us. Zachary Crockett prepares for takeoff. RESOURCES:"High F...lyers 2023: How Ultra-Rich Private Jet Travel Costs the Rest of Us and Burns Up the Planet," by Chuck Collins, Omar Ocampo, and Kalena Thomhave (joint report by The Patriotic Millionaires and the Institute for Policy Studies, 2023)."French Green MPs Want to Ban Private Jet Flights, to 'Bring the Rich Back Down to Earth,'" by Stéphane Mandard (Le Monde, 2023)."Markey, Velázquez Announce Legislation to Make the Rich Pay for the Public Costs of Private Jet Pollution," press release by Senator Edward J. Markey (2023)."Private Planes and Luxury Yachts Aren’t Just Toys for the Ultrawealthy. They’re Also Huge Tax Breaks," by Paul Kiel (ProPublica, 2023)."A Teenager Tracked Elon Musk’s Jet on Twitter. Then Came the Direct Message," by Neil Vigdor (The New York Times, 2022)."This Article is More Than 1 Year Old: A 17-Minute Flight? The Super-Rich Who Have ‘Absolute Disregard for the Planet,’" by Oliver Milman (The Guardian, 2022)."Private Jets — the Achilles Heel of EU Air Traffic Security?" by Crina Boros and Juliet Ferguson (EUobserver, 2018)."In Defence of the Ever-Unpopular Corporate Aircraft," by Joe Nocera (Financial Post, 2017).EXTRAS:"Freakonomics Radio Takes to the Skies," series by Freakonomics Radio (2023).

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Starting point is 00:00:00 For most of us, the airport is not an enjoyable place. We have to get there hours before our flight takes off, we stand in long lines to check our bags, we're herded through body scanners, shoelace and confused. And on the plane, we're serenaded by crying babies and crushed by the guy in front of us who insists on reclining his chair. But for the privileged few, there's a parallel universe where none of these problems exist. We're traveling by air is a breeze. You pull the car right up to the plane.
Starting point is 00:00:40 There's somebody waiting outside for you. They know exactly where you're going. They're greeting you grabbing your bags There's a red carpet waiting as you enter the doorway to the plane and you're on your way That's Anthony Tivinen. He runs a private jet company in Boston You're sitting in a 30-40 million dollar airplane with just your family watching whatever you want to watch listening to whatever you want to listen to It's Ritzkalt and it's four seasons. There's a beautiful setup if you want to watch, listening to whatever you want to listen to. It's Ritzkalt, and it's four seasons. There's a beautiful setup.
Starting point is 00:01:06 If you want to grab a drink, share a pain, scotch, you can have an outstanding dinner, three, four, five course meals, and then you can head to the rear of the cabin and have a full-size bed made up and sleep for the rest of the flight. Executives and celebrities shell out millions of dollars for regular access to this convenience. But critics say we are paying for it too. They don't pay the real costs of their aerospace use. They don't pay the real cost of their ecological emissions. You're really talking about the point zero1%, the ultra-wealthy,
Starting point is 00:01:46 that are the beneficiaries of the system, that the rest of us subsidize. For the Freakonomics Radio Network, this is the economics of everyday things. I'm Zachary Kraket. Today, private jets. Globally, there are now more than 23,000 private planes, more than twice as many as two decades ago. Last year, those jets embarked on 5.3 million flights. Now, private aviation is a fairly broad category. It includes male planes in Alaska and crop dusters in Kansas. But the majority of these jets are used for business and pleasure by the ultra wealthy.
Starting point is 00:02:27 And when they need to book a flight, they call someone like Anthony Tivnan. We want to make them feel as though they weren't even on a flight and they're as comfortable as humanly possible. Tivnan is the president and co-founder of Magellan Jets, one of the nation's leading providers of private flights. He's been in the business for more than 20 years. We service, I would say roughly 1200 clients, and annually we probably visit about 80 plus countries for our international flights, so we're certainly bellow over the place.
Starting point is 00:03:02 If you want to fly private, you have a few options. If you're a really big baller, you can buy your own jet. But that requires some serious dough. You know, let's just say a light jet, like a phenom 300, you're usually in the ballpark around $7 to $10 million. If you're looking at a Gulf Stream, 650, or some of the new products, like a global 8500 or the Falcon 9X, your upwards in the 60 to $75 million range there. Donald Trump flies on a $100 million Boeing 757.
Starting point is 00:03:38 Kim Kardashian, port Gulf Stream G650ER, clocks in at 150 million. And these figures don't include the ongoing expenses of owning a jet. It runs around 8,000 bucks to fill the tank of a mid-size plane. Parking your jet in a major airport hanger, you're looking at $12,000 a month. Most private jets also require two pilots and at least one flight attendant, who salaries come out of your pocket. If you include things like maintenance, insurance, and depreciation, the cost of upkeep can easily exceed a million dollars a year.
