Private jet capacity, pricing, labor, consolidation, demand, investment, new jet owners, offer challenges and opportunities for private aviation providers
Over 450 industry CEOs and leaders gathered last week in Miami for Corporate Jet Investor. For two days they hashed about issues relevant to the overall industry, with a large focus on private jet travelers who fly via jet cards, memberships, and charter.
Is the current record level of demand here to stay? Where will the industry find the capacity to meet that demand? Is more consolidation coming? How many big players are there left to buy? What is Amazonian pricing? When will the supply chain improve? Where have all the pilots – and line workers gone? Are they coming back? How will all the outside investment impact private aviation? What about on-time performance? What type of changes will you see to your jet card program? With dwindling supply, are small brokers on life support?
The consensus is more change is in the offing. So, let’s start with possible good news.
With demand stretching the system, executives believe more capacity may come from new jet owners, consolidation, and technology.
First-time whole aircraft buyers now make up 35% of Embraer’s private jet sales CEO Michael Amalfitano told delegates.
Andrew Collins, CEO of Directional’s Sentient Jet, believes those first-time jet buyers may end up being part of the solution.
Collins noted, “A lot of people skipped charter, fractional and jet cards and bought the whole aircraft. Those buyers are starting to get the bills. Some aircraft on Part 91 (not available for charter) may slide to Part 135 (charter and jet cards). You are going to see people who want to subsidize their pro forma with guaranteed (charter) revenue.”
Owning a private jet
Some new owners are finding ownership has unexpected privileges. Priester Aviation chairman Andy Priester pointed to the owner of a Challenger. His jet is grounded, waiting three months for landing gear parts.
The person sitting next week to me cracked, “And now he needs a jet card, too.”
In fact, owners of private jets always need the supplemental lift, even during normal times. Pilots go on vacation and get sick. Airplanes need regularly scheduled maintenance and they break. Sometimes your own airplane is right for certain trips. Your Phenom 300 won’t get you to Hawaii. How many first-time buyers jumped into the deep end of the private aviation pool and now have regrets is unknown.
At the same time, Collins cited a record influx of new jets are headed into the fleets of fractional and charter operators. Directional’s Flexjet, NetJets, and Vista Global’s VistaJet will take delivery of around 200 new jets by the end of next year.
Another source of the additional charter lift could come from corporate flight departments that traditionally operate under Part 91.
Dan Drohan, CEO of Solairus Aviation, said changes in tax and liability laws and the cost of owning jets that may only fly 100 hours or so a year has meant “a growing willingness to explore those avenues (charter); than there was 10 or 15 years ago.”
Big private aviation providers may gain more supply for their membership programs via consolidation.
Drohan noted that despite numerous mergers and acquisitions, the market is still fragmented.
The 10 largest fractional and charter operators accounted for just 46% of Part 135/91k flight hours through June. That’s according to a Private Jet Card Comparisons‘ analysis of Argus Traqpak data.
Among Part 121 airlines, the 10 largest players control over 90% of the market.
However, there are few big targets to acquire. The 20 operators in the number 11 through 30 slots based on charter and fractional hours only add 104,972 combined hours.
Put another way, acquiring all operators ranked 11 through 20 would add just 8.2 share points in total.
Still, consolidation in the long tail of the industry is coming.
Priester told attendees, “Consolidation is going to happen for a variety of reasons. For smaller operators…it’s harder to comply with increased regulations. Smaller operators will either have to invest more money or as the cost of regulation goes up – being acquired.”
No stopping Wheels Up
According to Wheels Up’s chairman and CEO, Kenny Dichter, growth is at the forefront of his agenda. “Our investors are long-term investors…They want a much bigger business, and they are willing to let us grow…If we have the opportunity to become 10 or 20 times bigger, that’s the investor we want.”
He remained bullish on his vision to unlock latent supply. “Everyone we hire (from tech companies) says, ‘Where is the industry’s tech?’ There is no marketplace tech that empowers the mom-and-pop operator. This is such an incredible white space.”
Dichter added, “There’s a lot of lift out there…looking for great distribution.”
In a live poll, 88% of attendees expect more consolidation.
A more negative outlook is that much of the talk about capacity growth is wishful thinking.
Amstat’s Andrew Young told delegates that used aircraft for sale are at their lowest level since 1984.
Wayne Starling, executive director of the International Aircraft Dealers Association, concurred. “What’s left out, there has been picked over (and) will never sell.”
Much of what’s available is in Russia or China and is being offered “as is.”
