Monday, August 25th, 2014
The European Space Agency’s Rosetta space probe is now in close orbit with comet 67P, perhaps better known as the Churyumov–Gerasimenko comet. Other probes have done fly-pasts. Rosetta has taken that one step closer – it is now moving at the same speed as the comet itself and all going well, it will land on the comet. That is a remarkable piece of space engineering, more than likely involving rocket scientists, but it raises one very simple question: If we can land a probe on a comet in deep space, what about aircraft on runways?
The answer, of course, is that we can, and we are starting to do so. By definition, en-route ATM is remote from the area being controlled so it was only natural that we can do it for remote airports too.
Perhaps the real question is why do we continue to think that we need towers at all?
ANSPs, airport owners and airline operators focus on costs and efficiency at all times, so finding safe, efficient and lower cost options is always of interest. High definition images, state of the art video density, object tracking and alerting, night vision and operative control under low visibility conditions are set to reinvent ATM at airports.
That might be just as well, because the airports have shown that they are more than happy to reinvent ATM at airports too. And, make it more competitive. Aviation Advocacy supports increased competition in air transport, so this is a Good Thing.
The UK CAA published an opinion last year that said that the Commission’s SES-driven requirement to put towers above a certain size out to tender was back-to-front. The risk involved in changing the operation of the towers at larger airports was too great, it decided. Only the smaller towers were suitable. The Aviation Intelligence Reporter covered this at the time.
Gatwick did not get the memo. It has announced that from October next year, DFS will operate the Gatwick Airport tower. Gatwick is legendary in ATM circles: a single runway that handles a world record 55 movements an hour. DFS is also legendary in ATM circles: the German ANSP that tried to purchase a share in NATS, only to be defeated by the superannuation fund of the UK’s academics.
There was considerable angst at the time of the NATS sale about what is called ‘the Daily Mail effect’, or what the notoriously rabid UK tabloid newspapers would say about a German entity controlling any part of the UK sky. A more rational concern was the risk of an outcome that saw the most liberal, privatised ANSP in Europe sold into the hands of one of the least liberal. The German Constitution, apparently, prohibits the privatisation of DFS. Apparently it does not prohibit DFS acquiring privatised ANSPs.
The announcement of the transfer was pushed out of the papers, even the tabloids, by more newsworthy events. The day the announcement was made coincided with the shooting down of MH17. What hope did faux outrage and a chance for headline writers to show off their particular skills have over Russian perfidy? The fact that it was a cost saving move from Gatwick – and the savings are reported to be considerable – with the promise of lower charges to airlines would have been beside the point on any other day.
Picking up on the CAA point, the airlines that serve Gatwick are not exactly being overwhelming in their support. Publically, they are saying nothing. Privately, they are looking for risk mitigation and contingency plans. Or, to put that in terms that the Daily Mail would not understand, they are more worried about preserving their operations’ reliability and resilience than refighting the Battle of Britain.
Tuesday, August 19th, 2014
Did this strike anyone else as strange? On 27 July 2014 Gatwick Airport dealt with hundreds of passengers whose luggage failed to be delivered on time.
The Gatwick`s spokesman mentioned at the time that the three hour delay was caused by “resourcing issues” of the baggage handling company Swissport. That would be the airlines’ outsourced baggage service supplier Swissport of which we speak. Baggage handling is one of those things that airlines are required to provide, along with transport and oxygen, when you buy a ticket (and include the fee for extra baggage etc…). Some airlines do it themselves, others get suppliers to do it on their behalf, but it is an airline obligation. The clue there is in the words “on their behalf”.
Arguably, the regulations do not allow airports to be involved in the process of unloading aircraft, but nevertheless Gatwick pulled out all stops and assisted with the transportation of the baggage to the terminal and the unloading of the bags on to carousel belts. Up to 60 extra staff was provided by Gatwick to improve Swissport’s service and to clear out the luggage backlog. The passengers were sent home and delivery of the baggage to their home addresses arranged. A promise of a maximum 48 hour delivery was made.
