The COVID-19 crisis put business aviation in the spotlight, albeit only somewhat. The demand was largely for evacuation/repatriation flights, medical personnel transportation, equipment and supplies, and essential cargo deliveries. In Q1, 2020, flight hours in business aviation registered a significant decline, while many commercial airlines ended up filing for bankruptcy or applying for state bailouts.
Despite continuing financial losses, brokers and agents have stayed busy in the last quarter, and high net worth individuals (HNWIs) have not sold off their assets. In fact, unlike the 2008 scenario, when business aviation operators were compelled to offload their assets, this time around, many corporates have chosen to retain their business aircraft as senior company executives remain wary of commercial flights.
Against this backdrop, Frost & Sullivan spoke to OEMs and charter operators globally to understand best practices and uncover how business aviation can continue to bridge gaps across a range of travel requirements, both during and after the COVID-19 crisis.
Industry remains optimistic
Our research indicates that the business aviation sector has recovered about 70% – 75% of pre-COVID domestic flight activity in countries with large domestic markets. The caveat is that cross-border aircraft transactions declined, largely due to continually changing border and quarantine restrictions across different countries. Therefore, it remains to be seen whether the pre-owned activity will see a spike in the months ahead.
Despite the unprecedented depth and extent of the pandemic’s impact, there is cause for optimism based on the anticipated launch of a vaccine and projections for V-shaped economic recovery.
The extent of drop and recovery
Globally, new deliveries of business jet aircraft will be severely impacted in 2020. OEMs have found it extremely complex to navigate order commitments and deliveries slated for H1, 2020. They have been clearing the backlog in Q3, 2020, and new orders are only in single digits. What will be interesting to see is how many customers will pull the plug on deals due for delivery in Q4, 2020. New orders in the remainder of 2020 and into the first half of 2021 will be hard to come by. Customers seem uninterested in discussing new aircraft acquisitions, especially in the face of downsizing. However, private individuals through a family office or fleet operators who provide charter and fractional ownership may well look to take advantage of lower prices and increased demand for charters.
Michael Walsh, CEO of Aer Mobi, Hong Kong, says, “OEMs have already announced major redundancy programs and are reducing production capacity and part of their geographical support footprint. Potential buyers could be from booming sectors like medical, financial services, e-commerce, online sales, and cryptocurrency as they may seek to purchase a jet given high-profit bookings. These will be only a few bright spots for new aircraft purchases for OEMs.”
Shaun Quigley, Managing Director, Volantair Air Charter, opines that in these times of crisis, the instinct is to “pull one’s head in,” adding that “this is what will happen at least until the final quarter of the year.”
Business jet industry deliveries in 2020 will hover around 25% to 30% Y-o-Y, globally, according to Jose Rego, Senior Director – Market Intelligence and Strategy, Embraer Executive Jets. The rebound in growth will be slow and steady, and 2019 levels will not be reached until 2025.
While the travel business’s impact is obvious, we believe that people are now viewing aircraft charters as viable alternatives to commercial operations. Whether this will drive the sales of private aircraft remains to be seen.
Witnessing some “green shoots”
We anticipate that activity in the pre-owned business jet market will pick up substantially in Q4, 2020. A few limited transactions have already been completed in Asia this year, despite COVID-19 restrictions. Interestingly, these were within the region between Asian buyers and sellers. Business jet sales in Asia were at their lowest in April and the first half of May, barring Mainland China, which restarted domestic flying in early May.
There has been an uptick in air travel activity (essential travel only) in the summer months across certain parts of the world. However, some Asian countries have experienced a recurrence of infection and tightened restrictions. Travel activity is estimated to be less than 40% Y-o-Y compared to 2019. Asia will recover as border restrictions ease. Charter demand is expected to be higher in Q4 2020, subject to there being no further lockdowns.
Operators expect increased business in the chartered segment rather than new aircraft sales. The private jet segment will grow due to new customer acquisitions driven by changing perspectives on charter flights. Leisure travel in this segment is also expected to pick up as countries lift travel restrictions. Travel for health reasons and medical evacuations will also increase.
Charter operators expect green shoots of growth in the tourism sector with passengers seeking “experiences” in their back yard. Business aviation traffic during June and July underlined the growing interest in private aviation. “There may be a marginal increase in demand from first-time buyers; I expect this to affect fractionals, hour card sales, and charters initially. This is also likely to benefit the pre-owned market first, due to lower ticket prices,” elaborates Rego.
Bottlenecks in Business Aviation
“Business leaders and HNWIs will seek business aviation solutions due to a lack of supply and routes served by commercial airlines, in short to medium term,” notes Walsh. “Business aviation is ready to fill the gap created due to the reduction of schedules and concerns over health risks while traveling.”
However, civil aviation authorities’ lack of a cohesive policy across countries regarding the 14-day quarantine rule and new visa regimes continues to be a concern for business aviation industry associations, under the International Business Aviation Council (IBAC). Besides, there is limited awareness about how to grant permission for international non-scheduled flights.
One of the major bottlenecks we perceive is the lag in granting Air Operator’s Certificates (AOCs). Local civil aviation authorities (CAAs) lack the agility to grant permissions; getting a simple jet charter, AOC can take anywhere between six months to two years. “I am not suggesting permissions be handed out like sweets, but the process needs to be streamlined,” advises Quigley.
In addition to more streamlined processes and a robust regulatory framework, we believe it is critical for business models to evolve. New business model innovations that maximize a private jet’s utilization rates could help bring down ownership costs while allowing new users access. Platform businesses looking to integrate idle private jets for charters could be a solution, although making it seamless and reliable for the owner could prove a challenge.
Aircraft ownership costs also pose a barrier to market expansion. Charters and private ownership will have first-time users and buyers migrating from regular flights. Smaller and less crowded airports and fewer passengers on flights are the positives, although price points remain a concern.
Flexjet recently announced a business diversification aimed at charter services. Another private jet company, Wheels up, has also expanded its operations in the charter business segment. “Ticket prices for a seat in a private jet could be at best 50% above passenger airline prices in a similar premium category,” remarks Rego. “Electrification and sustainable aviation fuels may solve this cost versus price imbalance. But I think it will happen over the long term.”
Safety is a priority, so is business
The industry recommends that business aviation travelers and crew, including aircraft engineers, be exempt from the 14-day quarantine upon submitting a negative COVID-19 test result (test within 72 hours of departure from the origin). The test result will need to be provided electronically to the recipient country’s border and health authorities. Additionally, travelers must provide sufficient information on local travel for the duration of their stay.
Cutting red tape within the regulatory bodies will reduce administrative burden. In this context, the presence of qualified teams and safe and well-maintained aircraft could fast-track applications for certification.
As regulators continue to chart new rules of essential air travel, business aviation is in a sweet spot. Its crucial role in medevac, repatriation, supplies, and essential travel services has redefined its image and paved the way for it to make a strong comeback.