European business aircraft charter operators and brokers face an unpredictable summer following a 25- to 30-percent downturn in bookings as a result of the recession. According to charter operators and brokers surveyed by EBACE Convention News, the slowdown gathered pace in the final quarter of 2008 and continues.
Within a one- or two-week period late last year there was a sudden drop-off in bookings, including cancellations, according to one broker, while others confirmed short-term uncertainty across a sector whose fortunes are largely related to global economic and stock-market trends.
“It’s difficult to say what will happen,” said Cedric Migeon, managing director for Europe with Zurich-based ExecuJet Aviation (Booth No. 354). London Executive Aviation (LEA) chief executive Patrick Margetson-Rushmore agreed. “I really don’t know, but historically one expects business to pick up,” he said.
For Jeremy Palmer, executive aviation director at charter broker Hunt & Palmer, the question of what happens next is a “dangerous” one. “We must anticipate a quiet summer and we certainly expect business to be less than it was in 2008. It’s unrealistic to expect things to remain the same,” he said.
ExecuJet’s Migeon said, overall, the European industry is suffering. The downturn has affected mainly “small operators that often rely on smaller fleets, or lighter or older aircraft,” with some having to ground equipment. The number of people flying is “down materially,” said Margetson-Rushmore; others cited year-on-year decreases in charter sales of as much as 30 percent.
Considering different sectors, Palmer said the market for charters by financial institutions was “quiet for some time” before becoming “significantly” down during the winter. Banks became “much more selective” about destinations and aircraft, he said, choosing more modest equipment to reach points not on scheduled airline networks.
Substantial Change After Last Quarter ’08
Specifically, Palmer noted a large downturn in the Russian market, where many people had thought the impact of company collapses, such as that of Lehman Brothers, would not be felt, “but of course it was,” he said. Having been a dominant market for five to six years, activity in Russia “halted suddenly” late last year and there was “no Russian New-Year holiday traffic.”
Nevertheless, charter business in that geographic market remains strong, according to statistics provided by Swedish charter software specialist Avinode. Among the top ten busiest routes for chartered business aircraft in the 12 months from April 2008 (see table below) were nine from Moscow Vnukovo Airport to various cities, including the route to Nice, whose reciprocal (inbound) traffic made it also the fifth busiest route overall.
Robert Wells, chief executive of TAG Aviation Holding (Booth No. 651), said the whole business aircraft industry, including the charter market, underwent “substantial change” after the last quarter of 2008. For his part, Palmer reported a “quiet” first quarter this year, with business down 25 percent on 2008 and some private customers making later bookings. He gave the example that of four UK high-net-worth individuals taking charter flights for winter family vacations booked through Hunt & Palmer last year, only three returned this year and at shorter notice.
David Macdonald, private jets sales director at broker Air Partner, echoed Palmer’s judgment that the slump began among financial “heavy-use” customers, saying many high-net-worth individuals continue to charter for leisure. “It’s a lifestyle choice; some have cut back mixed charters with scheduled flights, but very few have stopped,” he said.
Macdonald also said Air Partner found a 20- to 30-percent drop in flying hours across the industry since last year. After enjoying “fairly good” business during the August to October time frame, his company saw a “weak” quarter in which turnover was reduced by 11 percent in the period November 2007 to January 2008. In the six months starting August 1, the group saw a 30- percent decrease in hours booked on private jets
The aforementioned Avinode statistics demonstrate trends in recent demand (recorded as requests for quotations), including high traffic last summer, the late-year downturn and a seasonal increase in early 2009. Analysis of charter requests made to more than 900 Avinode charter operator and broker clients in the 12 months ending March 31 this year show that during last July demand rose significantly from that in April before falling to a low in December.
Charter requests this March were down about one eighth from those of April 2008. There was a 13.33-percent decline in total requests, covering all aircraft categories, despite small increases among heavy and super light jets and piston-engine aircraft. Likewise, the rise in specific requests for Bombardier Challenger 604s and Cessna Citation Excels bucked the general trend among six sample models while overall demand across the sample fell 11.62 percent.
