Charter Market: Flat year spurs charter pros to adopt fresh, innovative approaches to sales
The numbers say it was a flat year in charter, up from 2008's lows, far from prior highs, but essentially static since late last year in terms of demand, pricing and operations. But flat should not be read as placid. The year in charter was marked by noteworthy developments, including major expansions into charter from fractionally rooted providers; the ascendant demand for point-to-point pricing; a move toward right-sizing aircraft to the mission; and the rise of the suddenly super-sophisticated consumer. In addition were myriad examples of operators, brokers and other charter professionals adapting to the realities of a marketplace that will likely never return to what was once called normal. This special report on the charter market reviews the changes of the past year, and looks at where they will likely take us in the next.
By most measures U.S. charter operations flat-lined this past year. Cincinnati-based Argus, the aviation data research service, reports 55,759 charter operations were conducted in September compared with 54,436 the same month a year earlier, a 0.98-percent increase, after peaking at 58,949 this past March. Turboprops were the busiest aircraft segment during the year (approximately 20,000 operations per month), according to Argus, followed by light jets (approximately 15,000 ops per month). Heavy jets, the least in demand, stayed remarkably flat, at about 6,000 operations every month.
The ranks of charter operators held steady. There were 2,227 Part 135 operators on the FAA's registry at the beginning of September compared with 2,233 certificate holders on file a year earlier.
As for charter brokers, NBAA estimates they number between 3,000 and 5,000, a figure spread that includes charter operators that act as brokers when their aircraft are unavailable to perform a trip. Their actual numbers are unknown, though anecdotal reports indicate a slight thinning of their ranks over the past year.
The Air Charter Guide tracks a fleet of active U.S.-registered charter aircraft (currently numbering 2,212, versus 2,225 at the end of last year), and noted several changes to fleet composition over the past year. Percentage-wise the biggest changes came at the top and bottom ends. The number of light jets dropped from 927 to 883, while the number of available very light jets (VLJs) grew to 37 from 24 aircraft. Two bizliners joined the tracked fleet, for a total of nine in the category. Ten heavy jets (534) and six midsize jets were also added.
According to Argus, since the beginning of the year, average time per flight ranged from a low of 1:15 for multi-engine turboprops to 2:40 for super-long-range jets. These low times likely reflect in part the popularity of some short-distance routes. Six of the top 10 most flown routes for charter were between the Los Angeles area and Las Vegas, according to Argus, a distance of less than 200 nm. The eighth most popular route was from White Plains to Teterboro. The 20-nm trip is most likely a repositioning flight.
Avinode, the charter data service with U.S. headquarters in Miami, reports the price of charter steadily rose over the past year, based on the hourly rates of a market basket of aircraft models it tracks. A Challenger 604, for example, cost $4,723 per hour in January and $4,872 in September. A Citation Excel rose from $3,149 to $3,175 per hour in that period and a Hawker 800 from $3,264 to $3,361.
Operators Are Adapting
Over the past year charter providers have adapted their operations to meet near-term economic squeezes and position themselves for an expected–if lagging–turnaround.
"A lot of people are recalibrating what they're doing [in response to] a new pricing paradigm in the marketplace," said Andy Priester, president and COO of Chicago-based charter-management company Priester Aviation. "Two-hour minimums are nearly completely gone, hourly rates have significantly dropped across the country, and the way people negotiate for trips and what's an acceptable margin have changed. I've never seen a market as competitive as it is now."
Wholesale charter operator The Travel Management Co. (TMC), based in Elkhardt, Ind., has added staff this year "just to negotiate hotels, rental cars and airline deals," for its more than 140 pilots on the road. "That's been a huge focus," said general manager Scott Wise. TMC also took advantage of the down market to secure space for a maintenance facility at Teterboro Airport, where it will base about a dozen mechanics to conduct all scheduled maintenance. "It's not nearly as expensive as it was three years ago," Wise said, adding that the location in the Northeast Corridor "helps the almighty repositioning."
Minneapolis-based charter-management company Elliott Aviation is hitting the phones. "Nothing beats good, old-fashioned cold calling and interacting with your existing clients via the phone," said sales manager Toby Batchelder.
