As European charter cools, brokers assess their options

 - May 18, 2008, 12:01 AM

Early 2008 has seen muted interest, if not a full-blown downturn, in demand for executive charter service in Europe, according to leading charter brokers. “While business levels are still good, corporate client requirements seem to have flattened in the past three to five months,” said David Macdonald, sales director for private jet business at Air Partner (Booth No. 287), but he added that bookings by wealthy individuals have remained constant.

Air Partner has reported that its block charter JetCard activity continues to grow, with a claimed 50-percent increase in sales since last July. It attributes as much as 95 percent of this new business to wealthy individuals, who appear immune to the U.S.-based credit crisis, which continues to wreak havoc in global financial markets.
Nevertheless, in the past six months Macdonald has noted “a tightening of [corporate-market] belts.”

Rival broker Hunt & Palmer also concedes that the fallout from the financial crisis took its toll on the European charter business this winter. The UK-based group’s executive aviation broking manager, Eliot Keynes, told EBACE Convention News that corporate flying activity between January and March in support of share flotations this year “disappeared almost completely.”

Market conditions are much more trying than 12 months ago, with capacity sometimes outstripping requirements, but Keynes predicted demand will return this summer.

Air Partner also has noted more availability as some operators with excess capacity try to attract business with reduced-rate charter deals. Keynes pointed out that downward-pressure on charter rates is being offset by ever-increasing fuel prices at a time when many operators “do not have enough flying on their books.”

Overall, Keynes thinks the European charter market is facing a tough year, although that situation may be alleviated somewhat as wealthy individuals travel on vacation.
“Things should improve toward summer as many persons of wealth take vacation trips to places such as Naples, Nice, Cannes and Olbia,” he said. “Financial markets may recover somewhat later to boost end-of-year figures, but we’ll have to wait and see.”

There are no such reservations at Air Partner, where Macdonald foresees continued strong growth in the broker’s JetCard program, for which he confidently predicts a membership increase “on the order of 50 percent” over the next 12 months.
His optimism follows a period of significant growth in executive aircraft use since the 1990s, reflecting the greater number of wealthy individuals using aircraft. “Leisure use has grown from around 10 percent of our private jet business to approximately 40 percent.”

Business use has also grown by a lesser extent, while Macdonald characterized commercial air travel as having become “fraught with airport inconveniences and congestion issues.” He said time-consuming security measures have been a major contributor to greater corporate use of private aircraft.

The major development for Hunt & Palmer during the past 10 years has been its expansion into markets such as Hong Kong and China, India, the Middle East and Russia, where it claims it has created a market for Western providers in addition to selling its own service to domestic consumers.

Air Partner claims to have seen “very little” charter market impact from the new generation of very light jets (VLJs), with only two operators offering these aircraft so far. Macdonald thinks most of the market is waiting to see how the VLJ sector develops. “We expect it to bring in new users, with many of them eventually moving into bigger jets,” he said. Keynes agreed, saying that any early economic upturn will show whether there is a new entry-level in the charter market to be occupied by VLJs.

What place do the brokers see for new operators such as Blink and JetBird? Blink is due to start commercial service with Cessna Citation Mustangs next month
and JetBird is to launch its operation with Embraer Phenoms 100s in less than a year–April 2009.

Keynes expects them and similar low-cost air taxi operators to bypass brokers: “They are starting in trying conditions; if they create a lot of [sales and marketing] noise, I expect some potential customers will find other executive travel outlets since they may find these companies can’t satisfy their wishes.”

To some extent, success for Blink and JetBird will depend on market reaction to VLJs, said Macdonald. “With crew and infrastructure requirements for around 30 VLJ aircraft, we anticipate high utilization [to be needed] to obtain a return and still be competitive.” He expects them to bypass brokers “unless we need their availability for our clients. We wish them luck.”

Both brokers see multiple challenges facing European executive charter operations. “The main obstacles are fuel costs, increasing airport charges, congestion and slot restrictions at certain traditional executive departure points,” said Macdonald. It is not clear how VLJ operations will influence the situation, but in the short to medium term, he predicts little impact. A further concern is the strength of the euro, which makes European charter more expensive for UK or American users.

For Keynes, the days of advising customers that “they may fly when they like, change timings, et cetera, have largely disappeared,” a circumstance seen as underlining brokers’ value. “With most requests there are hoops to jump through and a good broker will carefully guide the customer to a realistic and successful conclusion. [Accordingly,] the role and value of a good broker has increased enormously,” he said.