Sunday, January 06, 2013

Plane charters flying high for Elite Jets

Chartering a private plane may once have been an option available only to the affluent not too long ago, but rising disposable income and corporate profits are helping to boost demand for air charters as local charter operators and brokers look forward to a growing industry.

Captain Hani Salman Ahmad, better known in the aviation industry as Captain Salman, chief executive officer of local charter broker Elite Jets Sdn Bhd, said more people are looking at chartering flights for their convenience and to suit their own schedules.

He notes that business for Elite Jets has been growing rapidly since he founded the company three years ago.

Air charters were initially designed as an alternative to the high cost and continuing expenses of aircraft ownership. Chartering a private jet offers the same convenience, flexibility and luxury as owning a jet, but without the cost of owning and maintaining it.

The ownership of private planes was booming back in the 1990s and early 2000s. But in the aftermath of the global economic downturn, the industry suffered contraction and deliveries of private aircraft dropped by some 30% as companies cut their fleets and individual owners sold their jets.

This shifted the attention of executives from ownership to chartering. Nonetheless, the air charter business did not get much of a boost from this change as the industry was also badly hit by the economic crisis and has only recently shown smalls signs of recovery.

Various reports note that the private-jet industry is inching its way up and chartered flights should be able to enjoy steady, albeit slow, growth over the next five years.

A report by market researcher IBISWorld says that the charter-flights market in the US, one of the largest in the world, had been growing 0.7% annually to about US$15bil last year.

According to Salman, Malaysia is also riding the growth of the private-charter business.

Salman has been in the aviation industry for over 20 years as a private pilot. He started Elite Jets after receiving numerous queries from friends and acquaintances on how and where to charter planes.

Elite Jets is a charter broker, which means the company does not own any aircraft or lease any planes. Charter companies do not necessarily own planes as the cost of owning and maintaining planes is high. Most companies lease planes from aircraft owners.

“We don’t own any aircraft and we don’t usually fly the planes either. At this point in time, we are mainly doing brokerage whereby we help clients charter planes from the aircraft owners for a margin of about 7% to 15%,” Salman said.

Gaining altitude

With the economy picking up and growth still taking place in emerging-market caountries, Salman expects demand for air charters to continue growing this year.

In fact, he calls the corporate jet business an untapped gold mine.

“Year on year, we see good growth in the number of requests we get for air charters. Now, we get an average of 17 requests a day from around the region,” he said.

Elite Jets saw a total of 183 aircraft movements in 2011 which grew to 186 by December last year.

While the bulk of its business comes from overseas clients, Salman notes that domestic demand is also picking up fast. Currently, about 30% to 35% of its turnover comes from vibrant air charter markets such as Hong Kong and Singapore and about 15% from Indonesia.

According to Salman, a plane can clock a minimum of 400 hours of flight a year. At an average price of US$8,000 (RM24,100) per hour, an aircraft can generate a minimum annual income of US$3.2mil.

Currently, Elite Jets has about 30 aircraft at its disposal.

Reports note that private jets in the US average about 30 to 50 hours of flying time a month, which works out to about 360 to 600 hours a year, while an Indonesian charter firm claims to do 75 hours a month.

Aircraft chartering in Asia is clearly a growing business. According to CNBC, although still a relatively small private-jet market compared to the rest of the world, Asia is expected to account for 16% or US$40bil of total orders over the next 10 years.

In Malaysia, Elite Jets is one of the main players in charter brokerage.

Salman says the company’s advantage lies in its ability to provide a quick quotation for clients thanks to its established network with other charter providers.

Most of its business is derived from business and executive travel, but Salman adds that Elite Jets also caters a lot to VIP and leisure flights.

In short supply

As business takes off for plane charters and brokers, Salman notes that the main obstacle for growth is the lack of local-based aircraft that are available for charter services.

“While the prospects for plane charters and brokering are extremely good, there are not enough planes based in Subang that can be legally chartered out.

“Thus, we have to pay a ‘mobilizing fee’ to bring in aircraft from overseas for charter if the clients want to take the planes from here. And this means higher cost for clients and a longer waiting time for the aircraft to be brought in for use. This is the main issue we face in trying to meet the growing demand,” Salman said.

Although there are quite a number of planes parked in Skypark, Subang, he explained that most of them are privately owned aircraft and licensed exclusively for the use of the owner.

There are generally two categories of plane ownership: private ownership where the aircraft can only be used by the owner and cannot be chartered out; and public planes where the aircraft is purchased to be legally chartered out.

Despite the bright prospects of the air charter business, Salman laments that not many see the opportunities as business owners who can afford to purchase or lease planes are not tapping into the available demand. Elite Jets hopes to someday have its own fleet of aircraft to ensure availability of aircraft at the snap of a finger.

However, Salman said funding an aircraft is no easy task as reports note that some short-range planes can still cost about US$8mil to US$10mil, which is slightly more than half the prices they were going for at the pre-crisis peak.

“Being a pure broker on the other hand, we don’t need to carry the cost of plane ownership on our balance sheet. So we need to weigh it out and see if it is really a viable option for us to own aircraft,” Salman said.

Additionally, a report by US-based private jet charter brokerage, DukeJets, noted that the price of a private jet is only a small fraction of the operational costs of keeping and maintaining a private jet. There is also the cost of hiring and training pilots, hanger fees, fuel costs, ramp fees and so on, noting that the purchase “can be a money pitf like you never anticipated”.

For now, Salman is satisfied with growing Elite Jets’ brokerage business which is turning in impressive annual growth of more than 25%.

“We are growing and this is only the beginning. Things are going well for us. We definitely look forward to more business this year,” he said.

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