Charter Market: Brokers facing new regs decry inept confrères
During a time when careful shoppers might be expected to make every effort to save money, the charter brokerage business has continued to grow, despite the

During a time when careful shoppers might be expected to make every effort to save money, the charter brokerage business has continued to grow, despite the fact that there is nothing stopping consumers from contacting charter providers directly and negotiating their best deal. Brokers clearly serve a purpose, but they are faced with possible new Department of Transportation (DOT) regulations, declining margins and fierce competition within their own ranks.

"Operators are held hostage by brokers," said one charter operator. What is happening is that charter users call multiple brokers, all of whom source the same flight from multiple charter operators. The result is that prices get driven down. What charter users don't know, he said, is that they could get the same price the broker pays by calling that operator–or presumably any other operator–directly. Brokers, he said, make about 5 percent on charters, but often they don't reveal the amount they are paying for the charter or whether or not they are paying the federal excise taxes (FET) required of charter flights. "We're hoping there will be regulations on FET, [perhaps] requiring brokers to pay it," he said.

"They fool the public into thinking they get a lower price," he said. "It's not a full-disclosure business." Nevertheless, 80 percent of that company's business is arranged by brokers, he acknowledged. "They're bringing a lot of business. I think that will change as the economy gets better."

Fed Regs in the Offing
Charter brokers are well aware that U.S. DOT regulations may be coming, and the DOT is reportedly developing rules that would regulate the broker industry.
"Although everyone knows the DOT plans to publish a notice of proposed rulemaking," said Wayne Rizzi, president and CEO of broker Air Royale International, "we don't know at this point what that will entail." Air Royale, headquartered in Los Angeles, is a member of the Air Charter Association of North America (Acana), which sets strict standards for brokers. "I'm all for some type of broker regulations, providing it will better serve the consumer but not become overly burdensome on charter broker companies," he said.

"Most of us pros are tired of inept brokers," Rizzi added, "those that slap up Web sites but have no office [and] are granted free range without performing due safety diligence yet, frankly, know nothing about the business. Both 135 operators and brokers alike should live up to the highest standards possible."

Organizations such as Acana are helping, Rizzi explained, "to bring notice to the consumer that there is a difference in the ethics and services a good, experienced broker brings to the table. Operators additionally are showing allegiance to the true professional broker and shying away from the inferior brokers."

Professional brokers like Air Royale are responsible for vetting the charter providers they work with, including confirming certification, aircraft and pilot airworthiness, insurance, company history and operational control. Rizzi said that services such as CharterX/Wyvern and Argus are helpful for this research, "which means brokers must be willing to spend the money to collect current safety data on behalf of the consumer.

"The brokerage community should be acknowledged as a valuable part of the air charter community," he said. "Both fellow operators and consumers will then know the merits of what a regulated broker adheres to and which of us is approved to perform our valued service."

Broker Dave Davis of Tour Jet, based in Chicago Park, Calif., specializes in moving large groups for the entertainment industry, including touring musical groups. Davis isn't a fan of the idea of regulating charter brokers but believes that industry associations like Acana are a better way to ensure that ethics and practices are held to high standards. "We've already got some pretty good regulations on operators, and they do protect the passengers," he said.

Brokers serve an important role because charter users don't understand how to charter an aircraft, how to choose an appropriate destination airport and how to protect themselves with insurance in case of a catastrophe, according to Davis. "Flying is inherently one of the safest modes of travel," he said, "but why not protect yourself if you're a high-net-worth client, in the event of anything happening? It's important to have that feeling of security."

"I think the reason that [brokers] are not regulated is that the majority of brokers, the ethical ones, are members [of charter organizations]," said Nigel Harris, council member and past chairman of the Baltic Air Charter Association (BACA), which represents European brokers and charter providers. "[The authorities] are content that we police our organization, and if [any brokers are] unethical, we'll throw them out. We keep our house in order."

Although BACA represents primarily European brokers and charter operators, companies from anywhere in the world can join, provided they meet the requirements. BACA has 160 members, and half of those are brokers, according to Harris. BACA members must agree to abide by a strict code of conduct and those that don't meet the standards will lose their membership.

BACA members work only with properly insured and certified holders of air operations certificates (charter certificate holders), according to Harris. Illegal charters are a concern the world over, and Harris believes that brokers can help buyers find safe, legitimate charter operators. "The broker is in the best position to create a suitable marriage between the customer requirement and the [charter operator]," he said.

BACA also offers an escrow service to protect the customer's money should the charter operator go out of business before completing a paid-for trip. And of course the broker that arranged the trip can easily source another provider. So far, the escrow service hasn't been put to the test, he said, but customers do appreciate being able to protect their funds. "Some of these are big charters and there's a lot of money involved."

Broker markups are about 7.5 percent for business jets, according to Harris, and 5 percent for larger charter aircraft. The services provided by brokers are more than just what anyone with a telephone and an Internet connection can provide. "By coming to BACA they know [the provider] is properly licensed and insured. And we will match aircraft correctly. Non-professionals don't know how to match the aircraft to the job. Some are complex, such as pop tours or heads of government going to multiple countries." Brokers also help keep charter prices down, he added. "We keep the price lower by virtue of making sure the suit fits. They're getting value for money by using a broker."