INSIGHT
There’s no denying Covid-19’s impact on global business aviation. But how bad is bad and what will be the lasting legacy? Words: Mike Stones
INSIGHT
There’s no denying Covid-19’s impact on global business aviation. But how bad is bad and what will be the lasting legacy? Words: Mike Stones
“IT WAS AS if they flipped the kill switch.” Richard Koe’s assessment of how Covid-19 butchered business aviation flight hours, after governments worldwide shut down airspace, is brief but telling. As MD and co-founder of business aviation intelligence service WINGX, he is well-placed to chart the catastrophe. But Koe and a growing number of other industry insiders are beginning to detect the promise of a new normal that may bring significant opportunities for private aviation.
Let’s start with the bad news.
In the first 13 days of May, global business aviation activity slumped by 58% compared with the same period last year. Bad yes, but a big improvement on the 70% dive in global business activity noted in April, according to WINGX data. Global business flight activity in March was – what now seems – a modest 30% down on normal levels.
Koe is keen to stress that, unlike during the Great Financial Recession of 2008/2009, the current slump in business flights worldwide does not reflect clients’ unwillingness to fly. “At least for now, it’s less about falling demand than supply getting choked off as the airspace gets closed,” Koe told Corporate Jet Investor.
Meanwhile, the scale of the catastrophe in North American business aviation was defined by what Travis Kuhn, Vice President of Market Intelligence, ARGUS, called “the Christmas Day Effect”. On the quietest day of the year for business aviation last year, there were 3,167 flights on December 25th. So far, 2020 has seen 39 days with less traffic than Christmas Day 2019. Normally North America sees more than 8,000 business flights on a weekday before falling at weekends.
April 2020 saw a 71.5% drop in business flight activity compared with the same month of last year, according to Kuhn. North American business flight operations sank to 74,800 compared with the 260,000 witnessed the previous April. That drop was even deeper than the trough of February 2009, at the depth of the Great Financial Crisis, when 195,000 business flights were recorded.
“Hopefully, April will go down as being the darkest month for aviation and we will never see anything like it again,” Kuhn told delegates during the company’s webinar on its TRAQPak data research on Thursday May 21st.
By the end of May, there were already strong signs of a resurgence in business flight activity worldwide. In the North American market, about 53,000 flights were operated in the first two weeks of May, which was 58% below normal, according to WINGX. North American flights accounted for 82% of global business jet activity.
Worldwide pattern
It’s a pattern repeated worldwide – with relatively minor regional differences. Asia recorded a 61% fall during the first two weeks of May – an improvement on the 70% fall seen in April. Business flight activity in Europe was still a staggering 66% below normal. The worst affected markets reflected those with the most severe outbreaks of Covid-19. So, the UK, Italy and Spain saw slumps of at least 75% in business aviation operations, while the relatively lightly affected Australia and Norway witnessed flights down by 30% with Sweden seeing flights down under 20%.
Long-range large cabin jet activity was the most subdued, with ultra long-range jets and heavy jets flying 75% less than normal. Light jet segments flew around 50% of normal levels and turboprop flying was slightly more resilient. The busiest aircraft in May were prop aircraft including the King Air 200, PC-12 and the Cessna Caravan.
Koe highlights a consistent increase in seven-day average daily activity since mid-April, which towards the end of May was trending at 5,900 flights per day worldwide. Resilience in business aviation contrasts with global scheduled airline activity, for which flights are trending down by 85% in May and showing only slight signs of improvement since April.
So, if May brought the green shoots of recovery, how long before the return to pre-Covid-19 levels? “Our thinking at the moment is that over the next 12 months, we will see 80% of the North American activity come back – so not a complete recovery within the next year,” says Koe. “In Europe, closer to 60% of activity will come back over 12 months. But that’s an aggregate picture. For example, domestic flying will come back much quicker.”
Those indications assume no second spike in Covid-19 cases and, by association, a speedy pick up in business confidence and activity. “Business aviation will always be closely linked to the outlook for GDP and as long as that sentiment slumps, the effects on our industry will be damaging,” warns Koe.
Mike Stones, Group editor of Corporate Jet Investor, flies old aeroplanes in his spare time. His favourites are Piper Cubs and single-seater Rollason Turbulents.
“As things recover, we are going to see companies that are going to opt to put their people on private jet aircraft rather than assume the liability of a Covid-19 case.”
Travis Kuhn, Vice President of Market Intelligence, ARGUS.
Expert Panel: Views varied on the prospects for a short-term recovery
Autumn 2020 will be the key time to gauge the long-term impact of the Covid-19 global pandemic on the health of business aviation, our commentators agreed. But there was less agreement on how the outbreak may shape the future of business aviation. And when the industry is likely to return to long-term growth.
Ed Bolen, President and CEO, NBAA
Neil Book, CEO and President of JSSI
Patrick Hansen, CEO, Luxaviation
Richard Koe, MD and co-founder, WINGX
Travis Kuhn, VP of Market Intelligence, ARGUS
Make or break month
October 2020 will be the make or break month, for Kuhn at ARGUS. That’s when the true impact of the Covid-19 crisis on business aviation will be revealed – at least in the pre-eminent North American market. “The closer October 2020 gets to October 2019 [measured in flight hours], the better it’s going to be for aviation as a whole – including business aviation,” he told the ARGUS webinar. He singles out October as the busiest month due to it typically having the best weather, being the only month when all six professional sports leagues are in season and the only 31-day month without a major holiday. Added to that, the US election is scheduled for the first week in November, which usually boosts traffic in preceding months.
