The Case for the Value of Time: Why the Supersonic Business Jet is Inevitable for the Future

(So here’s a little change of pace.  If you’ve ever wondered what an article for a scholarly journal looks like, here’s an example. )

Part III – The Demand for Time Savings

            The answer lies in the following question: why would a wealthy individual or corporation who could easily pay between $1700 and $3200 to fly first class between New York and Los Angeles[1] choose instead to pay approximately $35,000[2] to fly the same route in a Gulfstream G-550?   The main reason is the opportunity cost for lost productivity during travel, a real economic cost that economists have been studying for several decades.  Gronau (1970) laid the foundation for this argument with his contention that increased travel time was about more than discomfort because time itself is a scarce resource and as such commands a positive price: “A firm equates the value of its employees’ time with their marginal productivity. The employees, in turn, value their own working time at prices that equal their marginal remuneration-their marginal wage rates” (1970, p, 378).  De Vany (1974) went further and concluded that travelers value their time in direct proportion to their wage rate and his findings directly support the contention that time cost is a critical parameter for consideration when comparing modes of travel.  Zamparini and Reggiani (2007) provided a meta-analysis of ninety different studies on the subject of travel time valuation.  They defined a dependent variable they call the value of travel time saved or VTTS and provide the formula for calculating VTTS which includes the independent variables of the cost of travel and the utility cost of travel time from the perspective of the individual traveler (Zamparini & Reggiani, 2007).  So the real opportunity cost of lost travel time for larger earners or wealthy individuals has real value from an economic perspective and that value is tied directly to the earnings of the person doing the traveling.

Gulfstream’s Preston Henne believes that “(b)usiness jet use …is strongly tied to the value of time” (p. 765).  So let us examine that proposition from an economic perspective.  If we assume that a corporation requires five executives to travel from New York to Los Angeles and these executives earn a combined total of $8,000,000[3] annually, based on a 40-hour work week and four weeks of yearly vacation, that means these executives’ time, collectively, is valued at $4,167 per hour.   The average block time for the airline flight is 6 hours 20 minutes and if we add an hour thirty minutes prior to the flight for check-in and security screening and another half hour at the destination to depart the aircraft and claim luggage, that makes the total journey time 8 hours and twenty minutes.  The total trip costs appear in Table 1 below and make the case that when opportunity cost is taken into account, the value of time can make travel by business jet the right economic decision.

Table 1

Real Trip Costs Expressed as a Value of Time – G-550 and Airliner

Travel Mode

Travel Time JFK – LAX

Operating Costs

Airline

Fares[4]

Opportunity Costs[5]

Total Trip Cost

G-550

5 hours 40 minutes

$34,654

$34,654

Airliner

8 hours 20 minutes

$12,073

$34,725

$46,798

Adapted from data from www.kayak.com, copyright 2012; data from www.arincdirect.com, copyright 2012, and data computed from Conklin and de Decker Lifecycle Cost Calculator 2011, copy right 2011.

 

How does this value for time proposition translate into demand for aircraft?  Gulfstream is a company which specializes in heavy, long range and expensive business jets like the G-450, G-550 and the brand new G-650.  Gulfstream alone shipped 107 jets in 2011, expects to deliver more than 110-115 jets in 2012 and enjoys a $17.9 billion order backlog (Trautvetter, 2012).  As far as the larger industry picture is concerned, market analyst Forecast International’s study estimates industry output at 683 jets for 2011, 728 jets in 2012 and while most manufacturers won’t reach their 2008 peak of 1,313 jets until 2018, the study predicts a total of 10,907 new business jets will be delivered between 2011 and 2020 with an estimated value of more than $230 billion (Epstein, 2011).  It would seem the market for time machines is doing well indeed.

