Prices and usage are down as charter market feels the pinch
Like the rest of the aviation industry, the charter segment has suffered serious setbacks during the past year and is hunkering down and adapting to a new marketplace characterized by smaller companies, lower prices and less flying.
Surprisingly, the number of U.S. charter operators holding Part 135 certificates has barely dropped, and the fleet size remains steady, too. As of this September, 2,233 active Part 135 certificates were on file with the FAA (17 were dual Part 121/135 certificates) versus 2,240 certificates a year ago. (Operators aren’t required to surrender certificates immediately if they cease operations, but there is no indication these totals include large numbers of defunct businesses.) The registered fleet size has also changed little over the past year, comprising 8,224 aircraft at the beginning of this September compared with 8,202 at that time last year.
A significant percentage of this fleet racks up little or no charter time. Almost 900 (890) Part 135 operators have just one aircraft on their certificates, and these aircraft are likely used primarily by their owners. Tracking data indicates several hundred additional aircraft in the charter fleet are not being flown at all. And some managed aircraft on charter certificates are never hired out, according to operators. Nonetheless, there is no shortage of capacity in the fleet.
“There is a glut of Part 135 aircraft at the moment, and that’s one of the reasons there’s so much pricing pressure,” said Joe Moeggenberg, president of Aviation Research Group U.S. (ARG/US), an aviation consultancy and data service in Cincinnati.
Interpreting the Data
How bad is the charter industry hurting? It depends on who you ask, what they track and how they crunch their numbers. Data on charter operations was provided by CharterX Wyvern, OneSky Jets and ARG/US. CharterX Wyvern uses data on Part 135 operations it receives directly from the FAA. OneSky Jets tracks a discrete fleet of 2,623 charter aircraft using data from the FAA. And ARG/US collects and corrects data from the FAA. All three data providers show charter activity is down, but their figures vary substantially as a result of these differences in data collection. (As an example cited by ARG/US, if a charter crew cancels IFR before landing at their destination, the FAA might not show that flight as having occurred.)
Here’s a thumbnail picture for August 2009 compared with August 2008: CharterX reported that charter activity in light, midsize and heavy jets is down 26.4 percent. OneSky said the number of flights of its tracked fleet declined to 26,113 from 30,589 (-17.1 percent) and the number of flight hours dropped to 20,817 from 28,000 (-34.5 percent). ARG/US, however, found overall charter trips over the same period, including all turbine and turboprop Part 135 aircraft, declined only 11.7 percent, to 52,013 from a total of 58,969. The ARG/US data also show the aircraft flying longer flights than do the OneSky data, averaging 80 minutes per flight (up from 78 minutes in August 2008).
Other factors also skew the data. For example, every time a Part 135-registered aircraft flies, even when carrying its owners rather than on charter, it appears on records as a charter flight. Meanwhile, data on the use of Part 91 (not for hire) turboprop and turbine aircraft over the past year indicates private owners cut back less on flying than have charter customers. As Greg Johnson, president and CEO of OneSky Jets, explained, “What this means is that the drop in hours being reported here is probably understated [for the drop in charter hours] because it cannot account for and filter out the owner flying on charter aircraft.”
Several anecdotal reports stood at the bleaker end of the activity reporting spectrum.“I don’t believe it’s a secret the last year has been very difficult for all charter operators,” said Andrew Priester, president and COO of Chicago-based Priester Aviation. “We’re down 30 to 35 percent on a 12-month average.”
A Buyer’s Market
Excess capacity and decreased demand have made a buyer’s market for charter over the past year. In addition to lowering hourly rates, many operators have waived standard two-hour minimums. “The reduction in demand has created price pressure across the board,” said OneSky’s Johnson. “On some of the most popular routes the prices are down as much as 20 percent.”
Asked for comparative costs on popular routes over the past year, Jim Betlyon, president of Trenton, N.J.-based CharterX Wyvern, said, “It is difficult to demonstrate; anecdotally, prices are at breakeven or less. Some operators are quoting at less than DOC [direct operating cost] to keep the airplane moving and have some revenue going to the owner and themselves.”
Wayne J. Rizzi, president of broker Air Royale International, said a New York-to-London round trip aboard a Gulfstream GIV is now about $83,100, compared with $92,900 a year ago, an 11-percent drop.
The most aggressive pricing has been between the Northeast and Florida, and on transcontinental routes. And some of the greatest price pressure came not from desperation but by design. XOJet, a San Carlos, Calif.-based charter operator, introduced one-way fixed prices in August 2008 aboard a fleet of new Citation Xs and now offers all-inclusive coast-to-coast fares of $19,000 and New York-South Florida flights for $12,000.
“It just demystifies the whole process for everybody,” said XOJet CEO David Siegel about fixed pricing. “It forces everybody in the whole value chain, whether a broker or operator or somebody else, to demonstrate what you’re actually doing for the customer.”
Some operators, while not cutting rates, have forgone customary increases. “Historically, Elliott [Aviation] will raise charter rates for CPI [Consumer Price Index],” said Toby Batchelder, sales manager of the Minneapolis-based operator. “In 2009 we did not have a price increase on hourly rates, mainly because cost of fuel is cheaper today. In that sense, prices have come down.”
Other operators have simply held fast on rate cards.
“The charter market did not slow down because the prices of charter were too high,” said Priester. “It slowed because the purchasing habits of charter customers changed. We have been resisting lowering the charter rates. We really believe people who are flying on the airplanes are willing to spend money on the quality of the operation.”
Scott Weiss, general manager of the Travel Management Company in Elkhart, Ind., a wholesale operator, sounded a similar note. “We stuck to our guns on pricing and stuck to a service everybody needed. We’ve had a lot of good brokers out there say, ‘Even though [the trip quote] may be $1,000 more, a new [Hawker] 400XP will show up, and if it breaks, they’ll get a replacement there.”
“We’re actually raising prices,” said Richard Brennan, vice president of sales at Segrave Aviation, a wholesale operator based in Kinston, N.C. “You can’t get to profitability with every jet flying at a loss. It’s just not going to work.”