Many operators are reworking or fine-tuning management agreements and enhancing efforts to bring more aircraft into their management programs, whether the airplanes are used for charter or not.
"We have two employees dedicated solely to searching for aircraft to manage," said Scott Windau of Jet Source, an FBO and charter-management company in Carlsbad, Calif., with nine aircraft in its charter fleet.
Beleaguered corporate flight departments looking to offset operating costs have also been receptive to charter-management company pitches. "For those flight departments that aren't flying 300 to 400 hours a year, it's a great time to be talking to a charter operator about leasing out their airplane," said Batchelder.
Aircraft owners' search for an operator that can deliver maximum charter revenue contributed to the management machinations as well, but in this environment reputable operators are making few promises. "Every conversation we have with prospective management clients is about realistic expectations," said David Rimmer, executive vice president of charter-management company ExcelAire in Ronkonkoma, N.Y. ExcelAire added two Bombardier Global 5000s and a Learjet 60 to its fleet this year.
But problems like last year's bankruptcy of charter operator JetDirect have complicated such negotiations.
"I have seen the average time it takes to hammer out new contracts and leases skyrocket," said Robert Seidel, senior vice president, general manager, at Jet Aviation's U.S. headquarters in Teterboro. "Every aviation attorney is attempting to protect his or her client from every evil that has been visited upon the industry."
Jet Aviation, owned by General Dynamics, has 72 jets and helicopters under management in the U.S., 25 available for charter, either ad hoc or through its block charter PT Jet Card.
The Airline Factor
Former fractional-only providers continued expansions into charter this year and even a major airline has upped its commitment to the charter market. Delta Air Lines' private jet offering, Delta Air Elite, set the pace, adding nine jets, then acquiring Kinston, N.C.-based Segrave Aviation (progenitor of charter's floating fleet model), naming founder Jim Segrave president and rechristening itself Delta Private Jets.
"We're trying to leverage the benefits of Delta in ways no one else can," said Segrave. As an example, with the new Air Elite Jet Card, Delta became the first major U.S. airline to enable travelers to book a trip combining a charter and scheduled airline flight with one phone call. (The card also bestows instant Diamond Medallion airline VIP status.) The company's Perfect 10 card, providing 10 hours of light jet flight time, is designed as an introductory offering.
But cards aside, Segrave said ad hoc charter represents more than half of Delta Private Jets' business. The fleet includes Bombardier, Cessna and Hawker Beechcraft jets. But despite Delta's muscle behind him, industry veteran Segrave talks cautiously about the future. "We all have to get smarter about how we operate more efficiently. It's a challenge to make it profitable."
More airline action in the charter space is likely. After all, charter customers are also often full-fare first-class airline passengers.
"[The airlines] want to control that customer," said Joe Moeggenberg, Argus president and CEO. "If Lufthansa or British Airways puts one of its VIP customers in the front of a [Boeing 777] to JFK, but that VIP customer's final destination is Buffalo, New York, and he's going to go from wonderful first-class service to an RJ, trust me, that will ruin the whole experience."
British Airways now partners with CitationAir by Cessna (rebranded last year from CitationShares, with Cessna acquiring 100 percent of the company it founded as a fractional program), providing British Airways' preferred customers with the CitationAir fleet of Citation Bravos, CJ3s, XLSs and Sovereigns.
Although CitationAir does not offer ad hoc charter, its CitationAir Jet Card is "one-way block charter" and just as economical as one-off charter flights, according to William "Woody" Harford, senior vice president and chief revenue officer. "Customers in many respects don't look at jet cards as being price competitive with charter, and that's fundamentally not true," he said. "And at $100,000 down, that's not a huge commitment toward flying privately."
Sentient, a national charter brokerage, this year purchased charter broker OneSky, developer of the software many charter providers use to get trip requests, search for lift and generate quotes.
"One strong trend we've been seeing is the increasing role of the Internet as a tool for charter customers in researching charter information and getting quotes," said Marty Guinoo, Sentient's CEO, and the OneSky acquisition should help Sentient capitalize on that move.