“So, if October can regain footing [in business flights] that will bode well for what we see in 2021,” he says. The pace of progress towards recovery will be indicated by flight hours in five key states: California, Texas, Florida, New Jersey and Georgia, which accounted for one third of flight activity in North America in 2019. “The five states combined accounted for more than 1m departures last year out of the total of 3.1m departures we saw,” says Kuhn.
Kuhn thinks the prospect of litigation may be one of the factors boosting business aviation in the new normal of the Covid-19 world. “As things recover, we are going to see companies that are going to opt to put their people on private jet aircraft rather than assume the liability of a Covid-19 case, were it to arise from travel on the airlines. That’s going to bode well for business aviation – particularly for the Part 135 industry because those who don’t have aircraft will seek them out through charter.”
Fractional business flight hours will return to claim its typical 14% of the market during June, July and August 2020. Overall, he expects business flights over the summer will achieve 80% of normal. The publication of second quarter earnings will begin to indicate the economic impact of Covid-19. But business aviation is an agile industry, travellers will want to social distance as never before and the airlines will take much longer to recover than private aviaton. Kuhn sums up: “Business aviation, with its agility and ability to recover more quickly, will recover in a six- to 12-month window. For the airlines … I expect them to get back to mostly normal during a 12-18-month window.”
Ed Bolen, President and CEO, National Business Aviation Association (NBAA), shares that optimism. “Every day we are seeing increases [in the number of business flight hours],” he told more than 600 delegates attending Corporate Jet Investor’s online Town Hall conference on Wednesday May 27. “The expectation is that unlike in past downturns, this may be one where business aviation is a leading indicator of business recovery rather than a trailing indicator.”
Patrick Hansen, Luxaviation CEO – the world’s second largest business jet operator – is less sure. While he concedes the likelihood of a “short-term bump” in demand for smaller types of aircraft on shorter routes in June 2020 and following months, in November full economic impact of Covid-19 will begin to bite, he told the Town Hall meeting. “We will feel the damage to the sector in November, December and January. I think we will see a lot of bankruptcies, not just in the business aviation world, but across the whole economy. That will have a huge impact on business aviation because we are positively correlated with the economy.”
Hansen reaches a bleak conclusion: “I am very sure October, November and December [2020] will see a downturn that will last for the whole of 2021.”
Neil Book, CEO and President of maintenance and financial services company JSSI, takes a more cautiously optimistic view. While concerned about a global downturn, he sees hope in the shape of new first-time flyers. “The silver lining here for business aviation is that this crisis is going to attract an entirely new audience to our services,” Book told Corporate Jet Investor. “Those with the means, but historically not the desire, to fly privately have had a change of heart. Speaking with several people who fall into this category, their feeling is that business aviation is not just the safest option, but the only option. The health risks of flying commercial are simply too great.”
Koe at WINGX agrees. “Covid-19 has effectively lowered the relative cost barriers to private aviation,” he explains. “It’s not just the risk of getting the virus on an airline which may bring new customers to business aviation. It will also be the hassle of working your way through airport terminals and the extra administrative burdens all operators will have to bear. That will be a lot more manageable for both customer and operators in private aviation.”
Book, at JSSI, believes Covid-19 will fast track efforts to tempt new people into private aircraft while possibly paying less money. “In recent years, we have seen this push to make business aviation more readily available to a much broader base of fliers, through creative flight-sharing models. The Covid-19 experience is going to accelerate this market and we will see much more cost-effective options being introduced in the coming weeks and months.”
And when will recovery bloom? “I think losses could be offset by 25–35% over the next 12 months,” says Book. “While it may not sound like much, it could mean the difference between going out of business and survival for many companies.”
The new normal will be totally driven off the timing of an effective treatment or vaccine for Covid-19, he believes. “If we continue to exist in this world of social distancing, on the business side we will see much fewer trips but an increase in ‘day trips’, where travellers return home each night. This would point to higher utilisation amongst light and mid-cabin jets versus super-mid and large-cabin aircraft,” he says.
“The use of business aviation for leisure purposes will appeal to a completely new customer base, as families with the means will turn towards private travel to gain better control over their environment and prevent unnecessary exposure.”
The key question
Perhaps the key question is: Will new business from first-time private aircraft flyers offset or even exceed the business lost due to the economic downturn? Not over the next year, when the projected change in business aviation activity is likely to be negative, argues Koe. Longer term, he is more optimistic. “There is an opportunity for business aviation to step up over the next two to three years. I have always thought the sector should have a bigger market, it just hasn’t yet worked out the business model to make that leap. But this crisis could provide the impetus.
“In fact we have started to see over the past two or three years some big consolidated carriers, such as Wheels Up and VistaJet, putting together lots of different business services. Provided they can ride out the financial crisis, they could now appeal to a much bigger customer set.”
He also notes significant growth in the population of global High Net Worth Individuals (HNWIs), which has far exceeded what he calls “tepid growth” in business aviation. “Business aviation has missed out on the booming growth of this demographic in the last decade.”
In fact, Covid-19 could be the catalyst that sparks long-term growth. “Business aviation is still incredibly fragmented – from the OEMs, to the operators and brokers,” says Koe. “Price has always been a problem, particularly compared with commercial airlines. Now the airlines have hit a brick wall, if business aviation can sort out this fragmentation; become more savvy, like Wheels Up, around digitised supply chains, online marketing and memberships, it could be a growth opportunity.”
So, there are sensible reasons to hope a new private aviation industry may emerge, phoenix-like, from the ashes of Covid-19.
Leaner, more efficient, this new industry will cater both for established customers and for new clients who covet the safety of the private cabin. If they have the means to pay for it. ■
“Covid-19 has effectively lowered the relative cost barriers to private aviation.”
Covid-19 could be the catalyst that sparks long-term growth in business aviation, according to Richard Koe of WINGX.