Industry players believe the recession could lead to rationalization. Air Partner’s Macdonald expects operators of all sizes to leave the market, with owners being most at risk. “We are seeing owners jump around between management companies,” he said.
Charter, but at What Cost?
ExecuJet confirmed it has received approaches from owners, while Palmer reported casualties among operators as demand fell after a period of fleet growth. “We could profit from any operators ceasing business,” said LEA’s Margetson- Rushmore.
Excess supply and reduced demand have forced many competitors to ground aircraft, claimed Migeon, while LEA’s Margetson-Rushmore cited a “big drop-off” in flight-plan filings, accompanied by anecdotal evidence suggesting that 60 to 70 percent of aircraft available for charter are grounded.
Some players have chosen to sell charter time at any cost. According to TAG’s Wells, “Operators are fighting hard to retain market share and many are quoting prices that are going to be hard to sustain.”
Likewise, Palmer reported “frankly ridiculous discounts by operators quite desperate” to generate flight hours or maintain cash flow. There has been, in his view, “a naïvete among some entrants with good equipment but no [market] experience, and management companies offering unrealistic guaranteed utilization.”
Citing a 25-percent cut in rates since last August, Air Partner’s Macdonald said brokers often had to settle for “best” rates rather than “premium” prices. Migeon pointed out that customers can be “more demanding about the aircraft they want” in terms of interior fit and airframe age, for example.
Margetson-Rushmore said that low profit margins prevented much softening of prices. “Some will fly at low prices to cover crew costs, but should be realistic and not under-price below a sensible and viable commercial level.” Alternatively, good client relations can pay dividends, said Wells. “Loyal customers will even pay a premium for service that truly impresses. Understanding and exceeding their needs has become more important than ever.”
Palmer also acknowledged that charter rates being offered today are often being set relatively low to generate utilization. He maintained that, overall, prices are no higher than they were five years ago and so do not reflect inflation or other factors.
Most European operators have been flying at breakeven prices since the end of last year, said Macdonald. How long they can do so depends on their business model, whether they had aircraft on order or managed aircraft for third parties.
ExecuJet’s Migeon said operators of smaller aircraft are more exposed than those offering larger capacity. “The light-jet market faces challenges based on the normal competitive dynamic of first- and business-class travel,” agreed Wells.
Conversely for Palmer, recession has seen some customers willing to trade down, which ensured demand for smaller aircraft such as Citation jets. “Midsize aircraft like the Citation Excel or Hawkers are not doing terribly well,” he claimed.
In Migeon’s view, these days executives are willing to compromise on costs by using scheduled airline service for short trips. But he insisted that there will continue to be strong demand for long- and very long-range aircraft. Palmer said there is no more consumer choice in this category than there was a year ago and that, for instance, a Gulfstream 550 now commands a charter rate that is 25- to 30-percent higher than that for the Bombardier Challenger 605. By the same token, he said corporate jetliners like the Boeing Business Jet remain in a class of their own, from which established clients are reluctant to downgrade.
Air Partner also has seen demand for Global Expresses, Gulfstreams and Challengers “holding up,” with rates staying firm. Confirming “usual booking volumes and business inquiries” for large aircraft, Margetson-Rushmore said demand for mid-size types such as Citation Excels was down 20 to 25 percent.
Wells indicated that despite some gloomy reports about the state of the charter sector he remains optimistic. “Business is definitely there for operators who can identify and exceed their customer’s key needs,” he concluded. “Some decline is natural, but what’s more impressive is the number of charter clients who find it more essential than ever to stay competitive.”
ARG/US Alliance Brings Safety into the Avinode Equation
To help raise the reputation of charter operators in the eyes of customers, Avinode is cooperating with Aviation Research Group/US (ARG/US), which is extending its operational safety report activity to Europe and the Asia/Pacific region. ARG/US conducts nearly 100 on-site business aviation safety audits a year and gathers data for its Charter Evaluation and Qualification (CHEQ) service.
