Thanks to new technology, flying in a private jet is no longer just for business titans and the super-wealthy.
But in a paradox, that means aircraft manufacturers like Cessna and Bombardier are selling fewer planes.
The general aviation industry is undergoing a major shakeup as new business models attempt to match idle aircraft with passengers, many of whom now can’t afford their own plane. Membership companies, ride-sharing programs, on-demand charter providers and start-ups claiming to be the Uber of private aviation are all looking to introduce more people to the convenience of flying without the hassle of commercial airports.
“Unfortunately for airplane manufacturers, these new programs aren’t out buying a lot of new jets,” said Brian Foley, a business-aircraft consultant who spent 20 years as director of marketing for the North American jet unit of France’s Dassault Aviation. “They’re just trying to use existing assets out there and get more utilization out of those parked airplanes.”
Manufacturers have throttled back production of some models to adjust to weaker demand for private aircraft. New jet deliveries are expected to drop 6.4 percent this year to 645 and slip another 3.7 percent to 625 next year, according to JPMorgan Chase.
Those declines contrast with an increase of more than 5 percent for flight hours for the charter market in the October-to-September period for the past three years, according to Argus International.
The increase in charter activity is partly because of the new options that have opened up the market beyond super-wealthy customers, said Brad Stewart, chief executive officer of XOJet, which operates a fleet of 41 preowned aircraft for hire.
“The democratization of private aviation is a huge theme, and it’s here to stay,” he said. “That’s really taking an access point of private aviation and bringing it from the top 10 percent of the 1 percent down to the merely rich.”
XOJet has partnered with JetSmarter, a company that charges members an annual fee with no extra cost if they hitch a ride on a private plane already scheduled by another member. JetSmarter, which owns no planes, buys flight hours from XOJet and other operators, which enables it to guarantee flights for its users. The upshot is more passengers on the same number of private planes.
It costs about $12,000 to charter a small, four-seat jet from New Jersey’s Teterboro Airport to Miami Executive Airport on a weekday, according to PrivateFly, a flight-search website. By contrast, a JetSmarter member would pay $2,000 to book a seat on a business jet at a time of choice. However, there’s no charge to hitch a ride on a flight already booked by another member. A membership costs $15,000 for the first year.
When business jets first appeared with the Lockheed JetStar in the late 1950s, the only way to fly in a private plane was to own one. Charter operators began to pop up to manage those jets and to offer flights to non-owners.
The 1990s brought a major industry change with the fractional jet model, now dominated by Warren Buffett’s NetJets Inc. Fractional operators sell shares of new planes to several owners in exchange for the right to fly a set amount of hours per year. That model was a boon to the industry because it was based on new jets.
NetJets and Flexjet, the second-largest fractional operator, are still two of the industry’s largest plane buyers. NetJets in 2012 announced the purchase of as many as 425 Cessna and Bombardier aircraft in a transaction valued at $9.6 billion. Last year, Flexjet increased its order of Bombardier Challenger 350s to 40 after agreeing to purchase 50 Gulfstream jets in 2014.
It’s too soon to say private aviation is undergoing a permanent change with the new technology-driven models, said Kenn Ricci, principal of Directional Aviation, which owns Flexjet. With low interest rates and private equity chasing returns, a lot of new business models are being funded that had been put on hold because of the recession.
“Maybe a new idea comes up and maybe it sticks,” Ricci said. “I just think it’s too early to tell.”
During the recession that ended in 2009, plane values plummeted and many fractional owners were disappointed to find they didn’t have as much equity left when trying to upgrade their share to a new plane or cash out, Foley said. Many fractional operators sold or went bust.
“Since then, there’s been a virtual explosion of models out there,” he said. “One thing that helped this along is the digital age where we can pull up things on our smartphones and laptops.”
Wheels Up, founded by industry veteran Kenny Dichter, is gaining passengers with a membership model that offers guaranteed availability of planes at reduced rates. The company operates its own fleet of preowned Cessna Excel/XLS jets and newly purchased King Air 350i, which are turboprop aircraft.
Planemakers say the new models may actually help the industry. Even though many of the programs aren’t translating into new jet aircraft orders now, they’re introducing people to the efficiency of flying privately who may become future customers, said Scott Ernest, CEO of Cessna, a unit of Textron Inc.
“It’s good for us,” Ernest said. “I actually look at it as a way to bring new customers into the market.”
There’s debate about how much the ability to use apps to reserve private flights will change the industry. Stellar Labs Inc. is offering an automated marketplace that’s seeking to eliminate the need for plane brokers by letting customers book a flight directly. The service promises hundreds of private aircraft options in seconds “with incredible accuracy.”
Stellar Labs CEO Paul Touw has compared the current inefficiencies of reserving a private flight with commercial aviation in the 1970s, before a booking system was established that allows airline customers to make and pay for their own reservations directly.
But Sergey Petrossov, the founder and CEO of JetSmarter, doesn’t see an airline-like reservation system taking off in the private-jet market. Customers will choose brands that make it easy to book a flight while having the backing of a company that takes the risk of providing quality planes and crews — whether from their own fleets or purchased hours, he said.
“By giving consumers more options, we keep them in the private aviation ecosystem and keep them away from the dreaded commercial airport,” he said. “That’s what this is really all about.”
Source: http://www.watertowndailytimes.com
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