Interestingly, the outlook for faster, longer range and more expensive jets continues to improve and reflects a demand that could be filled by jets that are capable of vastly increased speed.  Even as economic conditions deteriorated in 2008, Gulfstream announced it would be building the fastest and longest range business jet in the world, the G-650, with a top speed of Mach .925 and a range of 7,000 nautical miles at Mach 85 and 5,000 miles at Mach .92 (Warwick, 2011a).  As of early 2012, Gulfstream has 200 orders for the G-650, a jet that is priced at $64.5 million (Trautvetter, 2012; Huber, 2011).  Not to be outdone, Bombardier plans to counter with its Global Express 7000 and 8000 models in 2016 and 2017 respectively (Warwick, 2011a).  Both jets will feature maximum ranges over 7,000 nautical miles at Mach .85 and high-speed cruise ranges over 5,000 nautical miles at Mach .90 and both will cost at least $5 million more than the G-650 (Warwick, 2011a).   If companies like Gulfstream and Bombardier continue to invest in production of ever-faster, ever-longer ranged aircraft with ever-increasing price tags even in periods of recession, the economic justification for the SSBJ, like the technical accomplishments required, seems to just be a matter of time.  Henne (2005) agrees, arguing that the ever-increasing value of time is what has led to interest in the SSBJ in the first place and concluding that the “step to supersonic speeds offers the potential of a dramatic decrease in travel time” (p. 765).

So how much time would be saved with supersonic travel and what would that look like from a cost perspective?  Let us take the same five executives from our first example and place them on the Aerion SSBJ for their trip from New York to Los Angeles.  Aerion maintains that the operating costs of their aircraft, on a cost per nautical mile basis, will be comparable to those of business jets like the G-450 and G-550 (Moll, 2010).  On a westbound trip from JFK to LAX using Mach Cutoff, Aerion believes their jet will realize approximately a 45% time savings over a subsonic business jet cruising over the same route at Mach. 85 (Plotkin et al., 2008).   The cost comparison appears below in Table 2 and shows that for approximately the same cost as flying on a subsonic business jet, the executives can arrive in Los Angeles in less than half the time an airline itinerary would require and two and half hours faster than a subsonic business jet would take to fly the route.  While there is no economic measure to compare the level of productivity executives would be capable of onboard a business jet, which is similar to time in the office,  with the productivity they would display once they arrived at their destination, the advantage of arriving several hours earlier would seem obvious.

Table 2

Real Trip Costs Expressed as a Value of Time – Aerion SSBJ, G-550 and Airliner

Travel Mode

Travel Time JFK – LAX

Operating Costs

Airline

Fares[6]

Opportunity Costs[7]

Total Trip Cost

Aerion

SSBJ

3 hours 7 minutes

$34,654

$34,654

G-550

5 hours 40 minutes

$34,654

$34,654

Airliner

8 hours 20 minutes

$12,073

$34,725

$46,798

Adapted from data from www.kayak.com, copyright 2012; data from www.airincdirect.com, copyright 2012, data computed from Conklin and de Decker Lifecycle Cost Calculator 2011, copyright 2011; material from “With SSBJ, Aerion Looks to Revive Supersonic Flight,” by N. Moll N 20100505 With SSBJ, Aerion looks to revive supersonic flight [Supplemental material].Moll N 20100505 With SSBJ, Aerion looks to revive supersonic flight [Supplemental material].Moll, 2010,  Aviation International News Online,  Copyright 2012 by AIN Online; and material from “Sonic Boom Cutoff Across the United States,” by K.J.  Plotkin K J Matisheck J R Tracy R R 2008 14th AIAA/CEAS Aeroacoustics Conference (29th AIAA Aeroacoustics Conference)Plotkin, J.R. Matisheck, and R.R. Tracy, R. R, 2008, presented at the  14th AIAA/CEAS Aeroacoustics Conference.

