The demise of Avolar before it really got started is not an omen for the fractional aircraft provider industry. Introduced with much fanfare a year ago, Avolar was barely off the ground when its parent, UAL Corp., pulled back the power and shut off the fuel. Avolar failed for the most part because it wasn’t able to muster the significant upfront investment needed to launch a fractional operation, not because the fractional market is waning.
In fact, the fractional market is booming, according to ARG/US. The Cincinnati-based aviation research company, which just published its latest five-year fractional industry forecast, believes the fractional market “is much larger than previously thought and that only a small portion of the overall market has been developed.”
New fractional providers will “spend millions” marketing their programs, claimed ARG/US. As indications point to an economic recovery beginning as early as this quarter, ARG/US projected fractional providers will take delivery of approximately 170 aircraft this year. As new fractional providers begin service, deliveries will climb to more than 220 aircraft per year by 2006, Avolar notwithstanding. In total, ARG/US forecasts nearly 965 airplanes will join the fractional fleet over the next five years, and by 2006 there will be more than 1,600 fractional aircraft in service, serving some 13,500 share owners (about 8.4 owners per aircraft).
Last year ARG/US said total unit sales increased by more than 25 percent and share owners increased by more than 30 percent from 2000 levels. “This strong showing is in spite of a recession and the largest for-sale inventory of pre-owned turbine aircraft in recent memory.” At the end of last year, NetJets held a 49-percent market share of the fractional fleet; Flexjet held 18 percent; Travel Air held 17 percent; and Flight Options held 16 percent. Interestingly, Flight Options led in share owner annual percentage growth at 44 percent, followed by NetJets at 32 percent, Travel Air at 30 percent and Flexjet at 17 percent.
ARG/US made the following projections regarding fleet makeup:
• Turboprops–Deliveries of turboprops (notably King Airs and PC-12s) into fractional programs will remain stable at approximately 40 aircraft over the next five years. New-technology light jets entering the market will provide a low-cost alternative to turboprops, offering the fractional owner more speed, range and comfort for the same or lower price as turboprops. Nevertheless, turboprops will continue to serve a regional market over relatively short distances.
• Light jets–Currently the largest segment of the fractional fleet (34 percent), light jets will continue to be the favorite entry-level aircraft for the concept fractional buyer. ARG/US projects about 325 light jets will enter fractional service over the next five years. The Beechjet 400A currently leads this segment.
• Midsize jets–ARG/US anticipates delivery of 295 midsize jets into the fractional fleet over the next five years. Last year, midsize fractional jet sales accounted for approximately 31 percent of the total sales to NetJets, Flexjet and Flight Options. Upgrading by fractional owners from light jets has had a major effect on this segment. The Citation Excel leads this category, followed closely by the Hawker 800XP. Other aircraft in this group include the Learjet 60, Citation III and VII and the Hawker 800A.
• Super-midsize jets–The super-midsize category will absorb approximately 115 aircraft from now until 2006, said ARG/US. As new aircraft, such as the Bombardier Continental, enter the market, this category has “strong growth potential.” The Citation X is by far the leader in this category, followed by the Hawker 1000 and Falcon 50.
• Large jets–Corporate flight departments requiring supplemental lift will continue to be a customer base for shares in large fractional jets. As new fractional providers focus in on this category, increased marketing will also open up a larger customer base. The Falcon 2000 currently leads this category, followed by the Challenger 604 and the Gulfstream IV-SP. The large jets category also includes the G200 and the Challenger 601. ARG/US forecasts deliveries of large jets to the fractional fleet will reach 165 units from this year through 2006.
• Long-range large jets–The cost of maintaining inventory and the complexity of managing assets for aircraft such as the GV, Global Express and BBJ have made this a “challenging segment” for fractional providers, said ARG/US. The economic downturn has had a negative effect on this segment as well. Over the next five years, ARG/US forecasts domestic fractional deliveries of 22 long-range aircraft.
AIN questioned ARG/US about placing the Citation X in the super-midsize class and the G200 (Galaxy) in the large class. According to their manufacturers and industry consensus, the Citation X more properly fits into the midsize class and the G200 is the original super-midsize jet. While ARG/US said it would consider taking another look at the class breakdown for future forecasts, it declined to consider making adjustments in this forecast; further, the company would not supply AIN with a forecast breakdown by individual aircraft model. While declining to make the changes does not alter the total delivery forecast, it does inaccurately represent the class breakdown.
Fractional aircraft ownership has found a market with companies and individuals that are making a first-time investment in business aircraft, as well as a supplement to corporate fleets. According to ARG/US, it would appear from this forecast and the history of the industry that fractional ownership will continue “as the most dynamic and fastest-growing niche within the corporate aircraft market.”