Back from the brink?

posted on 11th June 2018

Charter brokers and operators are seeing tentative signs of recovery – after plumbing new depths in the last four years

Private jet broking was one of the brighter spots in Air Partner Group’s figures for the six months to January. The division increased its revenue from £19.0 million to £20.3 million and group CEO Mark Briffa credited “investment in specialist sales teams who can build the connections which are critical in this market”.

Although the additional sales resource has begun generating extra revenues, the benefits were not yet filtering down to the bottom line as Air Partner filed its interim results. Half-year profits from private jet broking fell from £0.5 million to £0.3 million, underlining the slim margins in this sector. Nevertheless, this division managed to outperform the group’s larger commercial jet broking operation, which was impacted by aircraft overcapacity. Group revenue was down 8% to £120.5 million and pre-tax profit fell by 19% to £2.3 million.

When the market is weak, there are advantages to a one-stop shop approach, according to Simon Wheatley, Air Partner’s UK manager, Private Jets. “You try to close the circle as a group, so that you’re in a position to help the private jet client, perhaps the CEO flying on his own, when he wants a commercial or cargo charter. We even have a travel agency for those who are not flying privately at all.”

Picking up Briffa’s point about investment in specialist sales teams, Wheatley says that not all the group’s worldwide locations have dedicated private jet expertise. “We have our own footprint in bigger offices in Paris, Cologne, Dubai, New York and Washington. We’re looking at new markets such as Madrid, Moscow and the CIS territories by way of satellite sales operations, backed up from head office.”

The appointment of new sales reps with the skills and knowledge to work in Ukraine and Russia led to a near-doubling of revenues in the last year from this region, but some mature western European markets are growing too. Air Partner’s opening of a Monaco office in September has resulted in 10% growth for its pre-paid JetCard programme from the south of France.

Meanwhile, the company has strengthened both the ad hoc and JetCard sales teams at its London Gatwick head office. It recruits on the basis of problem-solving skills and is happy to teach the specifics of sales and private aviation over a period of several weeks in its own in-house “academy”, Wheatley says.

Summarising current trading patterns as “inconsistent” in its interim report, Air Partner said: “Lead times across the business remain short, meaning that visibility of forward bookings is limited, even for the major sporting and cultural events expected this summer.”

Wheatley points out that private jet charter has always been a last-minute business, but concedes that Air Partner “still has ground to make up with corporate users and business flyers” after traffic halved between 2007 and 2009.

“There was a knee-jerk reaction during the credit crunch from those with the greatest need to fly private jets. Our corporate business is driven by events such as financial road shows, where you need to be in three cities in one day. When these companies try to fly scheduled services, we often find ourselves patching things up when they find they can’t get where they need to be,” Wheatley says.

The key to attracting corporate clients back into the market is to demonstrate return on investment, he points out. “What are the consequences if you lose a $1 million deal by trying to go scheduled?”

Perceptions are everything, and it is important for the broker to understand the client’s purpose in buying the flight. Does he want to entertain lavishly, and might it therefore be necessary to transport a special whisky across town? Or does he prefer to be seen as frugal? Wheatley recalls one client who requested only hot water and noodles for his in-flight service.

In such price-sensitive times, is chartering viewed merely as a commodity, and does that still leave room for the middle man?

“The passenger experience is different if you don’t have the support of a charter broker,” Wheatley insists. “But users will look at a few dollars on the bill, and you do have to work harder to justify your profit.

“A lot of operators have entered the market with a business model where they seek to earn a living through charter, unlike business owners who regard it as nice to have top-up revenue. This means there’s a lot more competition out there, in a lightly regulated industry with no defined standard or kitemark. You’ve got to differentiate and add value; otherwise you’re just an aircraft-finding service.

“Probably 50% of our work is with the top 20 or 30 operators, but we have a diverse mix of suppliers and we want people to use us as consultants. There’s something of us invested in the business. If a plane goes technical or a supplier becomes insolvent, it’s important to have adequate insurance and a replacement aircraft guarantee. There are not many barriers to entry, especially for internet-based services.”

However, sourcing aircraft is all that some clients may want in the first instance and Air Partner last year unveiled the first multilingual iPhone app showing global private jet availability in real time. The app is free to download and is available in English, French, Russian, German, Spanish, Italian and Portuguese, with the language determined by the settings on the user’s phone.

Based on their chosen one-way or return routing, the number of passengers and travel dates, app users can obtain an estimated price (choosing from 36 currencies in the cost calculator option). They can see images and details of the aircraft available, from very light jets (VLJs) to 16-seaters.

The entry of VLJs has helped redefine the overall market and opened up new people to the potential of private jet charter, Wheatley says. Air Partner has seen the strongest growth here and in the midsize category.

Patrick Margetson-Rushmore, chief executive of London Executive Aviation (LEA), sees things slightly differently. His company, which owns nine of its own aircraft and manages a much larger fleet, was the first to introduce the Citation II and Mustang. He expected Excel clients to trade down to a Citation II Bravo in response to the recession, and Citation users in turn migrate to the Mustang.

“That didn’t happen. People stopped flying,” he told the Corporate Jet Finance conference in February. Prices fell as a result. “We saw a lot of competitors operating on a cost basis, and had to follow suit.”

Demand for LEA’s smaller aircraft fell by 60% to 300-350 hours per year at the bottom of the recession, well below the break-even figure of 500 hours, Margetson-Rushmore said. The Excels, which had flown 800-plus hours and had a 440-hour break-even point, saw combined demand from their owners and from charter clients shrink to 350-400 hours.

LEA went through three rounds of redundancies, mainly pilots, in response to the downturn. Summer 2011 saw some recovery in bookings from the arts, entertainment and media sectors. The European Football Championships and the Olympics will provide additional traffic this year and LEA has taken back on a number of those it previously laid off. “But this growth is coming from a low base, and while 2012 will be better than 2011, the question is by how much?” Margetson-Rushmore said.

Speaking at the same event, Marwan Khalek, founder and CEO of Gama Group, said charter revenues were recovering, but still far below their best. In good years, charter utilisation for Gama’s own fleet was 650-750 hours, which had dropped to around 500 hours in previous recessions. In 2009, however, Gama plumbed new depths of 300 hours, which meant it now needed a 100% increase to get back close to peak market conditions.

“We live in a highly regulated industry trying to deliver service at the top end of the market. You can’t do it on the cheap. A lot of costs are fixed and not scaleable. Regulatory pressures and customers’ high service expectation mean you have limited scope to reduce your cost base,” Khalek said.

“In terms of the industry sustaining itself, this has got to come from people using aircraft, buying fuel, employing pilots, and using handling and catering services. Everyone expects more for less, but it’s very difficult to do in aviation. We have to focus on getting people to better appreciate what we’re delivering for them and encourage them to pay the market price for it. The customer is using a $5-10 million asset with two skilled people overnight and is paying $5,000 to $10,000 for it. They’re probably paying half that just for the hotel – and more per hour to get their car fixed.”

Jetbrokers’ Brendan Lodge asked the conference why charter operators were not charging owners more consistent management fees. Some were asking $1,000 a month while others were charging no fee at all. This had resulted in a merry-go-round, with light jet owners in particular more prepared to change management companies if they were not getting the charter hours they were promised.

Khalek said charter management companies should not engage in this type of barter. “Compliance doesn’t get any cheaper. We’re trying to sell a dollar for 90 cents and we must stop beating each other up. The industry needs good operators who are not going to cut corners. Then the people who use them have a good experience and will come back for more.”