Flexjet, founded in 1995 and another of the first major fractional companies, has also added charter to its offering, but acts simply as a broker, rather than using its own fleet to serve charter customers.
Floating Fleets and Point-to-point Service
Charter's traditional "round-trip pricing" model, which requires customers to pay for both legs of a one-way trip, was eclipsed this year by the availability of point-to-point pricing, an offshoot of the sale of empty legs aboard those round-trip flights that has morphed into an operating model unto itself.
"The empty-leg sector has grown tremendously over the past year," said Wayne Rizzo, president of charter broker Air Royale International, based in Los Angeles. "Both broker and consumer are seeking the cost-effective way of true one-way pricing, and operators are refining their business models to capture that ever-increasing market share."
"The general public has really learned about these one-ways and about shopping by the trip," agreed Scott Phillips, owner and CEO of charter operator Jet 1 in Naples, Fla.
The "floating fleet" model was developed to take advantage of one-way demand. With no home base, aircraft in a floating fleet are positioned to capitalize on shifting market demand for point-to-point travel. Traditional operators are finding ways to benefit as well, without the risk of unknown returns that floating fleets and positioning for one-way fares can present.
"We do get more point-to-point [trip requests]," said Alex Beringer, executive vice president at charter-management company Fair Wind Aviation in Fort Lauderdale, Fla. "A few [of our managed aircraft] have less owner usage, and we will float those aircraft at certain times of the year" to service point-to-point flights.
"We can place a number of aircraft within our certified network on dedication [for point-to-point trips]," said Sentient's Guinoo. "In essence, these dedicated jets act as our own floating fleet, giving us tremendous flexibility as far as where the jets can be positioned to accommodate our clients' itinerary needs."
Priester Aviation, which eschewed point-to-point charter a year ago, has since hired several people to address the growing market, and is talking with owners of its managed jets about keeping aircraft on the road to capture point-to-point flights after dropping owners off at their destinations. "We have done these things to put some twists in our approach, as opposed to 12 months ago," said Priester.
CitationAir, meanwhile, maintains a floating fleet to serve its block-charter customers, who predominantly want one-way flights. "The perfect out-and-back trip isn't our business model," said Harford.
XOJet of Carlsbad, Calif., which helped spur demand for point-to-point with one-way transcontinental fares as low as $19,000 aboard its fleet of Challenger 300s and Citation Xs, continues to expand its fleet, but at a slower rate than previously planned. And Blair LaCorte, CEO and operating partner at TPG, XOJet's major investor, emphasized that the transcontinental one-way fares are "not available all the time," and that the company's profitability rests on ad hoc charter and its block-charter preferred fleet access programs, not on the all-inclusive advertised transcon rates.
Charter customers have shown a penchant for practicality over profligacy this year, a reality underscored by "right sizing" their choice of aircraft for a given flight.
"A lot of people are still flying but not flying the class of airplane they were before," noted Moeggenberg at Argus. "People are moving from large-cabin airplanes to midsize airplanes, and from midsize they've been moving to light jets."
"I can tell you, anecdotally, our airplanes are flying more full," said Priester. "Customers are choosing to put more people on the airplane to maximize efficiency."
Charter operator JetSuite, based in Long Beach, Calif., which has been rolling out service in the Southwest with a fleet of four-passenger Embraer Phenom 100s, is a proponent of right-sizing. "Using a Gulfstream to fly two or three people from Van Nuys to Las Vegas is like using a Winnebago to drive to lunch every day," said CEO Alex Wilcox. "It's not the right tool for the job."
JetSuite's owned and operated fleet model is based on high usage rates. "Our goal is to put somewhere around 1,000 hours per year on each airplane," Wilcox said. The former JetBlue executive also plans to bring airline yield-management strategies to charter. "The biggest surprise about this industry is the lack of creativity in a lot of the pricing," Wilcox said, noting that charter rates vary little with fluctuations in demand. "We're going to start bringing airline pricing into the picture."
Indeed, JetSuite has introduced "off-peak" rates as low as $999 for the jet from Van Nuys to Las Vegas. Regular rates are $3,000 per flight hour; a "Jet for a Day" rate is $3,000 plus $999 per hour (return to point of origin required).
