The fractional share marketplace is changing rapidly in response to the lengthy global recession. While most fractional operators already reduced staffing levels to match lower levels of customer activity, it wasn’t until September 11 that NetJets announced layoffs of 350 nonunion employees. These were the first en masse terminations since David Sokol was named chairman and CEO of NetJets on August 4, following the resignation of NetJets founder Richard Santulli. In making the announcement, Sokol also noted, “We have initiated other actions to reduce expenses throughout the business.”
The news isn’t all bad, and some recent statistics support the prevailing view that the aviation industry is bumping along the bottom and poised for a rebound. According to flight-tracking service FlightAware, fractional flying activity climbed 11.1 percent in July versus June 2009, although compared to last July, the fractional segment’s activity was down by 17.1 percent. ARG/US’s TraqPak evaluation of business aircraft activity reflects a similar drop in fractional activity during July 2009 versus July 2008, with a 17.6-percent decline. ARG/US further breaks that down into aircraft categories, showing that small-cabin- jet activity dropped the most, while turboprop activity grew 21.5 percent (see Graph 1). It is interesting to note that according to ARG/US, fractional aircraft activity
decreased the most in that time period, compared to Part 91 and 135 operations.
According to JPMorgan’s monthly business jet activity analysis, business aircraft flight operations grew during July, to 304,000, the first time since November 2008 that number was higher than 300,000. “Monthly flight ops are now up 16 percent off the February bottom,” the report noted, “and have increased sequentially for three consecutive months.” Flight operations, however, are still depressed below the historical level of 360,000 per month and for July are down 15 percent on a year-to-year basis.
Most fractional share operators are either not large enough parts of their publicly traded parent companies to warrant release of detailed statistics, or are privately held and not willing to share such information. Publicly traded Avantair does release relatively detailed information on its operation, at least compared to NetJets, Bombardier-owned Flexjet and Cessna-majority owned CitationShares. Flight Options, Executive AirShare and PlaneSense are privately held. None of the major fractionals share detailed fleet information publicly.
France-based researcher Pierre Parvaud analyzes the activity on the public FAA registry to determine what is happening to the fleets of the major U.S.-based fractional operators. According to Parvaud, 2009 is shaping up to be a bad year for most of the fractionals.
During the first half of 2008, according to Parvaud’s statistics, the five national U.S. fractional operators–Avantair, Citation- Shares, Flexjet, Flight Options and NetJets–broke even in number of shareowners added and lost. Thus, while sales efforts delivered 216 new shareowners during that period, the same number left the programs.
In the second half of last year, the effects of the recession hit home, and while the five fractional operators managed to sell shares to 168 new owners, 360 owners were lost, for a net negative of 192 shareowners for the second half and the entire year.
In the first half of 2009 (the latest date for which information was available), the trend accelerated, with 402 owners lost versus 84 added, for a net loss of 318 shareowners (see Graph 2).
Most of the fractional operators added aircraft during the first half of 2009, but except for Avantair and Flexjet, sold more than they added (see Graph 3). The total of negative 14 aircraft added during the first half contrasts markedly with the 18 and 22 net aircraft added to the five operators’ fleets during the same periods in 2007 and 2008, respectively.
Overall, however, the major fractionals’ total fleet numbers have remained relatively stable, when comparing the end of June 2008 to the end of June 2009.
While the numbers for the first half of 2009 are dismal, the fractional share industry remains a key component of general aviation, still accounting for a significant portion of the overall fleet, thousands of jobs and hours flown on behalf of customers and an important entry point for new consumers of business aviation travel.
For the fractional operators, their business model isn’t broken as much as it needs adjustment to reflect the reality of the current economic downturn, according to industry observers.