BAN's World GazetteerU.K.
Some say the market is flat in the midsize sector, others that light jets are having their moment. Has jet ownership given way to flexibility of ad hoc charter? EBAN has been talking to market participants to understand their overall perceptions.
We have also looked at their data research to pull together a picture of where we stand at the moment. Who is making the bookings, what is happening to pricing, and why, though technology is advancing, do a large number of clients want some-one to hold their hand through the process rather than make their high value transaction through an app?
Deliveries to Europe
Around 452 mid to heavy private jets were delivered to Europe between 2012 and 2016 with a combined value estimated at around US$22.6 billion according to research from US-based aircraft financing company Global Jet Capital (GJC). Each typically costs between $25 million and $75 million, and with up to 80 per cent of that price being sourced externally, GJC reports growing interest for business aviation finance in Europe.
The largest number of deliveries was to Germany, where 64 business jets were purchased at an estimated cost of $3.2 billion. This accounted for 14 per cent of all deliveries to Europe over the past five years. Next was the UK with 54 deliveries, Switzerland and Austria with 32 each and Russia with 30 deliveries.
European sales director Matthias Müller forecasts a doubling of the European business jet fleet between 2015 and 2025, with fleet compound annual growth of around seven per cent. He says: “It will remain the second largest market for business aircraft in the world.”
Falling jet ownership fuels demand for charter
German Mustang operator GlobeAir, on the other hand, points to a fall in business aircraft deliveries and a high percentage of the European fleet up for sale. Deliveries within Europe totalled 1,123 business aircraft between 2007 and 2011, but this fell by 30 per cent for the period 2012-2016 to 788. Around 510 aircraft, 12 per cent of Europe's business aircraft fleet, are currently up for sale. This is a high percentage and would suggest that it is a buyers' market.
GlobeAir's research reveals a 14.3 per cent increase in very light jet departures in Europe in the 12 months to March 2017, compared to a decline for both heavy jets and mid-sized jets of -0.8 per cent and -10.6 per cent respectively.
CEO Bernhard Fragner comments: “Demand for business aviation is increasing but at the same time our research shows the number of people and organisations looking to own their own aircraft is falling. People are increasingly waking up to the fact that in many cases it makes more sense to charter an aircraft instead, and avoid the huge financial cost and burden of owning your own jet.
According to Avinode's MD Oliver King, external investor money is being used to stimulate demand at the bottom end of the market. Europe has experienced considerable Mustang type flight growth with the sector up 20 per cent year-on-year. “Yes, there are more aircraft in that sector and yes, there's more demand because they are flying more hours. And it's a segment that the online platforms are all pushing.” But what happens should one of the online players leave the market; how would that impact light jet activity? He adds: “We've had two years of good growth in that segment, and in our industry we don't tend to see good news for long periods of time. I'm a little bit cautious about whether that trend will continue.”
Charter bookings tend to be made by middle aged men at their desks
UK-headquartered online platform PrivateFly reports that the business aviation market achieved five per cent growth in Europe for the first quarter of 2017. Analysis of its own search and booking data from all global territories shows that average spend is rising, up 26 per cent per charter across all aircraft groups, against Q1 2016. London, Paris and Nice were the most popular destinations, with Birmingham, Chambery, Geneva and Palma de Mallorca the next most in demand within Europe.
Typically PrivateFly customers spent £62,910 for long range jets; £50,390 for large and regional airline flights; £17,450 for medium jets; £9,090 for small jets and £5,220 on small prop aircraft. The company also notes that 72 per cent of passengers are male, and the average passenger age is 41 years. All average spends per flight were up significantly year-on-year with the highest number of bookings placed for small jets. Currently most popular is the Citation XL/XLS/XLS+ while the Mustang takes second place.
Co-founder and marketing director Carol Cork comments: “After several flat years, 2017 has brought an encouraging five per cent increase in flight movements so far to the whole business aviation industry, in both Europe and the US. Travellers are beginning to choose private aviation with confidence again, and others are flying for the first time.”
