The National Business Aviation Association (NBAA) convention was first held in 1954 and has taken place against the background of numerous national crises, from social unrest in the sixties to the ugly aftermath of 9/11. But this year, in common with every other industry event around the world since early March, the industry’s main annual get-together, scheduled for October in Orlando, fell victim to the coronavirus crisis.
Despite some evidence that the sector has benefitted from the airlines’ problems – with executives and high-net-worth individuals new to business aviation choosing the security of private cabins and exclusive terminals rather than risking crowded commercial aircraft and airports – the industry has faced the same pressures as the rest of aviation.
Flight restrictions, quarantine and social distancing rules, and a general reluctance by businesses to engage in air travel have all put the brakes on a sector that – in North America particularly – was enjoying impressive growth in 2019. Even so, there are signs that business aviation may be set for a faster recovery than the wider airline industry.
NetJets, the world’s largest business aircraft operator with a fleet of over 750 jets across its fractional, charter and management units, points to Friday 13 March as a “turning point” in the industry’s fortunes.
“Nobody in the United States will ever forget that day,” says Patrick Gallagher, president of sales, marketing and service for the Columbus, Ohio-headquartered firm. “Covid-19 was really taking hold and I remember very clearly sitting in my office and every state started to put its shelter [lockdown] rules in place. We had been operating very, very freely throughout the USA up to that point and then everything changed.”
He says coronavirus hit NetJets’ business “to a greater extent than any event since we were founded in May 1964”.
In North America, the company’s average daily flights fell 90% from 400 in mid-March to mid-April 2019 to 40 this year. Meanwhile, its European sister company experienced a similar decline, from 100 to 10 departures a day. “We were largely offering repatriation and repositioning flights with clients deciding to relocate for the lockdown to their second or third homes in the country,” Gallagher notes.
This drastic decline in flight volumes forced NetJets to ground much of its fleet, cancel half of the 60 planned new aircraft deliveries for 2020, and cut employee numbers by a quarter at both its European operation and US-based Executive Jet Management (EJM) subsidiary. “We had to act quickly and these weren’t easy decisions to make, “says Gallagher.
At rival Flexjet, the impact was similar. “Business was normal for us until mid-March, then it hit a brick wall,” says chief executive Mike Silvestro. Like NetJets, much of Flexjet’s activity involved repatriation and medical flights, “but daily volumes were at about 20% of what we usually expect in March”, states Silvestro. Flexjet grounded 40% of its 156-strong fleet, although it has retained its workforce.
The abrupt fall in flight activity in March was not felt by all operators, however. Luxury charter provider VistaJet describes the early stages of the crisis as “very fruitful” for its business.
“We were probably one of the last companies to feel the effect of lockdown and revenue-wise March was the best month we have ever had, climbing year-on-year by 15%,” says chief operating officer Ian Moore.
He attributes this buoyant period to VistaJet’s “truly international” customer base and strong support infrastructure. “We watched globalisation at work, flying customers and their families, largely on repatriation flights to every continent. It was a lot of hard work but we were uniquely placed to take those flights, due to our global footprint and high-end business jet fleet,” says Moore.
The Malta-headquartered company operates an all-Bombardier fleet comprising 73 Challenger 350s and 650s, as well as Global 5000s, 6000s and a flagship Global 7500, which VistaJet took delivery of in February.
However, the buoyancy did not last. Flight activity tailed off in late April as customers largely “stayed put”, says Moore. “This was a tough month and we grounded some of the fleet due to a lack of demand.” Instead, VistaJet focused on government, medical and specialist cargo flights, which accounted for the bulk of requests, although there was a trickle of repatriation flights. “There was a lot of one-way flying so we created an empty-leg offering to fill the gap,” he says.
VistaJet took the view that this lull would last about six weeks and that recovery would quickly follow. “We made a decision to keep our 1,500 staff on board, so we would be ready when the rebound came,” he says.
The decision was vindicated, as from mid-May, when lockdowns eased globally and borders opened up, demand for business aircraft travel resumed in earnest, driven by private and leisure travel.
“Our 73 aircraft are now back in service and we are busier than ever,” Moore says. “With international travel on the rebound, we plan to add a second Global 7500 in the fourth quarter and five more examples within 15 months.”
So can business aviation continue to exploit the limitations of commercial aviation when it comes to making travel as Covid-proof as possible? “There is an overwhelming desire from today’s travellers to minimise their exposure to the virus and for those who can afford it, business aircraft have become the curb-to-curb solution,” says NBAA president Ed Bolen.
“Even in this highly challenging pandemic moment, entrepreneurs and companies still have some pressing business needs that require travel. At least to some extent, those travel needs can be met by business aviation, when, for example, it comes to reaching places where the pandemic has driven airlines to reduce or eliminate flights. It’s also clear business aviation has provided a means for missions that support the delivery of medical specialists, equipment and other supplies to the pandemic’s front lines.”
The industry is successfully capitalising on these public health fears, with many operators reporting a large rise in new entrants to the market.
“We’re back to about 80% of our normal demand in the USA and almost at full capacity in Europe,” says NetJets’ Gallagher. He notes that travel patterns have changed significantly since the pandemic struck due to the nature of the flights. “We are seeing a huge increase in the amount of personal and leisure travel, from the swathes of wealthy people who want to see their families and visit the places that they love, but aren’t willing to do so commercially,” Gallagher says.