 

Even more obvious is the value of time the Hypermach SonicStar would provide for long-haul flights, especially given its advertised ability to fly from New York to Dubai in two hours and twenty minutes (Trauvetter, 2011).  Table 3 shows a comparison of the SonicStar, Gulfstream G-550 and airline travel – the Aerion SSBJ was omitted due to its inability to make the trip without a fuel stop (Aerion Corporation, 2012).  Even with estimated operating costs that are twice as high as the G-550 (and the G-650’s costs will be comparable), the SonicStar’s much greater speed makes it less expensive to operate.  How much more productive will our five executives be with 10-13 more hours on the ground at their destination?  Allowing for time differences, with the Sonic Star’s phenomenal speed, the New York to Dubai run seems almost commutable.

Table 3

Real Trip Costs Expressed as a Value of Time – SonicStar, G-550 and Airliner

Travel Mode

Travel Time                       JFK – Dubai International

Operating Costs

Airline

Fares[8]

Opportunity Costs[9]

Total Trip Cost

Hypermach SonicStar

2 hours 20 minutes

$28,537[10]

$28,537

G-550

12 hours 15 minutes[11]

$74,909[12]

$74,909

Airliner

15 hours 30 minutes[13]

$49,960

$64,589

$114,549

Adapted from data from www.kayak.com, copyright 2012; data from www.airincdirect.com, copyright 2012, data from www.gulfstream.com; data computed from Conklin and de Decker Lifecycle Cost Calculator 2011, copyright 2011; material from “HyperMach now shooting for mach 4.0 bizjet,” by C. Trautvetter, C., 2011, Copyright 2012 by AIN Online.

 

Conclusion

            In the tactical aviation community, fighter pilots have a saying: “Speed is life” (Waldman, 2009).  In the case of supersonic business jets, perhaps a better adaptation of the saying would be “Speed is time.”  Supersonic business jets bring a new dimension to value of time where travel is concerned purely by virtue of the speed they possess and history has clearly shown that as faster modes of travel have become available, they have been utilized by those who could afford to do so.

Is the technology an issue? Aerion’s technology is mostly proven and needs only investment to realize.  Hypermach’s technology, while more advanced, has already satisfied the scrutiny of industry experts.

Are regulations an issue?  With Aerion’s Mach Cutoff approach and Hypermach’s plasma injection technology, neither jet will have a shock wave impact on the ground.  So while the FAA’s language allows for the appearance of new technology, a change to the rules may not be required for either aircraft.

Is there sufficient demand?  Even in the period of economic recession from 2008 onward, Gulfstream was able to sell 200 G-650s at $65 million each, purely because there were those who were willing to spend the money to save the time and Gulfstream literally created demand for a product that did not exist until the company created it (Trautvetter, 2012; Huber, 2011).  Aerion plans to sell its jets for approximately $80 million each and Hypermach anticipates selling the SonicStar for $180 million per copy (Moll, 2010; Trauvetter, 2011).  Based on past trends, it is hard to believe that as both the Aerion SSBJ and Hypermach SonicStar near flight test and certification; more demand for the jets’ ability to create time will not materialize.

So what of the future?  Ironically, even the researchers who are conducting analysis on NextGen airspace believe the SSBJ will happen.  In their study of SSBJ’s in the NextGen airspace environment, two researchers from Wyle Laboratories make their case for the inclusion of supersonic jet trajectory analysis, arguing:

The SSBJ offers an important commodity—that of time. So, the vehicle needs the benefit of advanced airspace concepts such as 4D Trajectory Management in order to operate in a constrained manner and preserve its time-critical advantage both enroute and within terminal airspace (emphasis added) (Rachami & Page, 2010, p. 1).

The conclusion seems obvious, supersonic business jets are an inevitable consequence of our continued thirst for more time in busy lives.  The real question is: when will the industry and the government both realize that and act accordingly?

Notes


[1] Based on a search at www.kayak.com for first-class fares for one-way, non-stop flights between John F. Kennedy International Airport, New York and Los Angeles International Airport, California conducted on February 19, 2012. Fares ranged from $1705 to $3124 and block times ranged between 6 hours 10 minutes to 6 hours 30 minutes.