For UK-based operator Zenith Aviation, the vast majority of its bookings come through the broker network. Just a few clients book direct and the rest are owner flights. Managing director Stuart Mulholland acknowledges that online platforms have been well publicised and a lot of flights originate in this way, but several brokers still come directly to Zenith rather than via online channels, which he thinks is a reflection of its principle of only offering a quote when the aircraft and crew are available. “Also our aircraft are not subject to release from the owners which gives brokers confidence that if they accept a price from us them we can provide the lift,” he adds. “This no-nonsense and transparent approach may also go some way to explaining the incredible year-on-year growth that we are achieving.”
In 2016 the company more than doubled its 2015 flight activity, and so far this year it has already flown more hours than for the entirety of 2016. It is seeing more activity to Scandinavia than in recent years, especially to Stockholm, and Marrakech is becoming a popular winter sun destination. To Mulholland's surprise the company's midsize fleet is now doing more internal flights within the UK than before, an area he thought was solely the domain of VLJs and turboprops.
Average load size is around four to five passengers but Mulholland does see an interesting split between fleets. Its Citation XLS is popular for two or three passengers, but for higher loads of say six to eight the Learjet is the aircraft of choice. “Much is made of the XLS cabin,” he says, “but it seems that for eight passengers the 'double club four' remains the layout of choice.”
Digitisation is pushing up the green shoots of growth
“We will return to growth, but we might not return to the 2007 market peak until 2021,” said vice president of analysis at Teal Group Richard Aboulafia at a seminar on the state of the market at EBACE this year. Steady growth across Europe for the six months to April 2017 does not reflect the fact that market demand is still catching up with oversupply; trend lines for the business aircraft fleet and GDP, which are historical proxies for supply and demand, show overbuilding of aircraft between 2005 and 2008, and subsequent under-building.
What is clearer is that on-demand charter is increasing. Managing director of WINGX Advance Richard Koe points to aircraft utilisation data showing annual growth up 10 per cent as cause for optimism. “Our inventory is being digitised, charter is being digitised. Don't underestimate its effect on demand,” he says. And as the product becomes more transparent to people booking travel, it could grow the market threefold.
There can no longer be any question that people want to book aircraft online. “That discussion is over. Now the question is: can an operator make money that way?” says Avinode's King. General manager of Bahrain-based operator IJM MENA Bernhard Wipfler values the company's broker relationships. “They reduce the amount of work we have to do prior to a flight, because if they are professional they take care of everything with the passengers,” he says. While he has established broker relationships over many years and over many parts of the world, the company does have a good mix of distribution channels. “We also have direct customers, but broker business is important business for us and we appreciate it.”
He also notes that the relationship with each customer, and customer service, is becoming more and more important in order to stay ahead of competitors. He believes apps are useful, and the company is looking to improve convenience for its customers through new technologies.
In the field of air ambulance operations, Istanbul, Turkey-based SOS International has seen the involvement of brokers decrease. Due to the rise of the internet, customers contact them directly rather than using intermediaries, to which end the company has increased its social media activities. Around 80 per cent of its clients are international since the Ministry of Health provides air ambulance services for Turkish citizens, free of charge.
Operations coordinator Ismail Ege Kanber says: “Thanks to global internet access, awareness of air ambulance services increases day-by day-and as a consequence our market is growing. We closely monitor the advance and use online resources to introduce our support for both corporate and individual customers.”
Can single engine operations ease stagnation?
The EASA approval of single engine turboprop operations heralds an exciting time for the industry. In theory, a single engine means lower costs, as does having a single pilot, so base costs for charter should be reduced with a consequent positive effect on the barrier to entry.
However, sometimes people are reluctant to change and the adjustment to SETs may be slow. Luxaviation UK CEO Patrick Margetson-Rushmore says: “Google and Uber are investing in autonomous drones for transporting people around cities. Gradually people will start to become used to the idea [of not having two pilots] and will realise that there are no issues with this sort of thing. That will open the market up further and create better opportunities.”
Before demand intensifies he sees a need for more people to come into the European market. “Platforms have made the process easier and have driven prices down, but ultimately there is a limit to where the price can go,” Margetson-Rushmore continues. “The broker's margin is minimal, the margin that the provider of the platform is making is minimal, the margin that I as an operator make is very minimal. We are at the minimum that we can actually operate at, making little return.”
He believes that only a massive increase in demand can lower the average cost price, otherwise it won't make commercial sense. The model needs to be economically viable. The logistics of increasing 400 or 500 hours per aircraft to more than 1,000 is a difficult process.
