VistaJet throttles back but continues to climb
VistaJet is slowing the implementation of its ambitious growth plans in the charter market but insists that its ambition to solidify its position as the number two service provider outside North America still stands. This year the company will take delivery of less than half of the 12 to 14 new aircraft it had been due to take, and it has adjusted its target of having a 100-strong fleet of jets by 2012 operating some 80,000 flight hours.
“The world has completely changed but the fundamentals are still in place,” VistaJet chairman Thomas Flohr told EBACE Convention News. “We simply need to be more realistic due in response to market conditions [in terms of the pace of aircraft deliveries]. The plans have to be fluid and our order book will most likely be pushed further out.”
This year the operator will add two more Learjet 60s, a pair of Challenger 605s and one Challenger 850. It also holds 11 firm orders and eight options for Bombardier’s new Learjet 85 aircraft.
“The 850 is a phenomenal product,” said Flohr. “Inside it looks just like the Global Express from bulkhead to bulkhead, but with less range and slightly slower at a [charter] price point that is half [that of the Global Express] so customers can fly the 850 locally but keeping the same cabin they are used to [for intercontinental flights].”
Here in Geneva 12 months ago for the 2008 EBACE show, VistaJet (Booth No. 230 and Static Display) made the sensational announcement that it had signed a contract with Bombardier for up to 60 new aircraft with a combined value of up to $1.2 billion. At the same time, it reached agreement to buy the Canadian airframer’s Skyjet International block charter program.
The integration of Skyjet has been completed and this week VistaJet is to announce that it has removed all charter pricing and aircraft availability differences between the three regions in which Skyjet is offered: Europe, the Middle East and Asia. Service within North America will continue to be provided through VistaJet’s alliance with Bombardier’s FlexJet program. According to Flohr, VistaJet is the only charter or fractional ownership provider not to impose interchange payments for customers flying into or within different regions of the world.
“We wanted to make the contractual obligation much simpler and more transparent, because we don’t want to push people to buy assets like fractional ownership,” said Flohr. “We want to provide a more personalized and high level service at a price point that is below [fractional ownership]. Finally there is an alternative to fractional ownership, and something between guaranteed [aircraft] availability and on-demand charter.”
However, the market turmoil over the past nine months or so has undermined VistaJet’s new Flight Solutions program under which customers purchased whole aircraft and then leased them back to VistaJet, taking an specified number of charter hours as part of the deal. Until the implosion of financial markets back in the early autumn of 2008, sales inquiries had been split about 50:50 between the leaseback scheme and the Skyjet Jet Member block charter program, but now the lease option accounts for barely 10 percent of prospective sales activity.
Flohr said that VistaJet is now consolidating the two offerings under a common program that will be demarcated purely in terms of the number of hours a client wants to fly each year. In his view, 100 to 200 hours annually is the “sweet spot” in terms of the operator’s ability to deliver the most value to customers. However, it does still sell some small 25-hour blocks of occupied flight time to established Skyjet customers and it also offers traditional on-demand charter.
“The common factor with our program is guaranteed availability of aircraft,” explained Flohr. VistaJet’s sales team can offer clients packages of hours consisting of flight time in a mixture of the four aircraft types that it operates.
Another change at Skyjet is that the majority of flights are now provided by VistaJet itself, rather than by the network of operating partners recruited by Bombardier. Flohr acknowledged that reduced demand for charter flights has resulted in fewer bookings being assigned to other Skyjet operators, adding that this would always have been the expected outcome as VistaJet’s own fleet increased in size.
However, he added that an equally important driver of this trend is VistaJet’s desire to deliver what it claims to be enhanced and consistent levels of service commensurate with the VistaJet brand. In fact, referring to Bombardier’s original goal for Skyjet that it would provide a tool for getting more people using its aircraft and so stimulate demand for aircraft sales, Flohr maintained that a much higher proportion of Skyjet customers are now flying in Bombardier types than was the case when charter bookings were shared more equally among the program’s partner operators. “With Skyjet we have created a VistaJet brand expectation by putting as many clients as possible on our own aircraft,” said Flohr. “We want to be in control of these expectations.”
VistaJet’s revenues for the first quarter of 2009 were 25 percent up on the same period in 2008. To a large degree this is driven by the company’s larger fleet but Flohr said that the increase in market share is also a vindication of its growth plan and strategy.
From VistaJet’s experience there has been a greater drop in charter bookings among the smaller end of its fleet, which it defines as below the size of the Learjet 60. It inherited a number of Lear 35s, 40s and 45s as part of the Skyjet acquisition but finds it hard to deliver a sufficiently differentiated level of service on the flights of little more than one hour that these aircraft typically make.
Financing Dries Up
Flohr acknowledged that the financing required to fund future aircraft purchases generally is harder to come by due to the severe contraction of liquidity among banks. However, he insisted that this isn’t the main reason for VistaJet’s decision to slow down its rate of fleet growth. “Finance is available only if the expected growth is there and the revenue growth has to be there first [before loans can be provided],” he said, while stressing that even if there were no constraints on funding, VistaJet would in any case delay deliveries because it would not want aircraft sitting idle. He added that there is sufficient flexibility in its contract with Bombardier to allow for such changes.
VistaJet has seen a fairly significant reduction in demand from clients in the main financial communities, such as London, but Flohr argued that the company has never been especially focused on the main European markets. Much of the company’s growth in recent years has come from Russia–an economy that has seen extraordinary growth but which is now being dragged into the global financial crisis.
Paradoxically, VistaJet’s Russian business has continued to increase even as the published wealth of its famous oligarchs has declined. “A year ago we were flying about four times each day to Moscow, and now the average is more like six times each day,” said Flohr. “Russians really appreciate brands and they like the certainty of the quality they get from a brand,” he said.
In fact, Flohr maintained that generally speaking the further east the charter market extends, the greater willingness to pay for quality it encounters. He said that this is especially true of the Middle East, a region for which he still has high hopes. In his view, despite the well-publicized jitters in previously explosive economies of Arabian Gulf states, such as Dubai, demand remains high in countries, such as Saudi Arabia, which are not plagued by credit issues.
Flohr said that he had been surprised by the extent to which Southeast Asia has been dragged into the financial crisis. Last year, it established an operating base in Kuala Lumpur, placing a Challenger 604 and a 605 there. One of the main motives for this is to ensure aircraft availability in the region, due to the difficulties of getting permits at short notice to fly over India. VistaJet is not alone among charter operators in being frustrated by seemingly impenetrable Indian bureaucracy, which it feels is a major impediment to business aviation growth in that country.
At least publicly, VistaJet has no pretensions that it will ever usurp market leader NetJets. “But any market needs a number two and any market is thrilled by being offered more for less,” said Flohr. “Our focus is on delivering the service people need, with greater transparency and new aircraft and that’s why we still have growth even in this slowing market.”