By: David Crossland
In the years leading up to the global financial meltdown of 2008, investment bankers, captains of industry and internet entrepreneurs discovered the delights of private air travel and abandoned the first and business classes of scheduled airlines in droves.
Executive jets were the ultimate status symbol, and annual sales of them exceeded US$20 billion (Dh73.4bn).
How times have changed. Price and efficiency have become dominant factors for many customers in a market that was long synonymous with conspicuous consumption.
Sales of second-hand planes are among the fastest-growing segments of the business jet market today, and clients are moving away from outright ownership and towards new financing arrangements that give them the access they need to business aviation at a considerably lower cost. After all, the planes range in price from $5 million to $50m, and a flight costs in excess of $10,000 on average per hour.
The crisis hasn’t just left companies strapped for cash. It has also reinforced the public stigma attached to business jets in many western nations where they are regarded as toys for high-rolling executives looking for something to blow their bonuses on.
Criticism of executive pay and perceived excessive corporate profits continues to make headlines in Europe and the United States, and firms are keen to play down their use of private jets as a result. The problem is that the planes remain an essential business tool for reaching remote destinations that are not effectively served by scheduled airlines, and for conducting face-to-face meetings in a time-efficient, secure way.
This has led to a major trend towards so-called “fractional ownership” in which customers buy a share of a plane that entitles them to a certain number of flying hours per year with that aircraft.
“We’re currently also seeing increased demand for so-called ‘jet cards’ which offer even more flexibility than the fractional ownership model,” said Holger Lipowsky, a project manager at Roland Berger Strategy Consultants. “With this ‘prepaid card’ a certain number of flight hours are bought from a charter company.”
That offers the advantage of allowing firms to use an array of aircraft models in whatever class they paid for. “It offers greater flexibility and doesn’t bind the user as much financially,” said Mr Lipowsky.
The need for lower-cost business aviation has led to increasing competition in the charter market. Clive Jackson, a British entrepreneur, in 2011 set up Fly Victor, an internet-based service that promises to find planes and vacant seats at significantly lower prices than established players in the market, such as NetJets.
Meanwhile, many manufacturers are offering financing deals to customers to make purchasing their jets more attractive.
Such options, however, are unlikely to find much demand among new billionaires in China, Indian and other fast-growing economies, or among the super-rich anywhere.
“While in countries like the United Arab Emirates or China private jets are seen as status symbols, this tends to be viewed negatively in Europe,” said Jörg Wahler, a principal at Roland Berger. “As a result we expect stronger growth in the fractional ownership model in Europe and the US.”
That trend is coming at the expense of conventional full ownership. But after the turmoil of the financial crisis, it is helping to stabilise demand in those established markets, which are set to remain a key focus for manufacturers because they are far larger than the fast-growing emerging markets, say analysts.
Sales in North America are projected at $12.1bn in 2020, for example, according to a Roland Berger study. The Chinese market is expected to reach $600 million by then.