Understanding Russian preferences
Some countries are slower to embrace the practice of transparency. Anna Nazarova, PR manager in the Moscow office of Emperor Aviation, compares Russia to an undiscovered island: “For the most part, its business aviation market is an unknown entity.” But it is trying to open up cooperation and communication with European industry participants.
Emperor Aviation is part of Malta-headquartered Aim of Emperor group, which offers charter, aircraft management and handling, and last year became an authorised sales representative for the HondaJet in the Russian and CIS market. It's a diverse business which each month monitors and analyses its results, from which Nazarova reports that the Russian business aviation market shows signs of gradual development. For the first five months of 2017 the charter market increased by seven per cent and she predicts continued growth over the summer.
Capital AviaNeft, also part of the Aim of Empire group, provides ground handling support throughout the country. Nazarova adds: “It's an interesting thing, when we analyse the results of our work, we see many Russian cities and towns appearing 'out of nowhere', and lots of flights being handled.” Kazan, Saransk, Volgograd among them, there are now more than 40 cities in Russia that periodically serve as business aviation destinations and hint at a shift away from Moscow.
Russia is also seeing a trend towards greater individual wealth. According to the new Russian Forbes rating, the number of dollar billionaires has increased from 77 to 96 over the past year.
Anton Filchugin, head of charter sales department at Liliental Jet, also in Moscow, notes that his Russian clients are keen that everything be top quality. They prefer to fly in newer aircraft, no more than three to five years old, and they want a large cabin with catering from their favourite restaurants. “We have good relationships with operators who provide hourly rates for us. It gives us the opportunity to get the best price for the customer,” he says.
Slovenian operator Elit'Avia has a strong client base in Russia both for charter and management. Ten years ago its first clients were Moscow-based, as were the first five aircraft, and it has a wealth of experience of operations in what CEO Puja Mahajan says is a fairly mature market.
Elit'Avia's Russian charter clients are experienced and demanding flyers, but Mahajan notes that if you understand their expec-tations, and if you are consistent in terms of the quality of service that you provide, it is possible to succeed. The company offers 24/7 dispatch, permits and planning, and a 24/7 client services team fluent in Russian, English and French. “There is always someone to answer the phone and who will take care of everything,” she adds.
However, the company has found it much more challenging to establish operations in Africa. The Congo, for example, is not well-travelled, and its airports are not catalogued by navigational support. Consequently Elit'Avia has been physically mapping out these places itself. She adds: “If you go to Moscow, to Europe, to the US, the airports and all of their quirks are well-known. Pilots pass on the information and it is well-documented. That is not the case in Africa.”
Georgia and the Caucasus
Georgia-based airline Aviator currently operates just one Beechcraft King Air C90 that suits regional and domestic flights thanks to its low operational costs and its ability to operate through the mountainous terrain of Georgia. Commercial operations started just six months ago, but sales and marketing manager Vako Tchilashvili sees growing demand for helicopter transportation and long range jets, driven mainly by the sustained economic development of the country and its immature air travel market. In the first quarter of 2017 the number of air passengers grew 43 per cent in the Caucasian region.
Middle East movements
IJM MENA has combined its European and Middle East charter activities in a joint venture between International Jet Management and MENA Aerospace. The charter business is steered from Vienna but local sales people in Bahrain manage its large aircraft. General manager Bernhard Wipfler says: “We can fly one way from Europe to the Middle East, then we may have the chance to position the aircraft to Bahrain and try to catch the next charter trip going back to Europe or Asia. So we can use Bahrain as a temporary home base in the region, rather than take the empty leg back. This has had a huge impact on our charter performance.”
The pressure on oil prices has deflated Middle Eastern growth but there is still a consistent demand for new heavy jets and airliners like the ACJ, BBJ or IJM MENA's Lineage 1000. “I see the Middle East as the most important market for bizliners,” Wipfler adds. “In Europe it is quite hard to get charter for this type of jet; not impossible, but difficult when compared to the Middle East.”
UK-based Zenith Aviation's managing director Stuart Mulholland thinks we are a long way from passengers refusing to fly on a particular aircraft because it does not have wi-fi or a sat phone. Its latest Learjet 75 aircraft are equipped with wi-fi, satcom and individual seat IFE systems, but he finds that only a small percentage of passengers opt to use these services; the age of the aircraft far outweighs any technological developments.
