ABACE Convention News

‘Gray Market,’ Austerity Hobbling Air Charter Operators in China

 - April 15, 2015, 9:30 PM
This week's ABACE show in Shanghai revealed largely optimistic sentiments in China's business, but there are concerns about the state of the charter sector. (Photo: AIN)

A double-whammy of an anti-luxury sentiment and illegal, or “gray market,” charter is decimating legitimate air charter operators in China. The former has put a “large dent” in charter activity in China, while the former is stealing anywhere from 25- to 50-percent of charter business from legal operators, according to Asian Sky Group managing director Jeffrey Lowe.

This has caused a “tremendous overcapacity in charter aircraft,” with one unidentified Chinese charter operator’s business being down 40- to 50 percent, he said. The environment has led to operators competing on price or shifting aircraft formerly devoted to charter to short-term leases, Lowe told AIN at this week's ABACE show in Shanghai. Operators that have cultivated private clientele have fared better than those relying more on government charter business, however.

“Government charter is slowly trickling back, but it will be a long time before it is anywhere near what it was before,” according to Lowe. However, there’s an upside for potential charter customers–“It’s a buyer’s market at the moment,” he said. But with some operators offering very low charter rates, “We look at the numbers and say, ‘I don’t know how they’re making money.’”

Meanwhile, cheap, but illegal, charter is plaguing the industry. The so-called gray market charter typically occurs when “business aircraft owners let friends or acquaintances rent their airplanes for flights, typically just for the cost of fuel,” said Lowe.

“Private owners don’t have to meet the same operating standards that are imposed on companies that provide charter services for hire,” he said, “so gray market charter subjects travelers to lower safety standards while depriving legitimate operators of revenue needed to pay for the enhanced services they offer.” At some point, the Civil Aviation Administration of China will have to step in and try to stop the illegal activity, he concluded.