Qatar Airways does not expect to operate a full network of flights that match its pre-pandemic levels “unless a miracle” happens. Warren Buffet has dumped almost $4 billion worth of shares in America’s airlines (United, Southwest, American, and Delta). “I think there are certain industries, and unfortunately, I think that the airline industry, among others, that are really hurt by a forced shutdown by events that are far beyond our control,” Buffet said.
International travel demand has seen a catastrophic hit with travellers wary of flying to distant lands in a world gripped with the coronavirus pandemic. Narrow seats, unsanitary shared washrooms, and the general feeling of being packed in an aluminium tube at 40,000 feet breathing in the same air as about 250 other travellers seem to further scare travellers for their health.
All the signals show that commercial airlines need to completely revamp their operations in the post-pandemic era and are looking at a tough road to recovery.
Amidst that, CEOs of private charter operators are planning for an industry boom after the pandemic as wealthy travellers and corporates may rely on private aviation more than before. "Our industry is going to come back very quickly," Silver Air CEO Jason Middleton told Business Insider. "The private aviation sector services all industries and I strongly believe that companies are going to need to rely on private aviation now more than ever because it's [safer], health-wise."
From the Wednesday prior to Memorial Day, which is the last Monday in May, through Tuesday, the number of passengers who passed through TSA checkpoints hovered at just 12% of 2019 levels. Flights by charter operators achieved 59% of activity levels on a year-over-year basis. During the period there were 13,742 departures, down from 23,453 in 2019. For fractional operators like NetJets, activity for the holiday weekend was at 55% of 2019 levels.
Source: Private Jet Card Comparison
The industry reported an initial surge in demand at the start of the pandemic and stories emerged about the private charter brokers living their busiest phase. However, when the travel restrictions reached their peak in March, the private aviation industry lined up to ask for a government bailout.
The big pitch on private aviation has long been efficiency and privacy. Travellers save a lot of time compared to using commercial airlines and get more work done without worrying about who’s glancing at your computer screen. Certainly, it is more enjoyable than waiting in TSA security lines. It’s also nice to be out of the airport five minutes after you land.
Yet private aviation hasn’t tasted much success in convincing the majority of their target group. Be it CXOs and corporates or HNI’s/UHNI’s, people who don’t even think twice before booking coach airfare draw a line when it comes to travelling privately.
In the era of shrunken corporate budgets and a growing embrace of videoconferences, how exactly do the ultimate symbols of luxury and affluence find their way to growth?
There are two major reasonings behind the positive outlook of the industry:
Health and Safety Concerns
As air travel gradually returns in the post-COVID-19 era, commercial airlines face a critical choice: continue onboard social-distancing and sanitization norms by limiting cabin occupancy and increasing scheduled flights, or keep the number of trips in line with demand, which could lead to more crowded planes but will financially benefit cash-strapped carriers.
Even when carrier traffic is still down about 90% from typical levels, many of the flights that are operating are starting to fill up, complicating social distancing guidelines, and angering some passengers. Higher fares, fewer routes, preflight health checks, and less free food add to the misery of passengers. Health checks will slow down immigration processing. This could mean even more passengers waiting inside (or outside) the terminal. Studies suggest that the chances of exposure to Coronavirus are 30 times higher when travelling on commercial aircraft.
Thus, the executives of the private jet industry predict that the health and safety aspect will make more flyers excited about the prospect of paying the extra cost to fly private as opposed to first-class on commercial and they are preparing to lure them.
Silver Air, a Florida based airline has introduced a product called “COVID-19 cleared” which intensively sanitizes the interiors and every possible surface that the passenger (s) can come in contact with.
Charter Brokers have started issuing a list of additional options clients can buy if they want to feel even safer. It includes a complete restocking of the minibar onboard to having pilots and staff quarantined for 48 hours prior to their flight.
Intensive disinfection programmes, product options to further reduce contact with sources of infections and even sealing of planes prior to travel are expected to provide further relief to travellers concerned for their health and encourage them to take the leap over conventional commercial air travel.
Cost Factor
With the health and safety factors bringing in a new avenue of marketing for the private jets, the major roadblock for the switch is the high cost of chartering an entire aircraft. The high costs turned away even those with the means to do so, reports Business Insider.
The industry is working on new measures and business models to make chartering a jet not just cheaper but less complicated too. The new age of online services and brokers have made it easier for new customers to choose the best options according to their flying needs and get maximum cost-benefit out of their travel.
Lowering the Entry Barrier:
A number of jet card providers have been aggressively trying to broaden the market. Airshare, Jet Linx Aviation, Jets.com, OneFlight International, Priester Aviation, and Prive Jets all introduced programs for their fixed-rate guaranteed availability memberships, reducing entry levels by half or more. JetSuite is offering member rates for on-demand flights on an as-available basis.
Two of the biggest players are cutting cost-of-entry as well. Sentient Jet is lowering hourly rates by 7.5% like many, but also reducing your deposit by a similar amount. Its 25-hour light jet program is now $137,000 instead of the $147,275 that included Federal Excise Tax (FET).
NetJets, the largest operator in the world, which doesn’t disclose rates publicly, restructured its entire program, discounting memberships even more. Twenty-five hours on its fleet of Embraer Phenom 300 long-range light jets is now 11% less, down to $168,000, according to one source.
