The private aviation industry was well and truly battered during the recession, but a recent upturn in fortunes has insiders thinking there could be less turbulent times ahead
You can quickly divine the state of the economy by glancing at the fortunes of the aviation industry, and especially the private jet market. Considered a luxury spend, the private or niche service provider will quickly boom when cash is flush, but nosedive during more austere times. And this is exactly what happened before and after the financial crisis hit.
In the course of 2007 and 2008, three experimental, business-class-only transatlantic scheduled operators - Eos, Silverjet and Maxjet - hit the rails, having launched with great fanfare not long before. But now, seven years later, slowly but surely, the fortunes of private airlines are taking off once again.
“Certainly there was a boom from 2004 to 2007,” says Patrick Margetson-Rushmore, Chief Executive of private jet charter business London Executive Aviation (LEA). “The market was very buoyant, but also very excessive. It was comparatively easy to make money as demand outweighed supply. A lot of firms weren"t efficient, but were happy because there was plenty of business to go around.” He says the recession streamlined the industry, helping to weed out companies with weaker business models and poorer service.
Consolidation has also helped strengthen the fortunes of successful firms, and Margetson-Rushmore cautiously thinks change for the better is in the air. “We"ve seen a positive and continual increase in business in the past 24 months, but we"re not back to the same levels of 2006.” LEA became part of the Luxaviation group in 2014, and now has 120 employees in the UK, turning over £35 million.
Ian Atkinson, Operations Director at Heritage Corporate Services (HCS), agrees that business is starting to pick up. A general trust company, HCS also provides services for US-registered aircraft. “Business had been flat for the three years before last year, with no new business coming in. Last year, there was a pick up in demand, which has continued into this year.” He puts this down to a more general upswing in the market and a higher feeling of confidence, with people having more money in their pocket to spend on luxury purchases.
Maggie Barnes, MD of Aviation Beauport, is even more upbeat. With four aircraft and 38 employees based in Jersey, she says: “We"ve been able to weather these recent turbulent times, putting us in an enviable position compared to some competitors. We"re extremely optimistic about the future.”
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Private aviation was one of the recession"s sacrificial lambs, says Margetson-Rushmore. Yes, there were firms who could no longer afford to use corporate jets, but many companies felt it was simply unseemly for them to do so. “The perception of people flying privately was not a good message for top management to give out,” he says.
Atkinson agrees corporate jets get a bad rap during downturns. “Through the years of austerity it"s a public perception issue for corporate entities to have lots of company jets flying around. It"s the reason why the market was not as buoyant. We used to have 300 clients but that has now come down to 200 through attrition. Now that we"re coming out of recession in the UK, there"s more latitude for large corporate boards to go to shareholders and ask for company funds for this, and make the case for time efficiency.”
Barnes, meanwhile, thinks it was a combination of both squeezed funds and a PR problem for corporates. She says: “Some organisations downsized their aircraft, and others chose to charter as a more cost-effective solution to their needs rather than retain ownership of their aircraft.”
So, while the recession has clearly shaken up the private aviation sector, there are other long-term changes at play too. Margetson-Rushmore has experienced the effects of consolidation first hand, when the Luxaviation group took a majority stake in the business last year. “Fifteen years ago, this was a cottage industry, viewed more as a lifestyle industry, yet it"s now seen as more of a business model. The market is consolidating. Our stated aim as part of the Luxaviation group is to have 500 aircraft within the next five years.” It"s an ambitious aim, considering 95 per cent of operators in Europe have fewer than five aircraft, and only four businesses have in excess of 20.
Operating at the smaller end of the market is Barnes" Aviation Beauport. “There"s been a decline over the past few years in individual ownership of executive jets. However, of late we"ve seen more interest in fractional ownership.” However, Margetson-Rushmore says that the impact of fractional ownership in Europe has been muted, though he thinks NetJet"s owner Warren Buffett “has done a wonderful job for PR for business jets”.
Flying high
So who exactly is using corporate and private jets in 2015? Both Margetson-Rushmore and Atkinson"s client bases include high-net-worth individuals, whose level of demand hasn"t shifted much during these recent lean years. LEA also does a lot of band tours, according to Margetson-Rushmore, but a large chunk of demand still comes from the business world. Unsurprisingly, the number of clients from finance dropped during the recession, though it"s starting to make a comeback. Much business comes from executives from mineral companies, where travel to more obscure places is necessary.
But it"s not just large businesses that use LEA - smaller companies and entrepreneurs are important too. “It could be, say, a small firm with suppliers in eastern Europe and they need to go round factories. Using an executive jet means the trip takes two or three days instead of a week. It"s about taking control of their time, having privacy and being efficient,” explains Margetson-Rushmore. “It"s very productive.”
According to new research from Smart Research Insights on global business jets, the market was worth $20.9bn in 2013 and is projected to grow to $33.8bn by the end of 2020. And although it finds that both North America and Europe are showing recovery in business jets demand, it"s expected that in the next decade the business aviation industry in India will grow three times and emerge as the third largest aviation market by 2020.
And which are the most popular private jet routes in the world? According to a new survey by global real estate consultancy Knight Frank, Moscow to Nice is the most popular (no doubt the oligarchs need to head to warmer climes), followed by Miami to New York, and New York to LA. The majority of private jet owners are entrepreneurs, and over 80 per cent of them are men, according to the report. Their wealth tends to come from the finance and oil and gas industries.
While the most popular routes as of 2013 tended to be to and from the world"s financial capitals and luxury property markets (such as London to Nice, and New York to West Palm Beach, Florida), routes between some emerging markets and major financial capitals are increasingly popular, such as Lagos to London and Maiquetia, Venezuela to Miami.
But just how stable is the market? Barnes is reassuring: “Inevitably in times of financial strain, it"s the companies at the luxury end of the market that suffer the most; however there are encouraging indications of buoyancy and growth.” Atkinson is hopeful too. “We"re a year into the resurgence of the market and I"m quietly confident that we"ve seen the worst of the downturn.”
The only way from here, it would seem, is up.