Investment in Private Aviation
With billions of dollars in capital coming into the market, Priester said, “The investment into the industry brings new people with a new perspective.”
Clay Lacy SVP Scott Cutshall added, “The outside world sees growth and potential. He said the money “fosters faster innovation and hopefully brings new talent.”
What’s also clear is there is not necessarily a preferred model.
Executives on an investment panel that included KKR, Jefferies, Stonebriar Commercial Finance, and Global Jet Capital noted that different models have different strengths and weaknesses. Part 91 management has stability while membership programs with thousands of customers offer opportunities to cross-sell and brand extensions.
Private Jet Demand Continues
If one answer to record demand is more supply, one area there was considerable agreement is outside of an economic calamity, there are no visible signs that demand will diminish.
In 2020, Sentient Jet increased jet card sales by 50%, from around $300 million to $450 million. Each new customer yielded 2.5 additional customers via referrals.
Collins said that the market spike may have started with avoiding crowds and Covid exposure. It has now grown with vaccinations and “revenge travel.”
Additionally, he says business travel has been quietly returning, further stretching capacity.
Anthony Tivnan, president of Magellan Jets, said there had been no slowdown in demand. After a record year in 2020, jet card sales were up 240% so far this year.
Several companies have stopped accepting new jet card customers. Jet Aviation is the most recent, albeit only for light and midsize jets,
Still, there are no signs the programs are going away. Around 40 providers are still offering fixed or capped rate cards with guaranteed availability in the U.S.
In fact, according to The Jet Card Report by Private Jet Card Comparisons, private aviation buyers want fixed or capped rates with guaranteed availability by a more than 20-to-1 margin over dynamic pricing.
Rate lock extensions were cited as the second most negotiated perk behind free hours.
That said, several panelists believe card programs in the future will have different rules sets.
And again, demand seems set to continue its upward trend. After a record October, Argus is predicting more records over the holidays. 100% of new flyers subscribing to this website say they will continue to fly post-Covid. 57% say they will use private aviation regularly.
Of pre-covid private flyers, 32% said they would fly privately more post-Covid than before the pandemic. Only 3% will lessen their use of private aviation.
It’s hard to fathom private aviation flying was down more than 80% in April 2020.
Private jet pricing
There’s no question pricing is going up – both for on-demand charter and the cost of fulfilling jet card fixed rate flights. The latter means increased hourly rates.
But how much?
Fabian Bello, CEO of Journey Aviation, said, “A GIV was priced the same for the last decade. It needs to be corrected.”
On the other hand, Dichter said, “The price elasticity is as big as we’ve ever seen…We don’t want to take what you could take. We want to take that Amazonian long view.”
In mid-September, an analysis of fixed-rate jet card pricing by Private Jet Card Comparisons found jet card rates up 3.8% since December 2019, with more than half of those increases taking place in the prior 30 days.
Supply Chain and Labor Issues
Between supply and demand are the supply chain issues that are creating the biggest challenge for providers and frustration for consumers.
While a three-month delay in getting parts, as Priester described, maybe the exception, talk at the coffee breaks and on the dais didn’t reveal much getting better.
It’s hard to get slots at MROs. Some operators are buying MROs to gain better control over maintenance availability.
MROs and FBOs are also reeling from labor shortages. One executive pointed to the now-ended CARES Act payments.
Anthony Banome, sales director of Fontainebleau Aviation, an FBO at Miami-Opa Locka, said not everyone is understanding, citing frustrated customers “pounding on the counter.”
The diversity of clientele has added to the challenges as FBO staff deals with billionaires one moment and then flyers who buy seats for $2,500 the next.
The FBO challenge
Providers say staffing at FBOs remains a challenge. With more flights, there is more need for fuel, but there are spot shortages of fuel and just not enough fuel trucks and fuelers to meet demand.
“Getting a straight answer would be nice,” one operator told me. Delays in getting fuel can run hours. They throw off the schedule for the rest of the day – and sometimes into the next day due to crew rest requirements.
Banome said he knows of one UHNW who books two planes for every flight, so he has a backup.
Staffing up doesn’t happen overnight. After flying surged in June, many in the industry expected it to drop after Labor Day. It hasn’t. Instead, it has set new records.
Jet Aviation’s David Best said many positions with both operators and FBOs require months of training. “These are all skilled jobs,” he noted.
Priester said jet owners are indulging their most important asset. “Not are only are pilot salaries going up, but owners are making decisions to accept or reject (charter) flights because of their pilots. Owners want to preserve and keep their pilots – so that’s less for charter.”
