How three trends could affect you

Dec 17, 2017 - 8:15 PM

When it comes to making charter arrangements, do you usually book directly with an operator or through a broker? I’ll tell you why I ask after noting that it’s been a great year for companies that charter out jets that they manage as well as those that own the fleets they operate. The number of charter hours flown is higher than at any time since before the Great Recession, prompting Argus International CEO Joe Moeggenberg to call current charter operations “the star of business aviation.”

Indeed, the aviation data company says flight activity among the top 25 U.S. charter operators rose by double digits in the first half of 2017, even adjusted for fleet growth: their charter rosters grew more than 5 percent from the same period last year (from 991 to 1,045 aircraft) while flight hours jumped nearly 16 percent (from 412,005 to 476,988). That translates to a blistering 457 flight hours for the average aircraft during the first half of the year versus 416 hours in the same period last year.

These are high numbers any way you look at them, but the figures are skewed by the owned-and-operated fleets: XOJet (#3), Travel Management Company (#4), JetSuite (#9), and Zetta Jet (#14), as well as management company Gama Signature (#1), which operates Wheels Up’s owned fleet. These operator-owned aircraft typically rack up more hours than do privately owned airplanes chartered out by management companies.

A variety of changes—some with potentially far-reaching consequences—are contributing to the current market activity, and if you book directly with an operator rather than through a broker, you’re positioned to reap the benefits first. Here are three trends, and what they mean to you:

1. Charter operators are serving as brokers. Relations between charter operators and brokers have improved as the former have come to appreciate the value and service the latter provide. Some operators have downsized in-house sales departments and outsourced charter bookings to brokers, but a more notable trend may be that several major lift providers have established in-house brokerages.

At Priester Aviation, about 30 percent of charter revenue now comes from brokerage, says senior vice president Gary Gennari. At JetSuite, charter brokerage “is probably the fastest-growing” part of the business, says vice president Cameron Gowans. XOJet, operator of Citation Xs and Challenger 300s, has also gone big on brokerage, with “fantastic” results, says Brad Stewart, president and CEO: “Through the middle of the year, we’ve done about $100 million annualized in brokerage business, versus $200 million to $250 million on fleet revenue.”

Likewise, membership program Wheels Up established its Flight Desk brokerage arm last year to find lift for customer missions that are beyond the capabilities of its King Air 350is and Citation Excel/XLSs. Now Flight Desk is “one of our fastest-growing initiatives,” says CEO Kenny Dichter. “We’ll exit 2017 with a $50 million [annual] run rate on that business.”

This new focus on brokerage services means that it may be easier for you to get lift through your regular operator, even if the aircraft you need isn’t in its fleet. At JetSuite, Gowans notes that customers “don’t necessarily want to go outside” his company for sourcing charter “and ask us to find an airplane for them.” Similarly, Gennari says that because of Priester’s “high-touch customer service, clients want to go with us” for arranging charter even when no appropriate aircraft from its own fleet is available.

It may become easier for you to get any necessary lift through your regular charter operator, even if the aircraft you need isn’t in its fleet.

2. Charter companies are financing jets. The last time charter demand got as high as it is now, management companies started guaranteeing revenue to aircraft owners to get them to move their jets from competing fleets—a plan that went awry when the economy collapsed in 2008. Today, some management companies have decided it’s easier to add lift by helping their charter customers buy airplanes, and they’ve set up financing arms for that purpose.

Houston’s Wing Aviation used its new finance department to help customers buy a PC-12, King Air 200, Citation Excel, and Phenom 300. The aircraft were then added to Wing’s charter fleet, reducing its age and increasing its diversity. That’s in line with the company’s “goal to have one of every class,” says president David Riddle.

Jet Linx, meanwhile, has partnered with Global Jet Capital on its just-launched Sign & Fly operating lease program, for aircraft already flown by the management company. And last year, Priester Aviation introduced a turnkey-purchase charter-revenue program, taking advantage of low preowned-aircraft prices and high charter demand. Priester finds an aircraft suitable for its charter fleet, adds the jet to its certificate, puts it to work, and then sells it to a heavy charter customer with a revenue stream in place. Having “the [revenue] component was absolutely a part of the decision process” in recent charter client purchases of three jets, says Gennari.

If you’re a charter customer, this trend could mean more lift in your operator’s fleet—maybe including an aircraft with your name on the registration. “We already have clients pursuing the [ownership] opportunity with our help and Global Jet Capital’s,” says Jamie Walker, Jet Linx’s president. Adds Priester’s Gennari: “More of these [purchase deals] are in the pipeline.”

3. A pilot shortage is beginning to affect air charter. “The situation is going to have an impact on the Part 135 [charter] industry,” says Moeggenberg.

The shortage is “all across the spectrum,” notes Don Haloburdo, vice president and general manager of flight services at Jet Aviation. Instead of the 30 days it previously took to find and hire a qualified flight crew, “it’s taking 60 or 90, or even more time,” he says.

“These airplanes getting delivered into the business aviation market are designed to go from New York to Beijing, L.A. to Tokyo,” Haloburdo adds. “Finding crewmembers who have the experience to accomplish those trips is not easy.” Salaries and job expectations are rising, and pilots are exhibiting “a lot more choosiness” in accepting offers, he says.

Operators are seeking ways to adapt. Contour Aviation in Smyrna, Tennessee has developed “our own in-house farm system” that can take an employee from ground handler to charter pilot, says CEO Matt Chaifetz. Contour helps employees obtain their required ratings and ultimately moves them into the left seat of a jet cockpit. One of the company’s Learjet pilots began her career in ground ops, as did a Challenger 605 pilot.

That’s encouraging, but the pilot shortage is likely to be with us for a while, and what it probably means for you is higher charter prices. The shortage is “driving salaries up significantly, but that’s not doing anything to fix the problem,” says Haloburdo. “It’s just making it expensive for owners.” Adds Moeggenberg, “The salary and benefits that well-qualified pilots can now command is on the uptick, and at some point, that’s going to have to be passed on to the consumer. Charter rates have got to go up.”

There is an upside, if you deal directly with a charter operator: when resources are limited, the operator is likely to give preference on bookings of whatever aircraft is available to you rather than to a broker representing an unknown customer.