Starting point is 00:04:15 If this is all a bit too rich for you, you can buy fractional ownership in a jet from a company like NetJets or FlexJet. It's kind of like a time share for fancy airplanes. You can have as many as 32 folks that are all assigned to a certain jet. And you're paying for your portion up front. And then you're paying for your occupied flight time in your fuel. So it's kind of like a shared asset type of model. Or if you just want to fly private sometimes without the ongoing costs, you can book charter flights and pay by the hour. A light jet is typically going to cost six to eight thousand dollars an hour. The mid-size jet
Starting point is 00:04:59 eight to ten thousand dollar an hour range. A super mid-size aircraft is going to put you, dollar an hour range, a super mid-size aircraft is going to put you, I would say, in the 12 to 15,000 dollar range per hour. And then your heavy jets, Gulf Stream 450s, 550s, global expresses, I would factor in about 14 to 20,000 dollars depending upon the airplane. Charter flights are among Magellan's offerings, but the company doesn't actually own any jets. Instead, it works with people and corporations that do. A lot of private flights are one way only, which means the jet ends up flying back empty. Magellan sells those empty legs to willing customers. It also monetizes any downtime, time when a jet is just sitting around in a hanger.
Starting point is 00:05:46 So, you know, Corporation X has 15 airplanes in their corporate flight department, and we make that cost of their ownership lower by producing charter revenue on the aircraft when it's not moving. If you're chartering private jets on a regular basis, you can buy a jet membership card. You purchase a certain amount of hours at a set rate on a specific airplane, and you can use them whenever you want. It's comparable to like an Airbnb or Uber, right?
Starting point is 00:06:17 When you're done with it, you walk away and you have no other responsibilities to that asset. Generally speaking, $100,000 is kind of that entry-level program in order to have access to like a guaranteed aircraft. And that's certainly on the smaller end. Obviously, all of these options are a lot more expensive than flying commercial. But the passenger isn't always the one paying.
Starting point is 00:06:43 Executives flights are often covered by the companies they work for. Those companies would tell you that they're trying to maximize the value of their highest paid employees' time. If you fly private, you don't need to get to the airport two hours early. If you have a three o'clock flight arriving at 255, there's no problem. Private planes also have access to a lot more airports. So we're getting folks as close as humanly possible to wherever it is they're going. We have access to 5,000 airports in the US alone.
Starting point is 00:07:17 When you're flying commercially, that number goes down to 500 airports. When it comes to executive travel, every minute counts. Take for instance Doug McMillan, the CEO of Walmart. He earns $24 million a year, which means his time costs the company around $7,000 an hour. When he flies, it's on one of the company's 20 jets. These planes allow McMillan and other Walmart executives to visit stores and hubs all over
Starting point is 00:07:48 the country and get back to the company's headquarters in Bentonville, Arkansas the same day. Corporations are often willing to pay significantly more money for a flight, just to save a single hour of time. I remember one situation. There was one aircraft that could be there in two hours. And there was another aircraft that could be there in one hour. And the one that was one hour was like $15,000 more. And they said, okay, let's take that one because it's cheaper based on the salaries of how many people are on board.
Starting point is 00:08:24 In the business world, the benefits of private jets go beyond time savings. They're often used as a flex to whine and dine potential clients. Whether it's entertaining customers, picking them up golf events, sports games, really important account, let's go ahead and book the Gulf Stream. Private jets might make sense for companies, and they're certainly popular with the individuals who fly in them. But some people say they shouldn't exist at all. That's coming up.
Starting point is 00:08:59 Growing up, Chuck Collins was surrounded by people who flew private jets. I'm the great grandson of the meat packer Oscar Meyer, so I like to say I was born on third base, although I didn't inherit the cool car. He did, however, inherit a trust fund, but at 26, he gave it all away to charity. Today, he's a program director at the Institute for Policy Studies, or IPS, where he focuses on the harm caused by income disparities. He's also a member of the patriotic millionaires, a group of rich folks who support higher taxes on people like themselves.
Starting point is 00:09:36 You know, the last 40 years we've been pulling apart as a society, this imbalance of concentration of wealth and power is at the root cause of a lot of things broken right now. Lately, he's been particularly fixated on private jets. To me, it's sort of the most indefensible form of luxury consumption, because it has so many harms that it causes everyone else. Collins's concerns begin with the way that private jet travel is taxed. Say you buy a one-way ticket from Boston to New York on a commercial flight. Your ticket might cost around $60, but you'll also pay around $20 in taxes and fees.
