Benét Wilson takes the temperature of a cautious but expanding US charter scene
When the global recession hit in the autumn of 2008, business aviation was especially hard hit. Manufacturers saw billions of dollars in aircraft orders and options vanish. Hundreds of thousands of workers lost their jobs. And those who took private travel for granted took the time to rethink their need for it and how they would use it going forward.
In that mix was the charter segment of the business, which faced real challenges, says Rolland Vincent, owner of Plano, Texas-based business aviation consultancy Rolland Vincent Associates. “Customers can and did turn off charter calls. They had no real investment in the charter companies, so we saw that segment of flying drop quickly. There isn’t always loyalty there,” he explains.
Charter operators and brokers do provide a vital service, says Vincent. “But customers look for basic qualities and focus on price. It’s been a slow recovery for this segment. But we did see holiday demand pick up at the end of the year. And we saw some of the stronger ones take the opportunity to brand themselves as a quality provider.”
Magellan Jets, based in Quincy, Massachusetts, operates as both a charter operator and a jet card programme provider, working with customers to decide which options work best for them. The company experienced 30% growth last year, says president Anthony Tivnan.
“With clients becoming more privy to the way charter works, and compares to fractionals, ownership and leasing, there is greater opportunity for growth in 2012,” he observes.
Notwithstanding the increase fuel costs, the charter market saw a decline in rates in 2009. Now, rates are climbing closer to pre-2008 levels, says Tivnan.
The company has added flexibility because of how it handles its aircraft fleet. “Because Magellan Jets does not own or operate its own aircraft, the consistency that we offer is above our competition. We have a larger fleet to pull from,” he says. The company has access to a range of aircraft including the Gulfstream G550, Falcon 50 EX, Hawker 800 XP, Citation Bravo, Beechcraft King Air and the Bell 430 helicopter.
Business and leisure demand is highly seasonal, he points out. “We cope by proactively planning with clients to ensure the best equipment at the most competitive rates are available to them first,” he says. “Business travel is easier due to business days and hours, giving us more availability.”
Tivnan feels aircraft owners are continuing to retreat from the market, which is helping charter companies. “[Aircraft] owners, fractional owners and those who lease are apt to see more of the same access to the same aircraft,” he says. As a company that offers charter and jet card services, Magellan has not been negatively impacted, he adds.
Downturns in the economy are difficult for any industry, says Tracy Cassalia, director of charter services for Gama Aviation’s US arm in Stratford, Connecticut.
“It takes a strong management team and a dedicated staff to weather the challenges these economic conditions present,” she says. “Gama’s business is twofold – providing management services to our aircraft owners and supplemental charter to third parties. We have been fortunate in that many of our managed aircraft have been in our fleet for quite some time and are flexible to accommodate the needs of our charter client base.”
The company has a loyal following of charter clients, says Cassalia. “We work closely with our network of charter vendors to supplement their fleets with additional lift when needed. Gama is recognised industry-wide as one of the safest operators and maintains many accreditations such as Wyvern and ARG/US Platinum ratings,” she notes. “More and more clients, as well as the charter vendor network, require evidence of safe operations.”
The company has seen a decrease in the demand for charter, Cassalia admits. “But we have adjusted accordingly, and now we are starting to see a turnaround. Hopefully the worst is behind us and 2012 will see a return to a more robust charter market,” she says.
“The rate trend over the last few years has fluctuated due to the increase in fuel costs as well as the need to compete against operators whose rates are below the range in what is considered industry standard. We continue to offer competitive pricing while still meeting client expectations.”
Gama was founded nearly 30 years ago and has grown into a global organisation, with bases throughout the US, Europe and the Middle East. “This year we will enter the market in Hong Kong. During these years political climates have fluctuated, as have various economies,” says Cassalia.
“As with any market during difficult times, people tend to be more cautious. Gama takes a long-range approach to investing, rather than reacting to specific political events or short-term economic conditions, and has successfully maintained a pattern of sustainable growth.”
The majority of Gama’s fleet are long-range intercontinental jets owned by corporations and individual businesspeople, says Cassalia. “We have several aircraft owners who have recently purchased new aircraft or upgraded to an aircraft with more flexibility. Our fleet composition is dictated by the choices of the aircraft owners which includes light, mid and heavy jets, giving us the advantage of being able to meet a variety of missions,” she explains.
“Gama is well recognised in the industry as a provider of customised aircraft programmes – we attract those clients who want a very personalised level of service, more like a boutique.”
Gama sees small seasonal fluctuations in travel patterns at different times of year, but usually a decline in one segment is offset by an increase in another, says Cassalia. “In the summer months, for example, we might see a decrease in business travel, but an increase in leisure travel. Holiday travel, school vacations, etc also impact the seasonal aspect of the charter market,” she states.
Like Magellan Jets, private aviation company XOJET, based in Brisbane, California, also provides a mix of charter and membership card services – and grew its business by the same, encouraging 30% figure in 2011.
“Our growth was only limited by our ability to grow our fleet. We will continue to invest in our fleet and expect to more than double its size in 2012,” says Stephen Lambright, senior VP of marketing.
It has been a slow return for charter rates back to where they were in 2008, but they have been trending towards that level, says Theodore Botimer, XOJET’s senior VP of revenue management. “However, these gains have been tended to be offset by the volatility and overall increase in fuel costs,” he says. “There has been an ongoing rate recovery, but under challenging circumstances.”
XOJET supplemented its fleet of Bombardier Challenger 300s and Cessna Citation Tens with a third aircraft type last year, the Hawker 800 XP. “With the addition of this aircraft, we will be able to address an even greater spectrum of customer needs in 2012,” says Lambright.
He sees two forces converging in the charter sector. “First, the recent economic situation has given people cause to review how and when they fly privately,” he says. “Second, there are new private aviation options available today that weren’t available five or 10 years ago. People are using this opportunity to reevaluate how they fly, actively looking at which programmes best suit their individual needs.”
The charter business is no different from any other business, consultant Vincent summarises. “How do your customers feel about you? Are they loyal? Did you go above and beyond during a challenge? Do you have great people to help your customers? Can you recover and provide amazing service?” he asks.
“Those who do that again and again are the survivors. People pay good money, and they want fresh, clean aircraft and great service. If you don’t provide that, you get weeded out.”
Overall, charter companies benefited during the recession as companies backed away from firm commitments. “People were unwilling to put money on the table and that hurt jet card companies,” Vincent says. “Cash became king, and charters weren’t asking people to put cash up front on the table. If they did, they could get a better price, but they didn’t have to.”
Looking ahead, all three companies are optimistic about their prospects. “Our actions in 2011 speak for themselves. Our growth is driven by demand for XOJET’s programmes and our continued investment in growing our fleet speaks to our view of the future – 2012 and beyond,” says Lambright.
The goal for Magellan is to remain successful in retaining its client base, says Tivnan. “The challenge is getting the message out to owners and fractional flyers that the charter market allows for increased value and flexibility on higher quality aircraft,” he states.
Cassalia defines the main challenge going forward as the operators that continue to undersell the product and hurting the business aviation industry. “Our biggest goal is to ensure that Gama continues on its path to sustained growth while maintaining our commitment to personalised service and safety of operations,” she says.