CHEQ reports provide historical summaries of operators, their aircraft and their crews, and assign operator ratings based on analysis of the information. Having chartered an aircraft, subscribers can review the CHEQ report and obtain a trip-specific TripCHEQ report to see if the package meets customer requirements.
Cooperation between Avinode and ARG/US has yielded a joint product to combine Avinode charter price and availability data with ARG/US operator, aircraft and crew research, and due-diligence results. Avinode said an ARG/US audit can increase a European operator’s U.S. charter business since “all” large U.S. brokers, operators and fractional-ownership companies use the service to vet their flights.
An ARG/US survey is said to show that 80 percent of U.S. companies that charter in Europe use only independently audited operators. Avinode member companies can add a TripCHEQ, pricing and availability module to provide ARG/US operator rating, insurance amount, year of make and time on airframe information in the Avinode search result. –C.A.
Avinode Data Oils the Charter Machine
Over the past decade, the online charter booking portal developed by Avinode has become a major marketplace for executive charter operators and their customers. Avinode.com is now used by 900 companies with access to 2,600 aircraft, and lays a fair claim to having helped the very significant increase in charter sales and aircraft use in recent years.
In addition to charter booking solutions, the Swedish company’s software allows users to calculate the cost of chartering and also includes aircraft search and quote functions, as well as scheduling tools for operators. The integrated system now processes over 60,000 searches each month.
Avinode was founded in 2001 with the aim of providing a quick way to source and offer aircraft for charter in real time. The membership-based marketplace is particularly effective at identifying the availability of aircraft set to fly an empty leg that could be filled by a paying customer on a discounted basis.
Here at the EBACE show, Avinode (Booth No. 843) is sharing its exhibit with a dozen of its customers and partners, including Air Charter Scotland, A-Jet Aviation & Aircraft Management, Amira Air, Arkasair, Aviation Research Group (ARG/US), Capital Jets, European Flight Service, Executive Air Services, Jet-Link, Triple Alpha, United Aviation Libya and Vibroair Flugservice.
The online marketplace, which sends charter buyers and sellers real-time data via several platforms, can be integrated with members’ systems to update aircraft availability, download charter requests and upload responses. It connects charter companies that use Avinode’s booking engine on their own public Web sites, in the process promoting the services of operators on hundreds of different Web sites.
Avinode’s integrated Charter Planner aircraft scheduling and quotation application permits members to build a route and e-mail or fax quotes to customers. All contact
details on charter requests through Avinode are stored on members’ databases. Aircraft scheduling and availability is designed to be as quick and user-friendly as using an online whiteboard, but with universal access for pilots and potential customers.
To ensure accuracy, the company’s XML system interface posts members’ aircraft availability data to the marketplace from their internal scheduling systems. Under Avinode partnerships with leading flight-scheduling software providers Airops, Avient, Camp, CTA FOS/NT, FlightPak, Bizflight, Aviation Office and Leon Software, members can post details of fleets, empty legs and transient availability.
Members can implement Avinode’s Link booking engine on their Web sites to give instant pricing on any route for members’ fleets or those of approved operators. Link allows Web site visitors to research charter trips, receive flight times, aircraft photos and price estimates, and to send booking requests. Calculations are based on pricing, performance and availability data aggregated from the marketplace itself ormembers’ fleet management systems.
Having access to such extensive statistical data, Avinode offers reports of global charter industry behavior through its Business Intelligence service, which can provide analyses to support members’ strategic planning. Examples range from identifying performance requirements on a new aircraft model to average rates on frequently recurring charter routes, according to the company.
Avinode uses historical data and current information to analyze, for example, how a new aircraft might perform in the charter market based on type, configuration and location. Reports can suggest how established aircraft might perform under alternative pricing or from a different base.
Every month, Avinode distributes free standard system activity and operator-specific reports to members. System reports include basic information about most requested departure and arrival zones, while operator reports contain client leads, numbers of requests and search hits performance. –C.A.