The CEO of one broker told me about losing an aircraft because the pilot quit the night before to take a job at an airline.
Car rental, car service, and catering mistakes add to the frustration – and the extra work for private aviation providers.
A long-term problem?
Several panelists said the industry has to pay better at the entry-level and make itself more attractive to outside talent to sustain its now larger long-term needs.
As long as we see supply chain and labor issues in the broader economy, most speakers believe private aviation will endure similar issues. The problems may not always be apparent to end consumers, but airplanes on the ground waiting for maintenance will continue to throw schedules that are constantly fluid anyway under more pressure.
The industry could help itself by doing a better job explaining why to customers when things go south, according to Air Partner sales head Vincent Kavanagh. He suggested more personal phone calls and fewer mass emails.
Private jet on-time performance trends
I asked about a dozen providers to share performance data without attributing it to their company. Generally speaking, it sounds like 90%-to-95% of flights are operating without delays, excluding external factors such as air traffic control or weather.
On peak days, that goes down to around 80%, one CEO told me.
Magallen’s Tivnan echoed what I hear from others and you daily. Recovery time when an aircraft is pulled – a mechanical, a member of the crew has Covid, whatever – has gone from about two hours to five hours. Sometimes it runs to the next day.
One CEO said, “It’s improved since the summer. The holidays are going to be difficult. But to tell you we are on-time 96% of the time doesn’t help my customers who are in the four percent.”
Another operator boss said his company is now leaving backup aircraft unsold to be used as last-minute replacements. “It’s not something we did in the past because, in the past, we could always get a replacement from another operator.”
A survey of subscribers from here found 20% had experienced service issues over the past several months. Several pointed out the problems were not every flight. If you can avoid peak days – Thursdays to Sundays and holidays, you probably have a better than 90% chance of private aviation nirvana.
While jet card customers may complain about delays, in most cases recovery aircraft are provided at no additional cost.
During the conference, one subscriber who had booked an on-demand charter to Hawaii emailed me to say the operator had pulled his plane – a crewmember had Covid. The requote at the last minute was an extra $53,000.
Private Jet – Winners and Losers
As you might suspect, the perspective of who will come out of this challenging environment the best varied based on where one was sitting.
Dichter posited Wheels Up’s membership model is better positioned than fractional operators. Members join Wheels Up to get from A to B safely and on a clean plane, whereas closed fleet operators sell access to their fleets. Customers not only want to get to B, but they also want to do so on their provider’s airplanes.
Peder Von Harten, president of Nicholas Air, the 12th largest operator based on charter and fractional hours, but still a tenth the size of Wheels Up, sees things differently.
A closed fleet operator with just over 600 members – Wheels Up has over 10,000, he adds jets on a one-by-one basis as jet card customers join the program. Matching supply with demand so closely makes for a more consistent product, he told delegates.
Magellan’s Tivnan made a case for being a midsized broker. He has enough scale to deal with the bumps in the road – a dozen people in this sourcing department, enough bandwidth to make 80 calls to find a recovery aircraft.
The current market has also opened his eyes to new suppliers. “We found a great operator out of Wisconsin. Normally, we wouldn’t use an operator based in Wisconsin for flights on the East Coast because of repositioning, but they do a great job.”
A place for the small guys
Even as big players get larger, there was also consensus that boutique brokers have a strong future.
Bello of Journey Aviation has built his fleet to 18 jets, including 14 large-cabin aircraft. He said as other operators are acquired and their lift earmarked for their new owners, it opens opportunities for the long tail operators.
Tivnan added, “There are always going to be customers who have their guy, who don’t want an institutional solution,” he said.
For small providers that have strong customer relationships, the future is probably bright. More than two-thirds (69%) of Private Jet Card Comparisons‘ subscribers said they are open to working with boutique brokers and operators.
The unanswered question is, what will jet cards look like a year from now?
Virtually all panelists said they expect more change.
Among the largest players, Wheels Up and XO changes have been moderate so far. Jet Linx has been the most significant. FlyExclusive has been somewhere in the middle.
But what will the Sentient, NetJets, and Flexjet programs look like when they reopen for new customers?
Collins of Sentient said providers are “trying to understand the ratio of tails to legs.”
He predicted, “Products are going to change. The model worked for a long time. You’re already seeing it change. Smart brokers or closed fleets that have a card will start to be more rational.”
To be continued.
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