Starting point is 00:10:18 A 7.5% federal tax, a passenger facility charge, a flight segment tax, and a security fee. If there are 150 people on your flight, that's $3,000 collectively. Some of this money is used to fund the Federal Aviation Administration, which pays for things like air traffic control and the upkeep of airports. But Collins says private flyers don't pay their fair share into the system. Private aviation is about 16% of all the use of the airspace, but that sector only chips in about 2% of the costs of operating the sector. There's all these small airports that don't have commercial travel, you and I can't
Starting point is 00:11:01 fly to them unless we have our own plane. And that's supported by this system of revenue that mostly commercial travelers and taxpayers pay for. So, effectively, we subsidize private jet aviation. People who charter jets generally have to pay the same taxes as we do on their flights. But those who own their own jets, the billionaire types, many of them only have to pay a fuel tax of 22 cents per gallon. And the tax benefits of jet ownership don't stop there. The Tax Cuts and Jobs Act of 2017 allows private jet owners to deduct the entire cost of a new jet on their tax
Starting point is 00:11:47 return in the first year of purchase. It just has to be used for business purposes. Oftentimes, the line between business and pleasure is blurry. You and I could fly to a rubah, play around a golf, and have a business conversation conversation and that would be a business flight. In our recent report, we found guys going to Argentina to go on a feson hunting preserve or something. Allowances like this have been heavily promoted by private jet lobbyists. Since 2010, the three largest private jet associations have spent $68 million to influence the decisions of lawmakers.
Starting point is 00:12:29 Their latest focus has been privacy. They are behind this effort to bring a greater shroud of secrecy over private jet travelers. If you own a private jet, you can ask the FAA to have your name removed from a public tracking registry. Savvy Internet users have found ways to work around tactics like this. But in recent years, an increasing number of corporations and executives have moved toward fractional jet ownership, which gives passengers even more invisibility. Some people in the industry see this lack of transparency as a threat to national security.
Starting point is 00:13:06 You take out your golf clubs or your hunting rifle or whatever, you just get on the jet. Nobody's frisking you, nobody's taking your water bottle. People in aviation in Europe don't think that the next 9-11 terror attack is going to come with a commercial jetliner. It's going to be somebody with a private jet. But Colin says the biggest issue with private jets, the thing that really keeps him awake at night, is their disproportionate impact on the environment. Private jets burn 10 to 20 times more carbon emissions
Starting point is 00:13:40 than a commercial jet per passenger. Take, for instance, Elon Musk, one of the nation's heaviest to private jet users. Last year, he took 171 flights that burned 222,000 gallons of jet fuel. The carbon emission from his flights alone was 200 times more than the average Americans' annual footprint.
Starting point is 00:14:03 What makes this especially exasperating is that many of these private flights aren't necessary to begin with. Kylie Jenner made headlines last year for taking a 17-minute flight across Los Angeles on her $72 million bombardier jet. That same trip would have taken around 40 minutes in a car. Collins analyzed flight traffic from an airport outside of Boston, and found that that kind of short hop is not uncommon. We found 41% of the flights were less than an hour and 14% were less than 30 minutes. These are wealthy folks who are choosing to fly
Starting point is 00:14:42 private jets, but they actually have other options. Anthony Tivinin of Magellan Jets, thinks the focus on private clients has been blown out of proportion. Pointing fingers and going back and forth isn't going to solve the issue. When you look at it, as a whole aviation represents about 3% of the carbon footprint.
Starting point is 00:15:04 Now, private aviation represents less than 3% of that 3%. Many private jet outfits, including Magellan, offer carbon credits to clients to offset the impact of their flights. And the National Business Aviation Association, which is one of the big jet lobbyists, says that it's aiming to cut CO2 emissions in half by 2050. Legislators have proposed more immediate solutions.
Starting point is 00:15:33 A bill was recently introduced in Congress that seeks to increase fuel taxes for private jets from $0.22 to $1.95 per gallon. This extra revenue would go toward long-term investments in clean and affordable transportation. Other places around the world have taken an even stronger stance. Politicians in France have proposed banning private jet flights altogether. Unsurprisingly, Tipnan is not on board with these ideas.
Starting point is 00:16:04 What you're doing is just creating a higher cost for the companies that really run the country, which is just gonna eventually drive up consumer cost. I mean, for most of the 20th century, we didn't have the kind of private jet set that we have today. Somehow we had healthy commerce and businesses. A few months ago, Chuck Collins convinced one of his wealthy friends,
Starting point is 00:16:28 a man who loves the trappings of luxury, to sell his beloved jet. That, he says, is the kind of action he'd like to see more of. And if it means you're going to be inconvenient, you're going to have to take the train to New York. And it's going to take three and a half hours instead of your jet, which is going to take 40 minutes. So sorry. For the economics of everyday things, I'm Zachary Kraken. This episode was produced by Sarah Lilly and mixed by Jeremy Johnston.
Starting point is 00:17:06 We had help from Julie Cantford and Daniel Moritz Rapson. You should see with the tuna sandwich costs. How much does it cost? You know, $30 to a sandwich sometimes. The Freakinomics Radio Network, the hidden side of everything. Stitcher.

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