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Archive for October, 2012

European business aviation needs rethinking

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

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