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
Friday, July 13th, 2012
On June 28th the Italian tax on private jet passengers got the official green light. The implementation and payment process have been clarified by the authorities, and private jet operators in Italy will be expected to collect and convey their passengers’ payment to the authorities from the end of this month.
The passenger tax, introduced formally on 29th April, comes on the back of the Italian government’s introduction of private jet taxes in February which specifically imposed punitive parking fees on aircraft residing in Italian airports. The context for these emergency ‘luxury’ taxes is the ‘save Italy’ budget passed by Mario Monti’s new government in December 2011.
The Italian government is by no means alone among its European counterparts in singling out certain business activities with ‘luxury taxes’, in an increasingly urgent effort to counter sovereign debt crises. The private jet sector is an obvious candidate, an easy target for politicians seeking to cut back on symbols of financial excess.
Both European and North American business aviation associations have long contested the profligate image with which their industries are tainted. Studies consistently demonstrate that private jets are used primarily as business tools, not personal indulgence. Price Waterhouse Coopers’ 2008 study on the impact of business aviation in Europe concluded the sector contributes almost $20m in economic value.
The business productivity argument for private jets has little weight, however, since the Euro crisis reignited in mid 2011. In the face of potential bankruptcy and at the mercy of financial markets, a number of EU members need every income source available. Italy’s post Berlusconi government was especially under pressure to demonstrate rigorous financial discipline.
The February private jet parking fee was nothing short of draconian. Applicable to any jet, Italian or foreign registered, parked for more than 48 hours in Italian territory, it calibrated fees on a sliding scale to weight of aircraft. For non Italian-registered large corporate aircraft, tax liabilities could have escalated to over EUR 300,000. It made it risky even to transit Italy; a technical problem, bad weather, or an ATC strike would saddle the aircraft owner or lessee with a bill for thousands of euros.
The Italian Aircraft Owners and Pilots Association (AOPA) calculated that more than 10% of private aircraft in Italy were de-registered in the month following the introduction of the parking legislation. Whilst the government claimed it could raise EUR 85m through the tax, AOPA’s calculation was that effective collection might not exceed EUR 5m, less the widespread direct and indirect costs of imposition.
The potential burden of the parking fee brought protests and appeals from national, European and international pro business aviation lobbies. With compelling evidence that the tax would have catastrophic effects on high end tourism and business travel, the diplomatic pressure fortunately obliged the government to modify the parking tax in April. Amendments included an extension of the parking window from 48 hours to 45 days.
However, no sooner was one threat seen off than another one materialised; the parking tax amendments introduced a further explicit private jet passenger tax, directing operators to collect fees from their clients of EU 100 to EU 200 per passenger, depending on flight distance. The publication of the implementation directive seems to indicate that this time the authorities will not be persuaded to reconsider.
The Italian government’s determination to press ahead with private jet taxes is a big problem for the EBA
A and the European industry it represents. First and foremost, private jets in Italy are big business. The country is Europe’s 4th largest market for private jet activity. There are annually over 50,000 departures, and the map of all European business jet routes shows Italy to be a central corridor of activity. Rome and Milan are both among Europe’s five busiest private jet airports.
Italy’s private jet activity highlights some well known exclusive leisure destinations such as Olbia. But it also exposes the use of business aviation as a critical alternative to scheduled airlines. More than 70% of flights are taken by business people looking to save time or make direct point to point connections. Across Europe, business aviation connects three times the number of city pairs linked by the commercial network.
The induced economic value of this connectivity is significant. Not only does the industry generate substantial fees through providing over 1m flights a year across the European area. But it employs thousands of personnel in operators and across the complete supply chain which service their fleet. Most importantly, business aviation has a multiplier effect on facilitating investment and trade.
Market studies show that Italy is a major beneficiary of these economic contributions from business aviation. The 2008 PWC study, for example, indicates that in Italy business aviation generates more than EUR 900m in economic value (‘gross value added’). With a business aviation linked wage bill of EUR 0.5bn, Italy contributes over 7% of the total employment value of the sector in Europe.
No doubt the general public perception is that private jet travellers can easily afford to pay a little extra tax. But the trade argues that most business aviation customers choose to fly privately on the basis of clear cut economic advantage. They are highly price sensitive, and accordingly the private jet charter operators compete intensely.
The evidence seems to demonstrate this price sensitivity. More than most other sectors, and far more than airlines, business aviation has suffered from the economic crisis, as its business customers can no longer afford or justify flying privately. In a country as badly set back by recession as Italy, additional fees for chartering a private jet are therefore coming at a very bad time.
Neither are private jet operators in any position to swallow the extra fees themselves. After several years’ recession, their aircraft are flying well below historic utilisation, and over capacity across the industry is driving ever greater competition. Italy has more than 50 operators, most of which manage a small handful of aircraft. Without any economies of scale, their price bargaining position is very weak.