Bailout Packages and Tax Benefits:
Another factor in reducing the charter rates is the dropping cost of filling up the gas tanks. According to IATA’s Jet Fuel Price Monitor, as of April 3, North America prices were down 60.1% year-over-year and 38.3% compared to a month ago, although week-over-week they inched up by 1.4%. The recently passed CARES Act waives segment fees and the 4.3 cents per gallon portion of the fuel tax.
More significantly, the COVID-19 Coronavirus legislation waives the 7.5% FET through year’s end. That levy is applied to Part 135 flights, so both on-demand charter and jet card flying. It’s normally tacked onto domestic flights as well as U.S. trips that start or end within 200 miles of the southern and northern borders.
Private Jets are looking at two major customer streams to get onboard: Corporates and Wealthy Travellers. While the above two reasons are quite sufficient to lure wealthy travellers as long term customers, corporates may need more convincing about the benefits of the service.
Do corporates need private jets?
While the world’s elite happily indulges in the luxury of private aircrafts, flying in corporate jets as a CEO is frowned upon. In 2008, the CEOs of Ford, GM, and Chrysler were hugely criticized by Congress for flying to Washington in private jets to ask taxpayers for $25 billion in bailouts. Post that, former General Electric CEO Jeff Immelt’s habit of flying with a second private jet tailing him—in case the one he flew in broke down—added to a perception of waste and inefficiency. According to a Barron report, evidence of private jet ownership or usage was found only at 64 S&P 500 companies.
The headlines of prominent publication during Nov-Dec 2008. The CEOs of the big three automakers, GM, Ford and Chrysler, flew to Washington in private luxurious jets to make their case to the government that the auto industry is running out of cash and needs $25 billion in taxpayer money to avoid bankruptcy. The backlash of the event was so huge that a lot of big corporates around the United States started dumping their corporate jets and the private jet industry took a massive hit making the crisis worse for them.
Source: ABC News, The New York Times
Luxury travel firm Blacklane reports that the biggest reason companies still prefer to book an executive jet charter instead of booking their team into the business class is for the possible money and time saved in the long term. The majority of usage falls on small companies, according to the NBAA, and many companies use jet-sharing services, such as NetJets.
CXOs can save 3-5 hours every time they fly private. In the long term, this factor overtakes the added cost of acquiring a private jet as the productivity of CXOs, who are paid millions, is increased and benefits the firm. Source: Princejets.com
In a post-COVID-19 world, the outlook won’t be the same as the 2008 financial crisis. The new generation of business travellers can consider flying private even after a recession. Health and safety concerns have moved way up on priority lists. Coupled with the new style operations of the commercial airlines, this appears to be a good time to make a switch to private jets.
Less Luxury, More Economy:
Private jets are changing according to the needs of the corporates now. The old school ways of flying private don’t work with the new generation of industry leaders. Long gone are the stories of CEOs flying with a reserve jet, just in case, the first one broke down. The sharing economy has now hit private jet travel, and CEOs are more interested in reaching their destination with ease, rather than whether the bathroom of the executive jet has gold taps.
Numerous private jet start-ups are now giving corporate travellers innovative solutions, with private jet membership clubs, fractional ownership, and business jet rental. They are also encouraging travellers to pay by cryptocurrency to make borderless transactions and use bespoke apps to save time when managing their flights and booking requests.
New aircrafts are also debuting nearly every year that will allow businesses and private individuals to fly more people further without having to stop, maximizing the benefit of the aircraft. Two aircraft, in particular, have eased out worries of intercontinental travel, the Bombardier Global Express 7500 and Gulfstream G700 can fly across numerous time zones without making any fuelling stops.
A Bombardier Global 7500(down) and Gulfstream G700(Up), the latest aircraft to be introduced by the leading manufacturers, offering the greatest ranges and capacity of any wide-cabin private jet.
Companies now worry less about the plane being covered in its corporate livery and are more interested in reliable service and cost savings, which is why they are now turning to private jet club memberships and rental charters for private transportation.
Making the leap:
The industry’s best marketing is first-hand experience. New customers often book flights on a one-off basis. That happened in early March via relocation flights and an exodus to second homes. The customers start off by flying with a friend or acquaintance, move on to booking on-demand charters. In no time they start looking at Jet Cards and move on to fractional ownerships.
Sentient Jet is launching a new ad campaign under the slogan, “Be Ready” aimed to attract more first-timers.
The initial days of reopening have shown that the tides are shifting from coach to private. Sentient Jet is reporting an increase of 241% in quote requests from March lows. Charter broker Air Partner is witnessing a massive spike in interests as the publicly traded seller of jet cards and on-demand charter said in a press release that year-over-year inquiries were up by 210%.
All of the above leads many in private aviation to believe that their industry has finally got the chance to live up to its potential. Forbes reported that about 85% of the over 600 business aviation executives on the Corporate Jet Investor webinar said they are very or fairly optimistic about their company’s future, even though business for many is off by as much as 80%.
In addition to private jet charters and air taxis, many also think jet-sharing will finally move to centre stage. Three of the largest players, Wheels Up, XO, and Jet Linx Aviation, already offer the ability for fliers to pool together.
It’s unlikely that private aviation will ever fully evolve from its stereotype of ivory tower excess. However, at least for the next couple of years or so, the fear of contracting the virus, and in some cases, the fact that there is no good alternative, should make more people and companies consider private travel as the best choice, not a splurge. It will be up to the industry to maintain its level of operations and retain their new customers once everything starts returning to normal if it ever will.