Demand is driven not only by NetJets existing fractional and charter customers but by those new to business aviation, he says. Particularly pitched at this demographic is NetJets’ Marquis jet card, which it sells in 25h blocks and offers what Gallagher calls a “a great introduction to benefits of private aviation”.
He says the ultimate luxury is the “absence of worry”. High net worth individuals who previously viewed private aviation as an extravagance that they didn’t need, now regard it as a necessity that they can’t live without, Gallagher asserts. “There’s nothing like a pandemic to make people realise there is a better way to travel,” he says.
Despite the slow performance early in the second quarter, NetJets recorded a 50% hike in new customer signings to the Marquis card in the seven and half months to mid-August, says Gallagher.
“These customers are making a six-figure investment to have access to our outstanding fleet and service, and we have 25 hours to convince them to stay,” he adds.
His view is echoed by Flexjet’s Silvestro. “More than 80% of our fleet has now returned to service and we are adding new customers all the time,” he says. As with NetJets, the block charter programme is the “big seller” among customers new to the market, offering access to Flexjet’s light-cabin Embraer Phenom 300 and super-midsize Bombardier Challenger 350s.
Flexjet is also adding Embraer Praetor 500s to its fractional programme this year along with the first examples from the Legacy 450 to Praetor 500 conversion programme. “We recently took delivery of the first of 30 upgraded aircraft from Embraer and will take the remainder at a rate of two aircraft a month,” says Silvestro.
Flexjet made “a smart move in March”, he notes, to launch an internal shuttle using Phenom 300s to transport flights crews to and from their assignments, thereby minimising their exposure to coronavirus “which could ultimately impact our customers”, says Silvestro. “The initiative, called Project Lift, has also insulated Flexjet crews from the vagaries of airline travel during the pandemic, including reduced service, elimination of routes and delays, ensuring that Flexjet crews are sure to be at their aircraft when Flexjet owners want to travel,” he says. “Project Lift has been a worthwhile investment and we have transported over 4,000 pilots.”
The small boost to leisure travel has sustained many business aircraft operators in the last few months, but certainly not all. The wholesale retreat of business flyers has had a devastating impact on many firms as senior executives – a key client base and revenue stream for many operators – are now working from home, substituting face-to-face meetings with virtual exchanges. “Business travellers were the staple of many operators before Covid hit and now they are largely locked down as a result of the pandemic,” says NBAA’s Bolen.
He argues that many operators in the USA have been forced to accept assistance from the US government. “Congress has made $700 million available in grants to Part 135 [charter] operators so they can continue employing and training staff, but this is winding down in October and economic conditions are currently looking very mixed,” he says.
“Business travel hasn’t returned for us in any meaningful way,” says Gallagher. Prior to the coronavirus outbreak this sector accounted for around half the flight volume across the firm’s fractional and charter fleets, he notes, “but since mid-March people are working from home, and only leaving the house when they absolutely have to”.
It is a similar picture at Flexjet. “Our business was split equally between leisure and business travel before Covid-19 struck, but the latter market has fallen away, mainly because firms are concerned about employee wellbeing,” it says.
That said, corporate flying has resumed within a small group of industries, notably automotive, pharmaceutical and information technology. “Even during a pandemic, executives have to visit their facilities,” says Gallagher.
He believes that there has been a marked shift in travel patterns. “Before Covid-19 typically trips would take a couple of days and involve a hotel stop-over and dinner with clients. Now, senior executives are fitting the itinerary into a one-day trip, which tells you that people are still a little fearful of being exposed [to the virus]. It could be like this for some time.” He says.
Lack of confidence may be a major obstacle to the resumption of corporate travel, but market forces, driven by the need to create new business opportunities, will eventually drive demand, says Gallagher. “You can’t go visit a facility via Skype, you can’t go look at a piece of land via Skype, and you can’t hold a roadshow or close a multi-million-dollar deal by Skype. These interactions are far more effective in person,” he states.
In a recent blog post, Sheryl Barden, chief executive of business aviation recruiting firm Aviation Personnel International, expressed her concern at the reluctance of companies to resume business travel and called on, corporate flight departments – which often use a mixture of company owned and third-party party aircraft – to actively engage with their organisations to stress the important benefits of flying privately in the current environment. They need to offer “an end-to-end solution that focuses on safety – one that delivers significant value to your corporation,” says Barden.
This is particularly important as corporate legal executives remain concerned about “duty of care” for their employees, she continues, noting that flight department executives can stress that business aviation has much lower risk, with only about 20 touchpoints versus 700 for commercial travel.
“It’s unrealistic and unfeasible for a Fortune 500 company to ban travel altogether,” Barden says: that’s why “you’ve got to get creative”.
While the business community mulls a return to private flying, operators continue to tap the high-end private and leisure travellers to help plug the gap. “This market represents a great long-term growth opportunity for our industry,” says VistaJet’s Moore.
He is confident the industry has only dipped its toe in the pool of well-heeled entrants. He cites a 2020 study by management consultancy McKinsey which reveals that more than 90% of people who can afford to fly privately do not.
“The potential for our market is huge,” says Moore. “Private air travel is well positioned for a continued rebound and growth”.