Private jet operators in Italy have already got the European wide emissions trading scheme (ETS) to worry about, which officially launches in 2013. The most burdensome aspect of ETS is the administration and reporting. Adding private passenger tax collection and payments will be a thankless task for many small operators already distracted from the primary operational tasks.
The approval of private jet taxes in Italy came at the end of 2011, and the trends in business aviation flight activity since then in Italy appear to prove out the taxes’ negative impact on demand. Since January 2012, business aviation departures in Italy has consistently fallen 10% on 2011 activity, with June data indicating a 19% reduction. In Europe as a whole, flight activity in 2012 is between 2% and 3% off 2011 levels.
The biggest slumps in business aviation activity in the Italian market are in the light jet (and turbo prop) categories. These represent the majority of flights and correspond to the most sensitive customers. These are precisely the businesses which tend to use business aviation to increase their productivity on short haul European flights.
As an example of the fall off in demand for these aircraft, flight departures for aircraft in the super light category (such as Lear 45) fell a staggering 30% February and 25% in May (compared with 2011 months). From Italy’s busiest private jet hub, Roma Ciampino, there were 273 departures for Napole in 2011. In the first 6 months of 2012 (including peak periods) there have been just 70.
Certainly the Italian economy has not prospered in any of those months, with the financial markets consistently challenging Monti’s new government budgets. But it is difficult not to see a direct link between this collapse in flying and the introduction of Monti’s private jet taxes. Assuming average charter flights, a 20% fall in charter flights could represent EUR 20m directly lost revenues. It is difficult to see how passenger tax collection could offset the balance.
But at least for the time being, business jet taxes in Italy are going ahead, notwithstanding the obvious economic damage they will continue to do to the sector and its value to doing business. And if that is worrying, the greater threat is that other cash-strapped European governments will now follow Italy’s lead and introduce similarly discriminating levies on the use of private jets.
The EBAA has fought a number of regulatory ‘fires’ threatening business aviation in the last 12 months (no fewer than 9 EU states now levy, or plan to levy, special taxes on aviation). Ostensibly similar to the Italian passenger tax, for example, the UK’s airport passenger tax (APD) has been one such bone of contention. But the difference is that APD, like ETS, is a regulatory directive on commercial aviation which is extending its reach to private aviation, rather than singling it out for specific tax treatment.
It is the singularity of Italy’s private jet tax which is the most worrying but also challengeable aspect of the Monti government’s legislation. It is unprecedented that the business aviation sector should be meted out with such specific and unfavourable treatment. The European Commission’s Directorate General on Taxation has recognised this and may oppose its imposition.
The problem for the business aviation industry is that the Commission is not well known for acting quickly to provide any material opposition to EU member tax policy. Better prospects come from the EBAA, whose new DG Fabio Gamba has vigorously challenged the constitutional legitimacy of the private jet tax and is now considering legal options to challenge the Italian government in the European courts.
If the EBAA were to succeed in blocking the tax, or even simply in generating the publicity to expose its shortcomings, it would be heartening for a sector which is down in the dumps not just in Italy but throughout Europe.
But the sector’s main concern will continue to be the European economic and political backdrop. If Germany concedes it needs to guarantee the shakiest EU economies, of which Italy is certainly one, there will be a reciprocal expectation of even greater fiscal discipline. In this context, the arguments against taxing private jets will struggle to prevail. Especially without Berlusconi in power.
Thursday, June 7th, 2012
The high wire act that’s barely keeping the EU’s financing system from derailing the economy is far from over. The repercussions are serious for serious for the travel industry and in particular the aviation industry.
The one bright spot is that poor growth prospects have caused oil prices to slump. Back in March 2012, IATA warned that a $150 dollar spike would cost the industry $5.3bn in costs. As of this week the WTI price was at just $83.
The last time oil prices were this low, at $79 in 2010, the global airline industry enjoyed its most profitable year of operations. Brent’s price is more closely correlated to jet fuel and averaged $80 in 2010. But even Brent has now fallen below $100 a barrel, 20% down since the start of May.
Fuel is a huge input cost for commercial airline operations, accounting for anywhere between 30% and 50% operating costs. But it’s also a major factor for business aviation operations. Between the light and heavy end of the market, 10-15% of total operational costs (including ownership) are fuel generated.
To counterbalance its many other challenges, business aviation could therefore yet have at least one advantage going into the second half of 2012. Unless there’s another war in the middle east of course…
Thursday, May 10th, 2012
The airline industry is not known for its consistently blooming health. In fact the decade after 2001 was mostly terrible for its operators and shareholders. But at least there has been some recovery since. Not the case with business aviation. At least not in Europe, where the market’s been in the doldrums since its boom years were put to rout by the Great Recession.