Swissport has reported that this was an exceptional case caused by “off-schedule” arrivals and that there is no need for concern on the following weekends. Nonetheless, Gatwick has announced that they will continue monitoring Swissport’s performance and offer help as required for the rest of the summer.
What is going on and what does this tell us?
A few days after the incident took place, the Gatwick spokesman said it was about the high standards the airport is demanding. In other words, it was about reputation and it was about service. This is nothing more or less than Gatwick knowing that their reputation was on the line. Ask yourself; is that the response of a fat dumb, needs-to-be-regulated monopoly service provider? Oh no, it does not. That is the response of an entity that understands the commercial issues at stake.
It puts into context the contention of the IATA study of airport competition. You may recall, and we covered this in detail in our Aviation Intelligence Reporter at the time, that the IATA study is in response to the ACI study which claimed that airport competition was real. ACI’s Airport Competition report shows that airports are in the situation of competing with one another in order to draw the traffic they want, as both passengers and airlines are footloose. Aviation has been liberalised, producing higher flexibility and a more open market for airlines and passengers. We should rejoice in that.
Maybe this does not fit IATA’s model because the airlines involved are not IATA members?
Saturday, November 30th, 2013
Eastern Europe Tries to Think Business Aviation Outside its Box
If you are interested in a broad, nuanced view of aviation in all of Europe, you will have appreciated the annual Central Europe Private Aviation (CEPA) conference in Prague in late November. It had over 200 aviation specialists and industry stakeholders in wide-ranging operational, commercial and regulatory discussions. It was a showcase for the dynamic aspirations of the ‘economies in transition’ both in, and beyond, the east of the EU.
One interesting feature of CEPA is that its agenda extends to include commercial airlines. This is an important gesture towards finding common ground between the two sectors. Too often, business aviation suffers from isolated analysis. At best, this relegates it to an out-of-category ´general aviation´ sectors, as the EU refer to it. Worse, it probably encourages the perception of its niche, luxury character, and thus distinctive from the mainstream transportation business.
Of course, business aviation is different from the scheduled airline sector – not least it´s an unscheduled and premium product. But it is surely still about business. Its operators need to be financially viable, its passengers fly, for the most part, for business purposes, and from the most recent study of the economic value of business aviation, the contribution of the business aviation sector to European GDP, in terms of direct and indirect revenues, is an annual €20 billion.
At least €1 billion of that is generated from Central and Eastern Europe. Whilst business aviation activity collapsed in Western Europe during the 2008-2012 recession it surged in Central, East and South-East Europe, with Poland, Russia, Ukraine and the Czech Republic seeing double digit growth. Since 2000, the CEPA territory fleet has grown by a factor of ten. Just in terms of charter activity, that represents a €500 million market. Annual MRO revenues are also in the region of €300 million.
So Central and Eastern Europe is no small fry when it comes to European business aviation. Too often overlooked for the larger leading EU markets, the region´s importance is getting justified, if belated, promotion through CEPA. But now it finds itself in a bit of a rut. While there has been impressive growth in the last decade, 2013 paints a less encouraging picture. This year activity has fallen 6%, and previous growth stars such as Russia and Poland are seeing big declines in flights.
No doubt the slump owes something to the relative spike in 2012 activity when Poland and Ukraine hosted the Euro Football championships. But the underlying economic support to business aviation has darkened in the meantime, at least for Eastern Europe and Russia. And economically, the region remains highly dependent on the Euro zone´s fragile recuperation. The industry also has basic problems, with under-developed infrastructure and shortage in resources dedicated to business aviation, as well as reputedly widespread illegal charter activity.
If there is some truth to the opinion that business aviation is not always 100% business-oriented, it is in its seeming inability to respond to a slump. This is as true in Eastern Europe as it is in the rest of the market. Faced with an obvious decline in customer demand, its stakeholders, in much of the discussion at CEPA, did not seem to be directly concerned with solutions. One rather obvious in particular: how should they go about attracting more passengers onto their aircraft?