[2] Based on cost information calculated by Conklin and de Decker Lifecycle Cost Information Software for Gulfstream G-550, standard corporate operation at 400 hours annually including fixed and variable costs accrued computed on an hourly basis ($6,115 / hour) multiplied by flight time calculated by ARINC Direct flight planning software, FL 400 and Mach .85 (5 hours 40 minutes flight time).

[3] Actually sum of yearly compensation (salary and short term incentive bonus) for top five executives of a Fortune 100 telecommunications company based on 2011 SEC filing.

[4] The average of the two fares provided in Note 1 multiplied by 5 travelers

[5] The collective hourly rate of the five executives multiplied times the travel time.  There is no lost opportunity cost for business jet travel because the executives arrive just prior to departure, leave immediately after arrival and are able to remain productive enroute.

[6] The average of the two fares provided in Note 1 multiplied by 5 travelers

[7] The collective hourly rate of the five executives multiplied times the travel time.  There is no lost opportunity cost for business jet travel because the executives arrive just prior to departure, leave immediately after arrival and are able to remain productive enroute.

[8] First Class fare provided by www.kayak.com from JFK to Dubai International, $9992,  multiplied by 5 travelers.

[9] The collective hourly rate of the five executives multiplied times the travel time.  There is no lost opportunity cost for business jet travel because the executives arrive just prior to departure, leave immediately after arrival and are able to remain productive enroute.

[10] Operating cost estimated at twice the hourly rate of the G-550/G-650 based on ratio of specific fuel consumption rates of conventional engines versus the SonicBlue engine and the greater fixed costs for operation of the SonicStar.

[11] Based on great circle route of 5940 nautical miles calculated at www.arincdirect.com and true airspeed of 488 knots from www.gulfstream.com.

[12] Based on cost information calculated by Conklin and de Decker Lifecycle Cost Information Software for Gulfstream G-550, standard corporate operation at 400 hours annually including fixed and variable costs accrued computed on an hourly basis ($6,115 / hour) multiplied by flight time calculated by ARINC Direct flight planning software, FL 450 and Mach .85 (12 hours 15 minutes flight time).

[13] Based on block time data provided by www.kayak.com for flight from JFK to Dubai International Airport, 12 hours thirty minutes.  Two hours were added at origin for international check-in and security screening and one-hour was added at destination for aircraft departure, immigration processing, baggage claim and custorms.

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4 comments

  1. Inevitable, yes I agree. But how soon?

    • I agree with Ray K Gulfstream G-V and Bombardier Global Express. At university, for mecicnhas of flight I did a performance analysis on Bombardier Global Express, and in the relation we compared wing loading and power/weight ratio, and these two airplanes in the graph were almost coincident (and difficoult to read). G-V and Global Express are powered by the same kind of engine(maybe not the same version), dimensions and performances are really similar and they have no directly comparable competitors ..or smaller business jet like learjet(part of Bombardier company) or Falcon (by Dassault), but these are smaller and shorter range, or airliners converted into business-jets(like BBJ that is 737, or B-727BJ), these are larger and more expensive but they have usually shorter range than G-V and GlobalExpress

      • * yes, i agree with Ray (above) those two are specialized in mankig business jets. Yrs ago Citation X is the fastest bizjet exceeding Mach 0.92* there are also civil commercial jets converted into bizjets, like, BBJ Boeing Business Jets B737, refurbished interiors etc* about 5-10 yrs ago there are plans mankig supersonic bizjets mach 1.2-1.6 (?), including ones planned by 2-3 aircraft makers, joint between Sukhoi Russia and few others.

  2. Of course a siplme vertical landing gear strut is ideal but in this case the wing is too high above. The slanted gear strut starts from the center of fuselage and distributes the forces along the whole cross section of it.The engine intakes are covered by the wing at high angle of attack. Therefore an additional intake can be opened in this case below the wing. Just like at the Mig-29 but here the rule is opposite because the engines are not below the wing. This, and some other features are not visible on these static images. Good sighting though ;)

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