Market Shifting, Say Top Brokers

 - October 27, 2008, 11:08 AM

Leading executive charter brokers arguably offer the best overview of current market conditions because they deal with such a broad spread of operators from different geographical areas and market niches. Given the recent turbulence in financial markets, it was perhaps unsurprising that privately owned Hunt & Palmer was more candid in its assessment of business conditions than public company Air Partner.
According to Hunt & Palmer executive aviation manager Neil Harvey, the first three quarters this year did see an overall softening in demand for charter flights–especially during January, February and March. Bookings subsequently recovered quite markedly but he suggested to AIN that the next few months could provide critical indicators of the extent to which adverse business conditions have affected markets such as Europe and North America.

The past few years have seen a relentless boom in international charter markets, and to some extent brokers have always known that the growth would have to slow. The consensus among them is that growth will likely continue in the Middle East and Russia, and to a somewhat lesser extent in Asia, even if trading slows in Europe and North America.

In particular, Harvey reported that there is a growing volume of executive charter traffic between Arabian Gulf states and India. At the same time, Hunt & Palmer’s office in Hong Kong has found that in reality the long-promised increase in charter capacity in China has not materialized to any great extent and the market there continues to be held back by bureaucratic restrictions.

Harvey said that while there are now hardly any of the financial roadshows associated with share flotations and initial public offerings, flying activities by bankers continued to be surprisingly high given the cataclysmic events on Wall Street in late September. He also indicated that bookings by both wealthy private individuals and the corporate sector have held up fairly well. In his view, new packaged charter offerings such as jet cards will likely suffer because these tend to attract new business aviation consumers who may now be wary about taking this step. “New money chases new products,” he concluded.

Meanwhile, capacity is continuing to grow in the international charter market with, Harvey estimated, some 10 new aircraft being delivered into Europe alone each month. With demand leveling off, he does see a danger of overcapacity, and in his view the only factor driving charter rates up has been the rising cost of fuel. He suggested that rates have risen by as much as 15 percent this year, specifically due to fuel costs, and he argued that the market has readily accepted this adjustment.

Harvey suggested that the past few years of unprecedented growth in the charter market might have made some operators a bit complacent in their attitude to service. “Frankly, it has been a bit easy for operators over the last few years, and some standards have slipped,” he commented.

Another consequence of strong demand for bookings has been the temptation for some operators to take on more work than they can realistically handle, compromising punctuality in the process. “As a result, our role as broker has changed,” Harvey said. “We have to look a lot more closely at what operators are doing and ask hard questions about the schedule booked.”

According to David MacDonald, who heads Air Partner’s executive charter division, the past 12 months have been “pretty good” right across the company’s activities in ad hoc brokering, block charter card and charter operations. However, he indicated that there had been signs of market softening around late August and early September that have prompted questions about what is to come.

“The key going forward, especially with our JetCard, will be what happens to the leisure sector of the market,” MacDonald told AIN. “Some customers are affected by the [falling financial] markets and it does have an effect on their spending power.” Nonetheless, membership of Air Partner’s JetCard has doubled since 2007 and the company is targeting around 50 percent further growth for next year.

“We won’t see a mass collapse [in the charter market], but we could see decline in [bookings from] financial roadshows,” he said. “As a company we have never really focused on one market segment, so we spread our exposure to risk.”

But surely with the supply of charter aircraft growing and demand apparently slowing, operators must be feeling the squeeze? Not necessarily, indicated MacDonald. “It is too early to say what will happen with rates,” he stated. “American operators seem to be hungrier for work, but we haven’t seen managed aircraft being flown at lower rates. The next few weeks will be key indicators of where the market is going.”