NetJets Europe is on track to secure an operating profit this year for the first time since 2008. The upbeat financial prediction follows two years of cost-cutting within Europe's largest business aircraft operation, which has been battered throughout the economic downturn by dwindling customer demand and a slump in flight hours across its fleet of business jets. In the final quarter of 2009, for example, NetJets saw a 20% fall in market volume compared with the corresponding period in the previous year.
"We have lost customers as a result of the recession," says NetJets Europe chief executive Eric Connor. "Around a quarter of the 50 aircraft brought back by [parent company] NetJets Inc were from our fleet and this is equivalent to around 100 owners."
The Lisbon-based operator has around 1,600 customers, evenly divided, it says between fractional ownership and charter card customers, and 157 business jets. The line-up includes 45 light-cabin aircraft, 83 midsize and 29 large-cabin types.
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© DassaultInterest in large-cabin aircraft like the Dassault Falcon 7X is picking up |
No new aircraft have been added since 2008 "when it became evident the company was in a difficult situation" says Connor, who will mark his one year tenure at the helm in October.
COST-CUTTING
To stave off hefty job cuts, NetJets has implemented a host of cost-cutting initiatives - slashing aircraft delivery schedules, fuel costs, cutting the company catering and travel budgets and hacking the annual pilot salary bill through the introduction in 2009 of its voluntary employment programme.
This scheme provided NetJets' 1,000-plus pilots with five options, varying in duration of one to four years - long-term leave of absence, job sharing, leave of absence, temporary part-time and voluntary redundancy.
The programme was introduced to slash around 60,000 excess duty hours from NetJets' pilot roster - equivalent to 300 full-time posts. In reality, more than 500 pilots signed up to the programme.
For Connor, this initiative, with others, has helped the firm navigate through the worst economic downturn for seven decades and position itself for the rebound.
Connor says NetJets Europe set a savings target this year of €80 million ($105 million). "We have already achieved 90% of that and expect to come in over budget.
"A high-calibre, flexible operation is very expensive to deliver," Connor adds. "Yet these cost savings have made all the difference from us being a loss-making company this year to one that is delivering a modest profit. We have been able to do this without diluting the service we provide."
Customer service and safety are two areas that NetJets has ring-fenced, despite the pressure to drive down its cost base. "We have built a reputation on these two key elements and we cannot compromise on this," Connor says.
NetJets Europe is in the process of drawing up a 10-year plan "and through meetings with customers we will continue to address the needs of this specific market".
The company - in which US investment firm Berkshire Hathaway has a minority share - will not take delivery of any aircraft this year and will continue to evaluate market demand before it decides on acquisitions for next year. "We have deferred many aircraft orders," says Connor, a Berkshire Hathaway veteran.
New customers are coming to the NetJets fold, lured by the "good deals" that are on offer. Light jet shares - notably of a Cessna Citation Bravo and a Hawker 450 - have suffered during the crisis, but interest in NetJets' large-cabin fleet - Dassault Falcon 2000, Falcon 7X and Gulfstream G550 - for which it has just gained extended twin operations approval - is picking up, says Connor.
"We are also seeing growing interest in the 1/32nd share," he adds. The fraction - equivalent to 25h of flying time - was introduced in June in a bid to lower the cost of entry and drive up sales. The lowest share previously offered was 1/16th.
Consumer confidence is returning, Connor says. "In the first quarter of 2010, market volume had picked up by 12% compared to the previous year, although overall growth for the first half is 5% [25,000 flying hours] compared with 2009, as the ash cloud hit our business pretty hard in April."
He adds: "Although we have an established market in western Europe, our business has declined since 2007. We are now looking to increase our share here and will also focus on eastern Europe, notably Russia, where we would consider establishing a joint venture with a domestic company. This would allow us to operate point to point within the country, " he adds.
NetJets is also "open" to establishing alliances with other operators - including airlines - "where it is mutually beneficial to do so".
FEEDER SERVICE
NetJets is no stranger to outside ventures. It joined forces with Lufthansa in 2005 to offer a business jet feeder service for the German carrier in Europe. The service was offered in conjunction with Lufthansa flights and designed to connect premium passengers with its German hubs.
Despite being a success, the relationship began to sour when increasing numbers of Lufthansa passengers began using the service to connect to and from other European cities, putting a strain on NetJets' resources at a time when business was booming.
The agreement ended in 2007. "I cannot comment on the Lufthansa venture as I wasn't at the company at the time, but I would certainly consider links with other operators."
Connor is confident the fractional ownership model will remain despite its critics. "Fractional ownership is still a cost-efficient and attractive alternative to charter or full ownership for a customer who flies between 150h and 300h a year. You have all the benefits of owning an aircraft but less of the costs."
Source: Flight International