Right-sizing can also mean moving up. Charter-management company Maine Aviation in Portland, Maine, with nine aircraft on its certificate, has had success with 50-passenger Bombardier CRJ200 regional jets converted into the 16-passenger CRJ200 GLS (Grand Luxury Series).
"The economics work really well," said Jim Iacono, Maine Aviation's director of business development. "We're able to offer the airplane at GIV rates and it's 30 percent larger than a GIV."
California charter broker TourJet, whose clientele includes major musical acts, has booked the GLS extensively, finding it ideal for road shows with relatively high passenger and luggage loads that a typical heavy jet can't handle. "[The GLS] can use most runways a Gulfstream or Challenger can, but it has a lot more capability in terms of lift," said Dave Davis, founder of TourJet in Chicago Park, Calif.
Following the value theme, per-seat charter offerings have solidified a place in the charter world this year. Greenjets of West Palm Beach expects to complete 500 of its shared-seat charter flights operating between south Florida, New York, Boston and Chicago by year-end. Members buy a card ($7,000 or $12,000) entitling them to either 25 or 50 one-way trips at $3,300 or $3,500 per flight, with a free companion seat provided. Greenjets acts as broker and charters the jet based on the number of travelers with reservations for a particular flight. Greenjets expects to be in 30 markets by the end of 2012, according to CEO Dean Rotchin.
Los Angeles-based Spectrum Air inaugurated its per-seat charter offering last month, beginning with service between Van Nuys and Teterboro aboard a Falcon 2000 operated by Elite Air, priced at $3,950 one way, gourmet meal service included. Spectrum plans to add flights between New York and Miami.
Sticking to heavily traveled routes makes the model viable. Customer acceptance and visibility in the marketplace could expand per-seat charter's reach and appeal. Few barriers to entry block other charter providers from trying to tap into the market.
Charter customers have become much more knowledgeable and aggressive over the past year, according to operators and brokers, adding to the pricing pressure on charter rates.
"Customers have gotten much more savvy," said Fair Wind's Beringer. "They're avoiding brokers. They pick up the phone and do the research themselves."
"Retail clients are searching multiple operators for the best price possible," agreed Windau of Jet Source. And when these savvy customers go through brokers, they don't call just one. "A lot of brokers are calling for the same quote," Windau said. "The retail clients are starting bidding wars between brokers and operators."
The Air Charter Guide, whose Web site is aimed at charter customers, has seen a 12-percent increase this year. And company research shows charter customers have become more price conscious than ever.
"Price is a huge issue," said Michele Markarian, director of brand marketing at Air Charter Guide. "[The primary issue] used to be safety. Now people are taking it for granted. Now it's about price."
Charter providers regard personal connection and attention to detail as the drivers behind their relationship with their customers. In fact, last year's closure of Virgin Charter, which tried to create a national charter service, has been attributed to a lack of such personal connection. But the rise of the price conscious, savvy charterer might change this perception of charter buying habits.
Broadband access aboard aircraft made a connection with the charter market this year, a development that will likely accelerate.
"I can't convey to you how motivating a passenger convenience system–such as Wi-Fi–is," said Priester. "That [charter] trip becomes more justifiable. You're not taking time away. When you're in the airplane, you're still in the office."
"More people are asking for wireless Internet in the cabin," said Beringer of Fair Wind. "We've upgraded five aircraft with high-speed Internet," paid for by the aircraft's owner. "We tell owners they can increase charter sales."
XOJet's entire fleet became Wi-Fi equipped as of June, launched with a "Why Fly without Wi-Fi?" promotional campaign. "Even if they don't plan on working, they want to know when they need it they can get on," said XOJet's LaCorte. "It's important for them to have that option." The XOJet fleet's manuals and documents are updated via Wi-Fi as well, saving time and money, and aircraft and the company's operational center are in continual communication, LaCorte said. "We believe having smart airplanes makes our user experience better."
Not everyone believes the charter customer is ready to pay the premium onboard Wi-Fi should command. "If people are telling me they're willing to pay for Wi-Fi, that would be a first," said CitationAir's Harford.