Smaller Operators, Brokers Count The Cost Of Bizav Market Boom
GENEVA—For a few weeks in the second quarter of 2020, private aviation was an industry fearing for its future. But in short order, a remarkable bounce back turned into an unexpected boom. This ought to be unalloyed good news: but success is bringing new challenges, particularly in a charter market that has been characterized in recent years by consolidation.
"Demand is so high at the moment, and it's a great opportunity for us to enjoy the new entrants to the market and the new charter customers and service them well," Julie Black, head of executive charter at British brokers Hunt & Palmer, told a panel discussion hosted by UAS International Trip Support at its EBACE stand on May 24. "But the key there is to service them well … and you've got to have an airplane to do that with."
The problem is the age-old supply/demand dilemma that affects any market undergoing a rate of expansion that cannot be easily met by creating new capacity. In the bizjet market, the effects of this have been amplified by consolidation, with a small number of large operators—many offering products that guarantee availability to jetcard holders or fractional owners—controlling a greater proportion of available aircraft. Brokers perform a critical role, but, Black argued, at the moment, many of them are being trampled in the rush.
"With many of the independent operators, including those who are represented here today, we do feel valued," she said. "But in some of the larger groups now, I feel like the broker has been forgotten slightly. We do feel like we're the bottom of the food chain in terms of protection of supply and capacity.
"Obviously, many of these consolidated operators, their sense is to protect their own cardholders and fractional owners, and then their own retail clients," she continued. "The broker, as the wholesale client, is now at the bottom of that food chain … but we're probably the people who introduced that ownership and those cardholders to them."
One of those smaller operators Black referred to—Alex Durand, CEO of Norwich, England-based SaxonAir—was surprised by her comments, as he had perceived the boot to be on the other foot.
"I find it really interesting that you feel at the bottom of the pile," he said. "It's always been the brokers, I've felt, who have felt like the dominant partner in the relationship. It's interesting, that perception change. What's changed in the industry to make that happen?"
"I think it's because, as a broker, we have so little control," Black replied. "We have a relationship with a customer that is really hard-won, and it's won against lots of competition … so we really have to excel in terms of the way we deliver for that end charter customer. But the market conditions, in many ways, don't enable us to please them every time. They think they can go and buy a card or a share in an airplane, and the perception is that they're regaining a bit of control. I don't think that's the case at all, because I look at some of the jet-card products and fractional products that are going on sale now and they seem to [carry] a much higher price but with more and more restrictions. The whole idea of business aviation is to offer flexibility to the charter clients. I don't feel that those products offer flexibility to end-users anymore. They might have done at one point in time but I don't think they do now."
Even in a consolidated landscape, with all the challenges it brings, there will be some opportunities for smaller players. Business aviation is by definition an industry which exists to provide a bespoke experience: there will be elements of that which can best be delivered by small companies, even if that means they lack economies of scale.
"The consolidation is mainly targeting a certain part of the industry—those who are more inclined to go to a jet card, or more inclined to do the bookings themselves," argued Fadi El Samad, director of sales and customer experience at the Slovenia-based operator Elit'Avia. "They don't have high requirements in terms of service level and everything that goes around the flight from A to B. In terms of consolidation, you're losing this personal touch. There'll always be clients who are looking for that."
The present difficulties are a challenge, but they will not last indefinitely, suggested Bernhard Fragner, CEO of the Austrian on-demand jet operator GlobeAir. It is important that relationships forged in a boom are not abandoned when market conditions become tougher.
"I have the fortune that I've been in this business a few years now, and I've seen cycles—good times and bad times," he said. "There's a strong partnership relation between an operator and a broker. I think we should go through the good times together, and the bad times. There might be, currently, a high-demand period, but I've no doubt there will be a low-demand period; probably quite soon, given the economic conditions. And this is always worth remembering. At the end of the day we're in a people business, very much so—and the people will drive the relations."
The solution may be to raise prices, one that a sector used to having to lower its costs to compete could struggle with. But, Durand argued, something needs to be done, and soon, to avert a situation where the hard-won customers Black spoke of end up deserting operators and brokers following unsatisfactory experiences of their services.
"Everything we talk about is value-added: it's quality, and experiencing a product, in a highly regulated industry with high overheads," he said. "Rather than just expand capacity, which is broken everywhere, we can put the prices up. We're generally not used to that because we're dealing with hardened negotiators. There is a cost to what we do, and if you [increase prices] then you will reduce some of the demand. It's not a comfortable subject because we want as much [business] as possible, but the whole system is very fragile. The possibility of a nice commercial upturn this summer could cause absolute chaos."