Did you ever throw a party and invite too many people? You probably figured they wouldn’t all end up RSVPing. Or even if they did, they wouldn’t all come. You had years of historical data to know that even a portion of your good friends would end up being no-shows.
How much business is too much business? Is business aviation’s V-shaped recovery success or a failure? How many parts does it take to make a plane?
The answer to the last question has a lot to do with the state of the private jet industry, what one CEO described as “crazy.”
The answer to how many parts does it take to make a plane?
Kenn Ricci, who oversees Directional Aviation’s empire business aviation-related OEMs, MROs, operators, brokers, and investment bankers, posed the question to me – and provided the answer: “All of them.” Bum-Bump-Bump.
We were in Las Vegas after all, and the National Business Aviation Association’s annual convention, being held in-person for the first time since 2019, provided a good microwave oven for what is, without doubt, an overheated market.
On the record, there were lots of smiles. Business aviation is breaking records. The industry looks like it is finally on track to climb past levels not seen since the 2008 financial crisis.
Much of the week’s content revolved around broader issues. Top of the agenda was talking up business aviation’s green profile. The industry is taking many tangible actions to accelerate its sustainability goals; albeit it contributes just two-tenths of one percent of global carbon output, it probably gets 80% of the negative headlines.
With Gulfstream and Bombardier making major fleet announcements before the show – and NetJets executives not even showing up to announce their $1.2 billion order for 100 more Embraer Phenom 300Es, much of the real news was being discussed outside press conferences and panels.
Off the record, the industry is facing serious issues – too much demand too soon, jet card and membership programs designed for a market with excess capacity trying to recalibrate their offerings mid-flight – and most of all, keeping the airplanes in the air.
Yes, they need all the parts, as Ricci pointed out – and they need the parts to be working – and delivered in a timely way.
The CEO of one fleet operator says when new OEM airplanes are delivered, there are more issues than before. He attributes it to the supply chain manufacturers depend on.
“We have a new airplane, and after three weeks, it’s sitting on the ground because it needs a new part,” he says. Waiting time for replacement engines is up ten-fold.
Getting parts takes longer. Wide-body commercial airliners that, before the pandemic, transported lots of cargo, have been repurposed for domestic routes. A part shipped from Europe to the U.S., or vice versa, now takes a week or more compared to 24 hours.
There are pilot shortages – and pilots who are having heart-to-heart conversations with their owners.
Much of the charter fleet is managed aircraft. When owners aren’t using their jets, they make them available for charter flights – on-demand and via jet cards.
There is no shortage of demand – but several executives told me owners are making their jets available for charter less. They are using them more.
They are letting family members use them, but also pilots are calling owners for heart-to-heart chats.
It goes something like this, “You know Mr. Owner how much I enjoy flying you and Mrs. Owner, and I love your kids. And flying your brother and his family is great, and I understand the extra work. But I want to stay fresh. And I’m not sure you know, but my wife’s mother lives with us, and she is high-risk for Covid. If you want me to keep flying all those charters, too – well, you know, there’s more chance of exposure – I think I may have to find something else. As a matter of fact, there are a couple of owners who don’t charter their jets…”
It ends with, “No problem – just fly us. Everything is fine.”
While there are also owners who are taking advantage of strong demand – and pilots who want to earn more money – again, aircraft availability is more erratic than ever.
And then there are those parts Ricci mentioned. Scheduled maintenance is driven by flight hours and cycles – landings and takeoffs.
Maintenance that wasn’t scheduled until December needs to be taken care of now. But where? The MROs are booked up.
And if you have a mechanical on the road – well, good luck getting your airplane back in the air quickly. Both Nicholas Air and FlyExclusive have their own aircraft that take parts and their mechanics to their jets, so they don’t have to wait.
And if supply issues aren’t enough, demand has yet to pull back.
Lots of people want the product. There is not enough to go around. It’s unsure when things will improve. The idea that demand for private jet charter flights was going to dip after the kids went back to school went out the window.
Gregg Brunson-Pitts, CEO of broker Advanced Aviation Team, which specializes in political campaign charters, says even with spiking prices, “The flyer is willing to pay, so we haven’t seen a drop-off.”
Both Flexjet and NetJets had hiked jet card hourly rates before halting sales. Executives said the price hikes didn’t slow demand, and it had become an availability issue, anyway.
In the first 10 days of this month, Argus Traqpak recorded three of the busiest days for private flights in the U.S. in the nearly two decades it has been keeping records.
Several factors are complicating things. First, operators are saving capacity for their own direct customers and for large wholesale customers.
Big players in the jet card and membership market like Wheels Up and Directional’s Sentient Jet are buying up as much capacity they can through what’s referred to as guaranteed rate programs.
The GRPs entail buying the aircraft for days, weeks and even months at a time. The operator gets a daily guarantee, plus additional payments per hour flown.
That allows the buyer to control the schedule. “We tell them they need to have the plane come back (to base) every eight days, but then they go back out again,” says one large charter operator.
Smaller brokers contract on a flight-by-flight basis. Consolidation is a major factor, says Brunson-Pitts.
