Swings and roundabouts

posted on 12th June 2018

Political instability has swept across the Middle East since the start of 2011, and this has had a knock-on effect on everyone’s charter business. Phil Nasskau reports on the swings and the roundabouts one particular operator – Comlux – is experiencing in the charter market and how it is building its fleet despite the volatility

Comlux’s President, Richard Gaona, admits that the first quarter for Comlux has been “disturbed”.  “With the turmoil there has been much less demand for charter, and the Middle East represented a good portion of our charter business, around 25-30%. And it really dropped in February,” he says.

However Gaona believes that while the Middle East represents a good chunk of its business, that the company’s strategy to not become dependent on a single region, is paying dividends in this particular situation. “The market is still there,” he says.  “We are mainly doing business from Bahrain and Saudi, and we certainly don’t think the market has disappeared. We are not changing our plans.”

He says it is interesting to note that, while the Middle Eastern market is dropping, the CIS is coming back. “We are crossing our fingers for these markets to go back to normal. When the Middle East started to pick up, the CIS dropped. And now it seems to be the other way round. “In the Middle East we have to wait. Will it be months or years? That we don’t know. We do know that people are travelling less,” he says.

However, in Europe, he says the market is remaining constant. He attributes this to Comlux’s decision to fly bigger jets and fly for governments. “We’re also flying more delegations to places like New York, and we are really picking up on that portion of the market,” explains Gaona.

Gaona admits that times are still tough in the charter market, caused by a combination of higher costs and lower demand. “It is clear that the cost of fuel has increased a lot, by around 10%. And, at the same time, we have a market where demand has dropped and there is more competition. As a result, prices have dropped. Our challenge is to figure out how long we can exist in a market with such conditions.

Because Comlux has a presence in different regions, Gaona isn’t too worried about the effects of a dropping Middle Eastern market. He says that the strategy now is to “consolidate its business and not lose too much market share. The operators who are the weakest [financially] are the ones that are dropping the prices the most. If they don’t drop prices they are going to die,” he says.

As part of the consolidation process, he says the company has to make sure that it is not oversized.  “You have to make sure you are in several markets, as well as trying all the new markets like China. Additionally you have to make sure you open your eyes and ears to the customers so that you can adapt to the general situation without changing what we’ve already established so far to become the leader in wide body charter and aircraft management,” he says.

Avoiding dependence on one market is something that Gaona sees as key. This is not only in terms of the regions it focuses on for charter flights but also in terms of how the company composes its fleet. “Our current fleet is five aircraft, and we are looking for maybe six or seven. Naturally, some of those will be managed aircraft, and this benefits the owner as they get the volume discounts of fleet ownership and also the expertise for flying. We don’t like to be 100% for one aircraft segment, and one market,” he explains.

On the fleet side, Gaona says the company is set to receive an A320 at the end of April that should have started revenue service at the start of May and is scheduled to be at EBACE – so the company can show off its latest addition. In addition, the company is finishing up the refurbishment of a 767, which will be finished by the end of May and should be available to do AOC work at some point in September. He says: “Nobody else will have an aircraft like this.”

Gaona notes the development of both competitive and collaborative behaviour in the charter market.  “We have two or three very serious competitors in Europe, and the same again in the Middle East. One day you are a competitor competing for business, and the next day you may not have enough aircraft and you are helping each other out,” he says.

“Above all, we have to remain competitive and keep the customers happy. We have to make sure we are there for our customers and that we aren’t too big a company or too small,” Gaona says. “Aviation is all about the long term, and that’s what we are always looking at. We don’t see any particular spots where we need to improve, other than we need to make sure that all areas of our business keep up their service levels,” he explains.

The company has eyes on China, as does everyone, and for Gaona it is a promising prospect. “China has a growing economy. It’s large in size and has many people. It is certainly a place that is moving towards the business jet mentality, and there are more and more businessmen buying or flying in jets now,” he says. However, doing business in China won’t be easy. “It is very important to get the right partner in the country. The culture in China is very different to Western culture, and we have to adapt to the Chinese market and their culture. There are lots of companies trying to set up business there, and we are flying there from time to time,” he says.

“Sooner or later we will be active in China. We don’t know when, but the only thing we do know is that China has time. There are a lot of people who believe aviation is short term. But that’s just wrong. It’s long term, always. We have to provide quality and safety, and this takes time,” he says.

While Asia represents a potential growth region, Gaona says that the company’s diversification into completions is helping it weather the current difficulties, mainly because it helps bring customers into the family.  He explains that the completions side of the business delivers the opportunity to potentially operate the aircraft for the customer too. “Then one day these owners will want to buy a new plane, and maybe we can help. It’s all part of our long term strategy,” he says. “The most difficult part is to persuade a customer to join your company. Once you have done that, you have got to keep him happy by delivering what he expects and keep him loyal. The day you stop delivering is the day he leaves.”

With the recession, charterers have become pickier. “Whereas, before the recession, customers might have treated chartering a jet much like they treated a yacht, now they are being more careful. Careful not throw money out of the window, and this gives us a more competitive market. Obviously this helps everyone improve their business but, more importantly, those that cannot will cease to exist,” says Gaona. He also believes that the recession hasn’t killed the market; it has just changed the way it behaves. He explains: “The crisis affected the world, but maybe not in the same way throughout different regions. There are places where there are still rich people, but they’re not the same type any more. We see everyone counting the costs when they are negotiating.”

Gaona concludes that the recession has performed a clean-up of the smaller operators. “This brings more quality,” he finishes.