Astute Aviation founder Zac Hancox believes the midsize sector has been a bit weak over the last five years but is strengthening now that the CL350 and the Phenom 300 have come in. The older Citations are less popular than they were, although good for providing competitive opening quotes. Those that undergo a refurbishment, however, are always very popular.
“There are a few old Bravos around that have blue and light blue interiors,” he adds. “They don't photograph well, even though they may be structurally sound.” Customers want BMW grey and cream styling, as in the Embraer interiors for the Phenom 100 and 300.
Up until about five years ago every aircraft was made out of aluminium, but now composite materials are an option, as in the DreamLiner, and will be more widely used because they are lighter and more cost efficient, enhancing range, fuel efficiency and runway capabilities. “When it comes to landing on runways it all comes down to minimum performances,” he adds, “and if the aircraft weighs less, the minimum performance goes up.”
On longer flights technology matters. People want inflight entertainment and connectivity. But pressurisation can also make a considerable difference to onboard comfort. Newer jets such as the Gulfstream G650 and the Global 7000 all have ever lower cabin altitudes and this has a positive effect on fatigue.
Large group charter is up In 2016
TAG Farnborough airport saw 25,000 movements, very similar to the figure in 2015, but large aircraft types, particularly the ACJs, BBJs and Lineages, were up by around five per cent. Those aircraft are typically coming from the Middle East and the US. “We have noticed that corporate America is travelling again,” says CEO Brandon O'Reilly.
In the past its FBO served mainly smaller jets such as Hawker 125s and Learjets. Now the larger aircraft types are predominating, often serving music groups, sports teams or politicians. In order to accommodate this changing clientele TAG has invested over $1.3m and designed a lounge that can handle up to 80 passengers. “It's a case of keeping those customers secure and separate from our regular business aviation customers, who have other lounges that serve their needs,” adds O'Reilly.
The Brexit effect
O'Reilly reckons we are just starting to see how Brexit might affect business aviation. With TAG movements this year already over four per cent up on 2016 his forecast is positive. “In analytical terms, people who use business aviation are typically entrepreneurs, captains of industry who seek opportunity,” he says. “Whenever a seismic event happens that is economical and political, the type of people who use our airport will see it as opportunity. And opportunity creates movement, be it to the UK or from the UK to overseas investment. This all triggers aviation.”
Ljubljana-headquartered Elit'Avia has traditionally not had much involvement in the UK market, rather it has focused its energies in Moscow, Africa and mainland Europe. But its Maltese AOC affords an opportunity. Mahajan says: “There is a lot of synergy between the Maltese and UK CAAs, so if people want to change registration from UK to Malta, we could really be a facilitator for that. We have seen people transitioning already.”
The company has created some packages that tie in with Brexit in terms of finding a solution for British-registered aircraft with a suite of five different technical services. Instead of management as a whole, the company can offer pre-purchase inspection oversight, technical package oversight, CAMO support, airworthiness support and airworthiness management support.
Drawing business from the scheduled market
“There is a clear trend in the commercial airline market where the phenomenon of hybridisation is taking place,” says Ruben Portz, managing director of Berlin-based JetEight. Low-cost carriers have figured out that if they improve their customer service they can attract a more profitable customer base. This move upmarket in turn places pressure on traditional carriers who are themselves extremely focused on cutting cost and keeping their short-haul markets profitable.
“This presents an opportunity for the business air charter sector in that traditional airlines are leaving a group of less price sensitive travellers underserved. “These passengers want to go from A to B as fast as possible, and would like to have a great experience while doing so,” he says.
Before it can target this segment, Portz believes the business aviation industry should become more transparent and accessible. Online players are focused on instant on-demand quotes, others are making the business aviation market more accessible by introducing scheduled routes using private aircraft. Although these companies apply different business and pricing models, their goal is to increase the utilisation of private aircraft and consequently lower the fixed costs per seat. “These business models have the potential to offer the private aviation experience at business class prices,” he continues. “Our goal at JetEight is to help operators increase utilisation and at the same time introduce a whole new segment of business travellers to the benefits of using private terminals and executive aircraft.”
“I still find it amazing that the average utilisation of private aircraft is 168 flying hours per annum. These models have the potential to increase the number of flights hours significantly, to increase load factors as well as lower the manufacturing footprint per flight.”