Rather, the main topics of debate tend to orientate around technical issues concerning aircraft import and registration. A particular concern is how to reduce taxes and simplify transactions. In other words, there was a strong interest in facilitating aircraft purchases. This tells you that the customer of interest is not the charter passenger but the aircraft purchaser. In turn, this radically reduces the addressable market to the fabled few HNWI (high net worth individuals) sufficiently wealthy to own an aircraft. It ignores the thousands of individuals, entrepreneurs and businesses who make up the charter passengers which float the fleet.
Perhaps the reason the industry is not able to reach out to this audience is that it lacks the scale to market an effective consumer brand. Or it may be that its executives´ operational mentality obscures the commercial reality. But that reality is now urgent. Unless business aviation operators can work out how to appeal to users, not just owners, its growth potential is limited. It is not enough to base future prospects entirely on the impressive growth curve in the tiny number of super-wealthy would-be owners.
This brings us back to the airlines. To its credit, CEPA´s agenda encouraged its delegates to debate potential for integrating commercial and business aviation services. A number of such alliances were cited: Delta, Korean, Singapore and Lufthansa all offer their premium customers jet charters, operated by their business aviation partners.
These are relatively tiny ventures and the consensus is that such opportunities are very limited. But it is not just operational collaboration for which biz-av should look to airlines for inspiration. More broadly, it should look to see how the best airlines have survived and even prospered through the recession. There are lessons to learn.
Those that have prospered most are of course the LCCs. We are all familiar with their competitive advantages: homogenous fleet, scaled-up financing, aggressive marketing, no frills on-board service, high rates of utilization, online distribution… Although business aviation offers a very different experience to easyJet, many of the same efficiencies are potentially available. But whether through lack of imagination or simply because the operators´ traditional business model is inflexible, the lessons are ignored.
Business aviation should not only seek to imitate successful innovation in commercial aviation, it should also exploit the gaps opened up by its scheduled counterpart. Over the last eight years in Europe, this network has provided zero net growth in flights. In fact the huge growth in LCC activity has masked equally substantial declines in the regional networks. As this short-haul coverage recedes, biz-av should have an opportunity to appeal to customers who are increasingly left stranded without a direct connection.
Richard Koe, Aviation Advocacy
Wednesday, May 29th, 2013
Aviation Advocacy much enjoyed moderating the EBAA’s seminar on IT tools in business aviation, and specifically, the potential for such tools to change the shape of the way in which we sell and organise business aviation services. It was an appropriate session for the 13th edition of EBACE; all the indicators are that the European business aviation industry needs some serious reshaping.
On our panel we had a number of leading IT providers, ranging from Avinode (Oliver King), which has been in the market for than 10 years, to the Air Club (Christian Hatje), which has only just set out its intention to offer an online B2C channel. In between, PrivateFly (Adam Twidell) has pioneered the private jet’s consumer portal for 5 years, Victor (Clive Jackson) is hot on the heels, FL3XX (Paolo Sommariva) has successfully pioneered the industry´s first schedule optimizer, and Stratajet (Jonny Nicol) is on the brink of launching flight tracking and pricing software following a 12 month beta cycle.
These competing and contrasting suppliers certainly lack no courage. It may not strike someone from outside the business aviation industry as unusual to have online access to searching and purchasing flights. But within the industry, as Avinode attests, the initial proposal that operators, brokers and users start to switch from, or at least combine, telephone sales and internet searches receives a puzzled and sometimes hostile audience.
The same was probably true at the vanguard of e commerce channels for hotels, holidays and airline flights a decade ago, now long overcome by mass adoption of B2C and B2B online platforms. But the inertia in business aviation is particularly strong. After all, these are some of the most expensive and often complex arrangements available to purchase. That’s why ‘offline’ brokers continue to thrive, and the biggest brokers simply don’t see B2C models as a risk to their telephone-centric businesses.