In January, Mountain Aviation, one of the 10 charter largest operators, was acquired by Wheels Up. Active members through June of this year for Wheels Up increased 47% to 10,515 compared to a year ago.
XOJet Aviation is part of Vista Global, which acquired mega-broker Apollo Jets earlier this year and was already serving the retail clients of its own XO Global brokerage unit. The latter reported an 82% increase in memberships sold during the first half of 2021.
“Small brokers wonder why they don’t get their calls returned or why we’re not quoting them. We don’t have availability,” says another operator.
Brunson-Pitts notes that’s why he trekked to Las Vegas. “One of the reasons we go to the convention is relationships really matter, and sitting down and talking to operators (versus) just sending an email or phone call is not that effective. It’s about building up trust.”
“We know which operator to ask for what trip. Our close rate is near 50%,” says Kevin Diemar, a former NetJets and Wheels Up executive who is CEO of Miami-based Unity Jets.
Operators are bombarded by quote requests from brokers that use digital quoting tools on their websites – and receive hundreds of requests from brokers who never book.
There are few signs of answers on the supply side. The International Aircraft Dealers Association reports record demand, lower future supply and higher prices for used jets.
“It was unimaginable 15 months ago when transaction activity had ground to a halt as a result of the pandemic, that in September of this year, new aircraft would be trading at premiums, the OEM’s would have backlogs of one to two years in their most desirable models, pre-owned values would be up 20-to-30% plus year-to-date, and there would be effectively zero supply in most modern, pre-owned aircraft markets; however, that is exactly what has happened,” said Paul Kirby, EVP at NetJets’ QS Partners, its aircraft brokerage arm.
As charter rates spike, flyers who bought their flights on a trip-by-trip basis have been flocking to guaranteed availability jet cards with fixed and capped rates.
Some large players like Wheels Up, XO, VistaJet, FlyExclusive, Solairus, Nicholas Air, Alliance Aviation, Jet Aviation and around 40 jet card providers are still taking new members.
However, others major players have stopped. Directional’s Sentient Jet, sister fractional operator Flexjet, Berkshire Hathaway’s NetJets, its aircraft management arm Executive Jet Management, Jet Linx Aviation, the sixth largest operator measured by charter and fractional hours, and operators like Priester Aviation, have halted taking more customers.
Before stopping, NetJets had changed its card program’s peak days, which carried a 25% surcharge, to blackout days. That move only impacted new customers.
But now, others are staring into the abyss. Ahead is the holiday season and winter weather. If everyone who has joined their programs comes to the party at the same time, they won’t have the capacity.
Air Partner, a U.K.-based broker, recently told its jet card members it was imposing over 30 days during the holidays with blackouts for jet card rates. Clients can still use funds to book flights at on-demand charter pricing. Executives say the move, announced a couple of weeks ago, was designed so customers could make other plans – ask for a refund and try somebody else if they choose, or adjust their travel dates.
They are concerned that there won’t be flights at any price – and if there is a mechanical – no replacement aircraft will be available. While jet cards generally guarantee replacement jets at no additional cost, most on-demand charter contracts don’t. Your provider finds a new aircraft – if they can – with a new price, and you either take it or figure another way of getting where you need to be.
While card programs have been extending the lead time for bookings – and increasing rates – even those that stopped bringing in new members are struggling to figure out how to best accommodate existing customers.
Sentient, for example, is serving them on a first-come, first-serve basis, cutting off bookings for a date when it has reached the capacity it knows it can secure. The goal is that if members are flexible, they can fly Thursday instead of Friday.
Jet Linx introduced a tiered structure, somewhat like airline frequent flyer programs. Your tier is based on how much you deposited – which can be hundreds of thousands of dollars, how much you’ve been flying, how long you’ve been a member and how many other members you’ve referred to the program.
In addition to longer lead times to book, on high-demand days – there are lots – members will need to be flexible to delay or accelerate departures. Members on the lowest tier could see their flights shifted by a day in either direction.
“It’s a bit like a hurricane warning. We are now at the point where we need to take action. It’s going to be a direct hit,” one executive told me.
For some new jet card flyers finding out that spending over a hundred thousand dollars doesn’t make them a top customer is a rude awakening.
For the fractional operators, their core customers are their fractional share owners. In addition to being owners, having in many cases spent millions of dollars to purchase part of a jet, they pay hefty monthly management fees for the duration of their five-year contracts.
Those 25-hour jet card flyers sort of filled in the gaps during the past decade as the industry struggled to recover from the financial crisis.
One jet card CEO that’s yet to make a move explained what’s happening this way. “You stay at a Ritz-Carlton five or six times a year and book the cheapest room. You get great service, and they’re glad to see you. There are customers who stay in suites who spend as much as you spend in a year in one night.”
Per Marthinsson, EVP of Avinode Group, which is an online database of charter jets used by brokers, says, “What we’ve come to expect in the past is no longer possible.”
Looking towards the future, he believes the ride will be turbulent. “I don’t know what will change in the next 12 to 18 months unless there is a dramatic slump in the economy.”
On recent private jet flyer has a solution. “If they are going to make me switch days, I’ll have to consider going back to the airlines.”