NetJets Europe Gives Candid View of a Tough Market

 - November 1, 2012, 6:00 AM

AIN asked NetJets Europe to comment on the market conditions that have led it to seek further cuts among its pilot workforce. The company responded with the following written answers:

Demand for private aviation is clearly proving slow to recover. What is your current projection for demand levels going into 2013 and 2014?

The industry is not forecasting a quick recovery as might have been hoped for two years ago. Eurocontrol’s revised forecast had expected 4-percent growth and was revised to a reduction of activity at around the -2 percent level in 2012.

Are you seeing differences in demand levels between your fractional ownership and jet card products?

Fifty percent of the NetJets Europe customer base is made of fractional owners and 50 percent of cardholders. Eighty percent of the NetJets Europe flight hours are flown by fractional owners. The inherent efficiency of the fractional model is relevant in the current economic conditions; however, the surplus of used jets in the market has made it harder for some owners to leave ‘full ownership’ for a fractional share.

Are you seeing differences in demand levels among the various sizes of aircraft that you offer? If so, are you adjusting your fleet composition accordingly?

Certain cabin classes have proved more resilient than others. Large-cabin aircraft have proved resilient and there are indications of growth in this class. Midsize aircraft have remained stable and there is reduced activity in the light cabin segment, which is unsurprising if you consider that the large and midsize jets are flown mostly by corporate customers, who need to use business aviation as an essential deal-making tool. The light cabins are more frequently owned by high-net-worth individuals, who have downsized in the economy.

Are you adjusting your terms, conditions and charges to make it more attractive for customers to retain or renew their fractional ownership contracts? If so, what changes are you making?

At the beginning of the global economic crisis, NetJets Europe launched smaller shares (1/32 share, 25 hours) to allow fractional owners to stay in the program when they had to reduce their flying due to economic uncertainty.

Charter operators and brokers tell us that clients want a greater degree of flexibility than is offered by fractional ownership. What is your response to that?

Charter users and NJE clients have different profiles, meaning they have different needs. Charters are the perfect solution for people flying around 10 hours a year. From guaranteed availability with 10 hours notice to have a jet anywhere in Europe 24/7/365 to having access to multiple aircraft at the same time, NetJets Europe constantly works with its owners to ensure they have access to the level of flexibility they need to enjoy a completely hassle-free experience.

We understand that changes in European Union rules regarding employer social security contributions could increase costs for operators such as NetJets who employ flight crew based in different countries. Are you having to adjust your employment structures in response to this? Does this represent a significant additional cost to NetJets Europe?

In 2009, due to the global economic environment, NetJets Europe launched a voluntary options program to manage excess crew levels due to a decrease in flight demand. Forecasts indicate that market growth will not resume to previous levels for a number of years. The current redundancy program [See page 1. –Ed.] is a direct response to the longstanding economic environment and not to the EU rules regarding social security contributions. However, the company has taken into account the fact that social security contributions would increase costs significantly in the way the proposals have been structured.