Optimists have every year since pointed to green shoots. It’s true that the ‘top end’ has flourished, representing strong demand for heavy, premium jets. But that’s mostly developing market demand, most notably in Asia. It also seems that corporate America is coming back to business aviation after a long hiatus. But that still leaves the European market deep in its slump.
Very obviously the sovereign debt crises within the EU are undermining the economic vitality which is business aviation’s core driver. The industry has been further burdened by a raft of taxes and levies, hastily imposed by governments looking to refill their coffers and exploiting the private jet’s ‘fat cat image’.
But as we have emphasized for several years, the biggest burdens on the industry are self imposed. In short, its supply side fragmentation, its dependence on intermediary sales channels, and the significant lack of transparency – for participants, users and potential investors – have seriously held back development.
EBACE 2012 is now around the corner and there’s the usual excitement and optimism associated with an annual convention. But there are signs of change this year which may reflect the industry has reached a critical stage. It’s been sick long enough, it seems, to have encouraged new entrants to break the status quo.
A few examples suffice:
Avinode has been around a while of course, but its SchedAero scheduling software is newly launched and could take its operator platform to the next level. To-date, Avinode is principally a useful but limited ‘online yellow pages’, for operators to advertise fleet performance and pricing, and brokers to find operators to quote for customer requests.
The risk for Avinode is that its operators could unsubscribe if they find a better route to market. If SchedAero succeeds in integrating operator members’ operational management into Avinode, the relationship will become far more solid and profitable for Avinode. And the industry demand-side, whether brokers or ‘end users’, would begin to have a single centralised platform to access all private jet schedules. That sounds like the beginnings of an airline-style GDS.
Fly Victor has a good story and is evidently selling it very well (few business aviation start ups make it onto CNN). They’ve variously been described as the industry’s first effective price-comparison platform, its leading B2C channel, its largest fleet consolidator, and first demand aggregator of business jet customers. Not bad for a 2011 start-up.
The PR is of course outrunning the reality, and Fly Victor has much to prove: other brokers with inventory (typically ‘empty legs’) can provide price comparisons; Fly Victor is still a broker in that it intermediates between customer and operator for which it takes a commission on the trip value; its fleet is strictly ‘virtual’ (in this sense Air Partner could claim a bigger fleet). Fly Victor’s aggregation of individual seats on jets is the most interesting initiative. It has however been tried before without success. Perhaps its time has come.
Another newcomer to EBACE 2012 has come in under the radar, but has promised to unveil its offer at the show’s first press presentation. It’s called Stratajet, and its launch product Stratafleet promises operators a new platform for managing charter opportunities. Based on several years research, Stratajet claims to have researched every flight permutation in Europe, integrating all associated cost parameters. The resulting calculator should inform instant and ‘penny perfect’ pricing for any new trip request.
If Stratajet works it could move the industry forward towards the transparency taken for granted throughout the rest of the travel sector. Customers would be able to use an online platform to query any route and get an immediate price comparison. This would inject a level of competitiveness that would quickly remove less efficient operators, and potentially by-pass much of the intermediary market. Notwithstanding the bloodbath, the industry and its customers would certainly be better off.
Stratajet, Fly Victor, Sched Aero – these are three of several new initiatives seeking to unlock the business aviation industry’s black box. If some succeed, even with the market caught in a recession, the business aviation industry will be much enhanced. In fact it is precisely the prolonged recession, and increasing sense of crisis, which makes it a good time to disrupt the status quo. We hope to see in the next few months that necessity is the mother of all invention.
Monday, April 30th, 2012
EBACE is supposed to sum up the big issues for business aviation so it makes sense that the EBAA will invite debate on this year’s launch of the emissions trading scheme (“EU-ETS: Here to Stay Despite the Turbulence – Are You Ready” May 13).
This month’s Aviation Intelligence Reporter looks into the implications of ETS for biz av. The AIR view is that the industry needs to move fast to be prepared for 2013 trading implementation. Yes, business aviation got a raw deal – it gets the airline one-size-fits-all treatment, despite being a niche of its own, it’s not yet recovered from recession, and after all it generates just 0.4% of global emissions. But ‘clemency’ and ‘private jets’ won’t go hand in hand any time soon, so operators should get their house in order.
Business aviation’s beleaguered defenders have the impression that national governments (and by extension the public opinion they pander to) would simply prefer business aviation to disappear under the weight of ETS and a recent flurry of additional ‘lear jet’ levies.
There might be more than a grain of truth there, but at least ETS exempts aircraft below 5700kg MTOW. This means that most turbo props and very light jets won’t be required to purchase allowances and more importantly won’t be tied up with administration.
This should give a relative boost to the charter sector that does most to expand participation and lower prices across the industry. If the taxi jet market resembles anything like its forecast size in 5 years then the ETS break may have contributed to a rise rather than a fall in overall business aviation activity.