So they’re brave, and in the case of Avinode, adept enough to find an application which brings the efficiency of an online market place without taking on the traditional ecosystem through which flights are marketed and priced. As such, Avinode is now an accepted member of the status quo, and to an extent, it is being challenged as a vested interest by our other panellists, whose business models can only work if the traditional format is disrupted.
As PrivateFly made clear at the outset of our debate, its aim is to address the problematic fragmentation of the industry’s distribution network. Why problematic? Because customers, whose experience of procuring as well as flying business jets ultimately determine the industry’s prosperity (this is often forgotten in our sector). And fragmentation serves to provide these customers with a procurement process which is slow, expensive and inconsistent.
Avinode get this problem of course; its platform consolidates myriad operators’ fleets and provides at least a stamp of standardisation on a market place which any subscribing broker can quickly navigate. But crucially they did not and have not yet addressed the ‘black box’ within which customers and brokers fix a deal.
For it’s within this black box that the perceived value of business aviation is won or lost; undoubtedly there are some brokers who play a valuable role in linking up customer to aircraft quickly and cost-effectively. Even if it’s all arranged by phone, and in fact often only because it’s all arranged by phone. But in most cases, incomplete knowledge and manual processes lead to delays and encourage hefty commissions.
It’s arguable that Avinode have exacerbated the problem, lowering the barrier for brokers and magnifying the bottleneck between operator and customer. Both parties are frustrated as a result. But then again both are innately conservative and it will take time before they are willing to try out alternatives like PrivateFly or Victor in large numbers. Knowing the market will eventually tend towards a B2C platform, Avinode nevertheless need to start developing a plan B. That seems to be where Air Club fit in.
Of course Air Club protest that their proprietary B2C interface, to be powered by Avinode, is not intended to destabilise relationships between member operators and ‘our good friends in the broker industry’. However it is more than obviously disingenuous to claim that the Air Club’s direct sales are complementary to pre-existing broker channels. Perhaps they have in mind some sort of customer carve-up between the big broker beasts like Air Partner and leading operators like LEA, with the mass market of small brokers left to fall through the gap. Difficult to see that suiting Avinode though.
Stratajet and FL3XX make interesting counterpoints to the B2B versus B2C debate. Theirs are not so much e commerce solutions as fleet management hubs. Their contention is that online sales channels, on their own, are little more than catchy websites. They may improve the marketing of some operators over others, but ultimately they simply redistribute market share, rather than reshaping inventory distribution, or, more fundamentally, improving the business aviation product.
The proposition from Stratajet and FL3XX (whose services may be directly competitive in the way that PrivateFly and Victor are) is that only by optimising the many tasks and processes which coordinate flight allocation and management can operators wring out efficiencies and be more competitive. With an integrated operations hub, which makes the most intelligent decision in response to each customer request, operators have a genuine pre-requisite to make a difference with e commerce.
This of course requires a much bigger bite at the cherry; operators have to be persuaded to drop multiple legacy planning platforms to make way for the induction of a single 3rd party’s planning hub. But clearly someone believes in them, for both have raised several million during a protracted software development and beta launch. And to be fair, Avinode have long seen the importance of bringing their operators standardised fleet management and pricing tools.
The flaw for Avinode is that the precision of aircraft designation and pricing is completely lost once in the hands of the broker which intermediates between their platform and the customer. By contrast, Stratajet claim to have the data and technology in place to mirror-image operators’ pricing and pass it on with complete transparency directly to end users. This is the sort of ‘super broker’ approach which threatens to displace traditional brokerage altogether.
We finished our session by asking the panel to forecast the importance of IT tools for EBACE in 2016. Naturally all agreed on progress. The majority agreed that several solutions would start to work in parallel. Air Club is convinced it will break the mould fastest, and who knows, it may provide the tipping point for operators to coalesce; no one likes being outside the club.
But for the geeks to get more show-time than John Travolta, it’s pretty clear they can’t do it alone. Simply adding an online veneer to the status quo won’t do much for the customer. The challenge is to harness efficiencies in the operators’ engine room and ally that to effective e commerce. If that’s cracked, the traditional distribution network will simply subside, as it has done in the many comparable industries from which business aviation should now take a leaf or two.
