So much has been written about the strength of the aviation industry following the pandemic says EAG president Randy McKinney. Growth in demand has rapidly exceeded pre-pandemic levels, for flights, per hour, per segment and total spend. The fast shift to private flying was fuelled by a mix of factors, including perceived safety, when compared to higher density or more crowded options, and convenience over some commercial routes and frequencies. By 2022, all aviation providers were seeing extraordinary demand. Couple this with rising inflation and cost creep in nearly every expense category, and the industry faced extreme pressure to compete at higher service fee levels, higher cost for talent and even more expensive materials supply. Revenues had to rise to keep up with higher costs, demand was outpacing supply, and for the most part the consumer paid the price.
Of the many skills within the industry, no other group has garnered more attention throughout this period than pilots, and they have certainly fuelled a sharp upward price for their commitment. Their training, discipline and professionalism have no doubt led to the ability of the industry to thrive, and to do so with incredibly high levels of safe and consistent performance. However, success in aviation is fuelled across the ecosystem, by flight attendants, customer service, sales, maintenance, parts suppliers and line support, by those with administrative roles within HR, finance, IT, marketing and legal, as well as professionals in ground transportation, meal preparation, airport operations and ATC. It is all too easy to attribute success to those on the front line, but a truly safe and capable operation must be healthy in all these fields.
This takes a dedicated and focused team, flush with resources and committed to deliver against both a normal day and one impacted by any number of variabilities. The industry comes in for some criticism, he says, but its benefits are simply extraordinary, and its success rests on the shoulders of all those involved, at every level.
The highly cyclical nature of this business does, unfortunately, create instability. The highs and lows can force quick demands in cuts, or changes in strategy, and even the slightest decline in demand or revenue can trigger these shifts almost immediately. Too often, the good times are met with demands to spend more on opex (day-to-day operating expenses) rather than saving profits for investing in future and long-term strength. Sometimes capex (major long-term capital expenses) moves are made but there again, too many have over committed or over borrowed, assuming the good times will last. For professionals and investors alike, destabilising measures are often the only fast and practical areas of impact during the early stages of a downward cycle. These include internal pressures on human resources, development expenditures and service initiatives. Everyone is impacted by revenue decline against spending increases, often permanent in nature. And the marketing and sales teams begin to contemplate, or offer, client options that are not in the best interests of the business. These tend to be quick-fire survival tactics.
Speaking of capex and opex decision-making he continues, business aviation does require high levels of capital expenditure in order to keep up with the constant improvements in technology, flight capability, reliability and environmental advances. Likewise, operational expenses for labour, training, consumables, client experience-related costs and any of the COGS (cost of goods sold, eg raw materials and labour) categories are on a steady increase. In most cases, debt or equity is being leveraged to manage aviation businesses, and the high debt utilisation becomes a significant strain that presents at even the slightest downturn in demand. The entire ecosystem of labour, services and material expenses does not turn down as sharply or as quickly as demand can. Some companies are able to cut costs and leverage pathways to generate sufficient revenue offsets, often cannibalising from competitors that are not able or willing to adjust on the same levels. For many, servicing debt becomes key, and the team focusses its strategy and accountability accordingly. Companies that maintain financial strength can stay the course, and may also be in a position to capture talent, clients and even new acquisitions.
Much has been done to codify safety, training, process, technology, layers of accountability and oversight in the management of safe flight operations once downward cycles start. This industry focus and never-ending push for perfection has become a bedrock, a commitment that protects the lives of those working in aviation and those travelling. It cannot be otherwise, not even for one flight. It protects against the deep fear of safety sacrifices when a downturn leads to cost cutting and unsustainable economic decisions, but it does leave the door wide open for client service sacrifices, operational challenges, career impacts and financial strain and instability for investors and clients.
Efforts such as desperate gimmicks, cheap flights, overlooking sub-market commitments from clients and reduced investment in infrastructure or labour, all lead inevitably to pain points. They may be marketed as positive news, disguised as an excellent deal or sale, thereby avoiding a red flag that would attract investigative analysis.
The willingness to cut deals, or fly at price points that are not reflective of sustainable and appropriate rates, gives a false impression of the market. It might funnel much needed revenue to companies in desperate need of cash to cover debt, but it doesn't lead to sustained stability. During a downturn large companies may be willing to hold onto clients with sub-market terms in charter and management, but this puts further strain on the health of the company. This is also the worst time to approach a client to correct the terms of market rates, as competitors desperate for revenue may open their arms to the sub-market deal, thus perpetuating the inevitable service or financial instability. A true client focus bears the courage and knowledge to drive compatible and sustainable rates across an entire portfolio. Offering strength in both the good times and the bad creates a value proposition that should be attractive to clients, employees and investors alike. It's a tricky balancing act in terms of protecting the competitive position of the business, but protecting a viable and sustainable environment must take precedence.
Financial strength creates stability and breeds success. It affords better buying power, investment in systems, training and technology, and improvements should be seen with service delivery, operational excellence and, yes, safety. Teams should be focused on the mission, with clients their top priority. They should remain free of distractions such as pending financially-driven changes.
The private aviation industry remains in a position of strength and growth when compared to the pre-pandemic market. However, several instances of single digit retraction in demand have already exposed some less than optimal situations. News headlines of late highlight serious cash flow problems with some of the largest aviation organisations, as well as discounted services or strategy changes, and even a few ceasing operations. This kind of instability from a mild market adjustment should be of concern to all parties. It has happened before, and it should continue to inform strategic and fiscal responsibility for the long-term stability of this vital industry.
Whether it is a few hundred hard-earned dollars buying an airline seat in Dallas Fort Worth, an aspiring student pilot ordering fuel for a training flight at Charleston Executive airport or a private jet owner in Salt Lake City entrusting their sizeable asset to a management company, every dollar coming in feeds the aviation environment, and it needs to feed a competitive, healthy and sustainable one for all involved. The leaders, regulators and professionals in this industry must remain focused on our sustainability and economic success. It is critical for the safety, reliability and health of the aviation ecosystem. The extensive, life-changing value proposition of aviation in all its complexity rests on the need for all parties to be focused on safe, reliable and well executed flights, every single one of them.