After a dismal 2012 for many operators in the charter sector, much is expected from 2013. Richard Koe, one of the two founding directors of the aviation market consultancy WingX, says that while there was a general consensus that 2012 saw some recovery in the market, at least for demand for large cabin jets, the charter market stayed flat. “Revenue is definitely in the red for many charter companies across Europe,” he notes.
Where there were bright spots, with demand holding up better than the average, they tended to be in some of the Eastern European markets, and of course the UK saw a substantial bounce in charter activity over the Olympics through July 2012. Turkey too, did well enough, Koe observes. But the really big European markets, France, Germany, Spain and in particular, Italy, spent most of 2012 losing ground in terms of year-on-year business – and 2011 was not a particularly great year either.
“The big question now is, is this a slide that is going to continue through 2013? We saw European charter business contract by 5% in November by comparison with November 2011, and this was on top of the 3% drop in October, by comparison with October 2011. So in terms of the figures we have so far, we are still looking for the sector to bottom out and start showing some growth again,” Koe says.
Too many players came into the market during the boom years and now there is not enough business for everyone to remain both competitive and healthy
While it is going to need some improvement in macroeconomic conditions for the sector to see brightening skies again, Koe argues that there is much that the business aviation charter market could do to help itself. For a start, the sector is in desperate need of consolidation. Too many players came into the market during the boom years and now there is not enough business for everyone to remain both competitive and healthy. “Consolidation among the charter operators would go a long way to sorting out the sector’s problems,” Koe says. End users would be the ultimate winners if the sector did consolidate, since prices in the sector are high simply because overheads in the sector for small operators are high. They can’t benefit from the economies of scale that would be available to a handful of larger players, he suggests.
Right now though, Koe sees little sign of any coming large-scale consolidation in the sector. Instead many operators are eking out their days supplementing whatever charter business they can get by running concierge services for individual jet owners. “In the medium term a pure concierge play, backed with some charter activity, is not a sustainable business model. The long-term future for a charter company has to lie beyond simply managing aircraft,” Koe points out.
He and his partner at WingX are committed to gathering and analysing the data required to determine useage and other trends in the sector.
“The reason that we set this consultancy up is that we found a serious lack of objective data in the sector. This is almost a black box industry and this is because data analysis was not historically considered as being of sufficient value in this market to warrant any organisation putting in a serious amount of time in data analysis. However, as the industry professionalises, there is a growing awareness that good data matters,” he says.
David Macdonald, the Director of Private Jet Sales at charter broker Air Partner, is far less gloomy about the prospects for the business aviation sector. “Our private jets division saw an 8% growth in revenue for the financial year ending 31 July 2012 and a 9% increase in JetCard sales. We expect the private aviation market to continue growing in 2013, particularly amongst corporate users where we have seen significant levels of interest,” he says. Macdonald points out that the investment bank JP Morgan also released a paper recently anticipating a growth of 8% in business jet deliveries for 2013.
“As business jet deliveries increase, so too will the number of individuals and corporates choosing charter or card solutions,” he says. Macdonald believes that even if the overall market does not expand much, the charter market can win business away from fractional ownership models, despite the huge orders for new planes placed by both Netjets and Vistajet. He argues that the charter solution does not commit corporates or high net worth individuals to taking a significant stake in a depreciating asset, and this is a huge plus in its favour.
Charter is the ultimate in flexibility, he argues, with the assurance that the aircraft chosen can always be correctly sized for the requirement. “Large corporates which previously purchased a long-term fractional share or indeed, whole aircraft, are now buying blocks of jet time, which limits their exposure to future market dynamics and ensures a better return on investment,” Macdonald believes.