Thursday, May 16th, 2013
Business and Private aviation in Europe is stuck in a 5 year recession. The business part – read light/small jets which operate most of the flights – has slumped most. The impression given by many leading operators is that the market is dire and won’t recover for some time: too much capacity; customers ever more price-sensitive; ‘desperate’ operators are dumping prices and undermining everyone else’s margins.
In response there has been a marked tendency for operators to shift towards private aircraft management, with less emphasis on building business models around selling charter flights. After all, the very rich still own aircraft, despite the recession. And management earns steady fees, with less risk. This could be seen as a backwards step, as the industry reverts to its traditional image as a provider a luxury VIP service, as opposed to its aspirational identity as a complementary network to scheduled aviation.
If the recession had been short, and we’d bounced back to pre-2008 growth, battening down the hatches and weathering out the storm might have worked. But it’s now clear that the boom was unique, and that to move ahead, operators need new business models. They will need to take a leaf from the airlines, which responded to the fall in demand and rising (fuel) costs by innovating, particularly with low cost models and more sophisticated online sales channels.
The obvious equivalent to the low cost model in business aviation is the VLJ-supported air taxi network. This is beginning to work, but not without fits and starts. Its corollary, internet-based ‘ticket’ distribution, has been slower to develop and badly missed. Enhanced by intelligent data consolidation and information sharing, operators and intermediaries could be using the internet as a proactive tool to move business aviation forwards, rather than fall back on private aviation.
The sector is not without its pioneers. Ten years on from launch, Avinode virtually monopolises the online B2B market for brokers to liaise with operators. Their latest innovations imply they’re firmly fixed on being the GDS for business aviation. Competition to be the Expedia is led by the likes of PrivatAir and Victor. Rival business models such as Stratajet and FL3XX have a more holistic approach, ambitiously aiming to integrate operators’ front and back office n a single intelligent platform for planning, pricing and marketing capacity.
Some may question whether these online solution providers are isolated innovators or signs of an industry step change. Some brokers remain adamant that this industry’s customer relationship will always be led by the human touch rather than the smart phone app. But there are signs operators now see the need to collaborate around their own direct online sales channels – as Air Club has shown. Brokers likewise are initiating alliances which will unify around consolidated B2C online channels.
Some of these online business models will compete directly, others may complement each other. None has yet cracked the B2C channel, and the jury is out as to whether the solution will emerge soon, coalescing a single new approach, or whether various options will evolve in parallel. But what is clear is that the online innovators are the epitome of forward-looking change for the industry. It may even be that this is the tail that wags the dog and genuinely transforms the market.
To get some insight into the online landscape for business aviation, and the competing business models of its leading innovators, come to Hall 11 at EBACE at 9.30AM on Thursday 23rd May. I will be moderating an EBAA session entitled Shape the Market – Can New IT Tools Apply To Change The Traditional Way Of Doing Business Aviation? It could be an interesting one.
Friday, March 29th, 2013
In December last year, business aviation operators met in London to discuss the state of the industry. In particular, the theme was the fragmentation of the business aviation fleet and the problems this poses. It makes profitable operations difficult; variable costs are high enough, and the fixed costs associated with each AOC is enough to put most operators in the red, especially with 3rd party flying hours well down. Fragmentation also complicates industry cohesion in countering unwanted regulatory interventions such as APD and ETS.
There was some lively discussion on the possibility of aircraft operators consolidating. After all, many operators have fleets of just 2 or 3 aircraft. The benefits – in terms of shared fixed costs but also expanded geographic coverage, mixed fleet, joint marketing and price leverage – are obvious it seems. But there are equally obvious obstacles. Not least the ‘top gun’ egos who run business jet operators. They’re generally wealthy too. Many mind not being profitable less than they’d mind an acquisition or a merger. From time to time they do go bust, but more start ups come into the market. The barriers to entry are particularly low.
Many industry experts subscribe to this view. Alasdair Whyte of Corporate Jet Investor is a shrewd industry commentator. He does not believe there are many business cases out there worthy of an operator consolidation. His analysis of the ownership structure of business jet operators shows most are in private hands, and may not be driven by transparent commercial motivation. The best the industry can hope for may be something more nuanced, like an alliance. Sure enough, in late December several large European operators joined forces to start the Air Club, the first business aviation ‘airline alliance’ of its kind.
But then last week there was an interesting acquisition, with DC Aviation in Stuttgart buying out Jet Link in Zurich. This gives the German group some two dozen aircraft, from ACJ to Lear 45. Not so long ago DC Aviation expanded operations through a JV in Dubai with the Al Futtaim Group. Its global expansion started with its acquisition by the diversified ATON Group. Back to the present, and it was only 6 weeks ago that Marshall Aerospace acquired Flair Jet, the Oxford-based air taxi operator. Marshall wants to expand the fleet to 20 aircraft and sees further acquisition opportunities in India and the Middle East. Also just this year came the completion of Hangar 8′s acquisition of Jet Club in Farnborough. That added 10 heavy jets to its fleet of 40, now active across Europe and Africa.
In just a few months since December, at least some evidence appears to be weighing towards the potential merits of consolidation.
Friday, March 29th, 2013
The European Commission’s ham-fisted efforts to half-nelson the business aviation industry into working with its Emissions Trading Scheme is coming to a climax. As a neutral observer, this could be fun to watch. Even business aviation operators, who have had to bear the burden of this unnecessary imposition, should get to see Brussels’ delusion being fully exposed.
For the end of next month marks the deadline for business aviation operators to surrender their allowances for their carbon emissions over the last year of flight operations. Largely this obligation falls on European operators, since the European Commission has put the global activation of its ETS on hold in the hope that ICAO will kick start a multilateral replacement.
In short, there is no way operators will meet the April deadline. Not in any manageable order, and not to any useful end. Business aviation should never have been shoe-horned into the airline ETS rule book. The industry believes it’s been picked on. True, it’s no friend of Brussels. But in truth there was no harm intended. Business aviation is just another victim of the collateral damage of ill-prepared EU policy making.
Business aviation operators won’t make their deadline because the rules imposed on them took scant notice of the reality of day to day operations, and woefully underestimated the challenge of coordinating proper participation across 27 member states. Dozens of operators have not even opened a registry account through which to begin tracking their flights. For many, properly completing registration took 6 months alone.
Straight out of the EU cookbook, the ETS enforcers are now threatening punitive fines for any operators failing to fall into line. Repeated non-compliance may escalate to aircraft grounding and even seizure of aircraft. While the bureaucrats of Brussels anguish over the rule book, business aviation – which creates employment in Europe of over $5bn and supports businesses across the continent – is wilting away in the recession.
If the Commission, in fantasy land, got its way and was able to verify all business aviation aircraft emissions accurately, the irony is that it would most probably see that almost the entire sector falls beneath its designated payable threshold. But it won’t get its way, at least not in April and probably not this year.
By then, ICAO will have done nothing, demonstrably. The Commission will have been thoroughly bluffed; there is no chance of non-EU countries accepting the resumption of Europe’s global ETS en lieu, and the continuation of a Europe-only ETS is so pointlessly discriminating to European operators that even the Commission would think twice. We hope.
Friday, February 1st, 2013
The economics of operating business jets in the current economic environment make commercial airline business models looks pretty by comparison. Business Aviation case studies show that private jet operators looking to make money through charter need a dedicated fleet of at least 10 aircraft to break even. Even with a mixed case of charter and managed aircraft, fleets of less than 5 aircraft do not seem to provide the economies of scale to sustain a profitable business.
Such indicators are bad news for the European bizav industry, given there are a scarcely credible 1100 operators with an AOC managing a fleet of only 4000 business aviation aircraft. Aside a handful of operators with more than 20 or 30 aircraft, most operators are managing fleets of just 2 or 3 aircraft. If the ‘standard’ economics apply, this would mean that a good number of European business jet operators are underwater.
Yet the roster of operators and the size of the fleet continued to expand in 2012, even whilst activity fell. In fact in December 2012 business aviation departures were at their lowest levels since 2005. Movements were 7% down on December 2011, but given the fleet increased over 12 months, that equates to some 20% fall in average per aircraft activity. This of course further undermines the case for running a charter operation.
So, why aren’t we seeing widespread bankruptcies, or at least a bunch of cheap M&A activity? In fact there have been a few collapses. That includes Ocean Sky, which not so long ago managed to get product placing in a Bond film (there’s hubris for you). There was a big acquisition too, with the IPO-fuelled Hangar 8 buying up more aircraft from the venerable Jet Club. But overall, given what should be a parlous financial situation, there’s not much tumult amongst the operators.
The reason for this relative calm may be that we are mistakenly expecting the industry to respond as rational economic actors would in other more open, mature service sectors. Creaking business models should collapse, and a fitter next generation should swiftly consolidate the market. That doesn’t happen in business aviation, where most operators are beholden not to profit margins and shareholders, but aircraft owners who don’t want to sell their aircraft or the business around it.
Operators benefiting from such owners don’t need to sweat the fleet with charter. At a certain point, and below a certain price, their owners don’t need the business. Operators who have invested in their own fleet and are dependent on charter can only look on with envy – or of course, they can refocus their own business on managing the aircraft of wealthy individuals, rather than slogging it out in the charter market and paying all the operational costs.
This repositioning seems to be the key to survival right now. Operators whose business models were aggressively charter-oriented a year or two ago are quietly pivoting their attention back to aircraft management. The income potential might be substantially less, and indeed the excitement of controlling and building a real air taxi service might be lost. But the risks are far lower; the operating costs and much of the overhead can simply be passed back to the owner.
This apparent flexibility in business model may not be good news for the industry as a whole. It could equip many of its operators to survive the recession when in fact the market should benefit from some ‘creative destruction’. It may take the industry backwards, towards a concierge-service for the very rich, rather than develop its more hopeful path towards a genuine transportation alternative to the creaking commercial aviation networks. Being old fashioned could be a smart short term tactic, but not a great strategy for the industry.
Friday, February 1st, 2013
Business aviation in Europe had a ragged time of it in 2012, losing ground on an already disappointing 2011. At the MIU year-end conference in London, the operators gathered to debate how to ride the waves. The EU’s economic writing is on the wall; they won’t get much help from new customers. Consolidation was debated, but the consensus was that alliances of one sort or another would be a more pragmatic way to increase efficiency and stay afloat.
Sure enough and not a month later the Air Club was born. There are eight founder members, including fleets in Switzerland, UK, Germany and Austria, from bizliner 757s to air taxi Cessna Mustangs. The Club promises to be the first business aviation venture to imitate the airline networks of oneworld et al: combined fleets to complete multi-leg itineraries, cooperative purchasing including fuel uplift, shared airport access, and joint loyalty schemes for their overlapping travellers.
Brave words, so let’s see how they go. For all their resemblance, business aviation and commercial aviation are very different. They won’t be interlining schedules services or selling miles, and they have nothing like the airline alliance scale to get decent discounts on operational costs. Maybe they can share some overhead but that will take some heads knocking together. It’s unlikely to happen in an industry characterised by big egos and turf war (and that’s compared to commercial aviation).
The Air Club is bullish too about building a direct sales channel to its customers, even to the extent of making charter booking as easy as ‘hailing a taxi’. Here the Club’s members appear to share a common frustration with the airlines; just as the latter increasingly seek ways to bypass the stranglehold on distribution held by the GDS and OTAs, business jet operators are mostly bound to trade through Avinode, the dominant online intermediary.
The Club may be onto something here, but again, it will be some challenge to walk this talk; B2C platforms work well for airlines, hotels, now taxis, but searching and transacting private jet flights online brings unique challenges. How is the Club going to manage and pay for this investment? Maybe they should invite Avinode to do it for them. Business aviation won’t always be intermediated by brokers, so perhaps Avinode would be wise to hedge their bets and seek such an offer.
A longer version of this article appears in the February 2013 Aviation Intelligence Reporter.
Wednesday, October 17th, 2012
The European business aviation sector was on the brink in 2009. Reaping the whirlwind of the global financial crisis, the private jet industry bubble had burst spectacularly. Jet deliveries, pricing and traffic levels plunged. Then there came a tentative two year recovery. But in 2012, business jet activity in Europe has double dipped and is back on its knees.
In almost every month of 2012, European private jet flights have fallen year on year. Overall, the shortfall is less than 3%. But in some large markets, the collapse in demand is striking. In Italy, traffic levels have fallen between 15% and 20% in three consecutive months. That´s the equivalent of more than 750 flights lost in each month.
The levels of diminished private jet usage are more significant once you consider that jet deliveries have actually increased by more than 25% in 2012. These arrivals mostly reflect long-delayed replacements and upgrades rather than new demand in the market. The fact that overall usage is still down despite this influx indicates the scale of the drop in overall demand.
The stereotypical view of the private jet industry would interpret its crisis as the predictable fate of a luxury industry that had ridden the good times well beyond its means. Governments pander to this view, and reserve the stricken industry no special care, hammering it with luxury taxes and environmental levies. Austere times have little patience for toys on the tarmac.
A less emotional appreciation of the business jet industry begs to differ with this view. In 2008, Price Waterhouse Coopers valued its economic contribution to the European Union at an annual E20bn. Correlating this sum to flight activity, falls in usage over the last four years could imply costs of more than E5bn. Business jet discrimination could be a very costly error for Europe at large.
Yet the irony is that, despite the best efforts of its trade association, the industry´s participants obstinately sustain the luxury image which has undermined its brand. It´s rare to find an operator that does not promote its services with glossy images of champagne and celebrities. Most private jet customers are business executives on the deal path. Perhaps this image would appeal even less?
Of course, to those familiar with the industry, those primarily responsible for branding and selling private jet charter services are the brokers. It´s beyond the operator; with an average of two aircraft in each ´fleet´, operators are mostly tiny flight departments, focused just on the daily logistics of moving aircraft. It´s no surprise that this highly fragmented supply side provides inefficient and expensive services.
To the operator´s price is added the ubiquitous broker commission. So the broker would claim, this is a service fee fully justified by the attention they provide the client. Diligently matching each user´s flight request to the right operator at the right price, then curating the subsequent trip, the brokers consider themselves the brain surgeons of the private jet charter business.
The unpalatable truth for them is that the vast majority of business aviation flights require no such concierge service. Typical flights are point-to-point, short one hour trips, for a couple of travellers in a light jet. Most customers need a service to match: an easy search platform (did someone say internet?), and a direct transaction with the operator. The fact is that most brokers should be out of a job.
Whilst operators remain highly fragmented and lacking in commercial focus, brokerage and its cost burdens are here to stay. Operator consolidation – a lot of it – would address the problem, and it would happen in any other industry under this sort of pressure. But in the private jet industry, resistance to change is embedded in the vested interests that control the industry. The wealthy backers of loss-making operators prefer to carry on bleeding than close up shop or sell out.
With this attitude, the industry will cling to its traditional model. In line with the bleak economic climate, business aviation will stumble along. But it will be increasingly difficult to promote its importance as a tool of business productivity. To recover, it needs to stop bleating about the unfair external environment and instead fix its problems within.
Primarily these problems derive from the old fashioned culture that permeates its operations. Operators and brokers are locked in some sort of symbiotic slow suicide, heads in the sand to the need for change. They need to wake up to the adage that if you want to keep things the same, first they have to change. Nothing less than radical brain surgery will do.
A longer variation on this article will appear in Altitudes Magazine Q4 2012