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AIN Monthly temps Aviation International News Powered By Docstoc
					  charter
  SPECIAL REPORT




   meltdown
  TABLE OF CONTENTS:
  Recession deals industry a serious blow                        page 20
  Usage, pricing down as operators feel the pinch                page 21
  Wholesale versus retail operations                             page 21
  Charter trends                                                 page 22              by Matt Thurber, James Wynbrandt & Jennifer Harrington-Snell
  A guide for charter safety                                     page 22
  European charter                                               page 26



   Recession deals                                 business model was suffering its own set of
                                                   troubles. The combination of two major
                                                                                                             new company called Wayfarer Aviation,
                                                                                                             backed by the buyer of JetDirect’s assets,
                                                                                                                                                                      Southwest Jet Aviation.
                                                                                                                                                                          Recently, charter industry veteran Bill
                                                   players–Sentient Jet and JetDirect Avia-                  investment firm Brantley Partners of                      Koch was named CEO of Wayfarer Avia-
   industry a                                      tion–was supposed to result in the creation
                                                   of a massive charter/management firm that
                                                                                                             Beachwood, Ohio. Wayfarer is repaying
                                                                                                             former JetDirect management clients who
                                                                                                                                                                      tion. One of his goals is to “expand the
                                                                                                                                                                      fleet of Wayfarer-managed jets available
   serious blow                                    would realize greater operational efficien-
                                                   cies and serve a national base of customers
                                                                                                             signed up with the new company, and the
                                                                                                             new company’s fleet was up to 26 aircraft
                                                                                                                                                                      for charter service and in more and more
                                                                                                                                                                      major markets around the globe.” What
  by Matt Thurber                                  in the U.S. charter market.                               as of early last month. To help prevent the              attracted Koch to Wayfarer was the com-
                                                       Sentient Jet was a jet card seller and                situation that led to JetDirect’s alleged                pany’s infrastructure, which includes a
      Perhaps it was bad timing or a combi-        charter brokerage and JetDirect Aviation                  misappropriation of customer funds,                      safety management system and one of
  nation of circumstances and hubris, but          was a growing charter/management firm                      Wayfarer set up management clients with                  the few managed by an FAA certificate
  the past year has not been kind to the           when the two companies merged in April                    segregated bank accounts.                                management office. Wayfarer can con-
  charter industry. Some notable partici-          2007, adopting the name Sentient Jet                         There are only a few survivors                        duct its own conforming inspections for
  pants have belly flopped in a big way, but        Holdings. The combined companies ended                    remaining after the failure of JetDirect.                incoming aircraft.
  the result is not so much a severe decline       up owning 13 Part 135 certificates–with                    Solairus Aviation is a new charter opera-                    “The charter business is slow today,”
  in the number of charter operators, more         200 charter aircraft and 300 aircraft total               tor formed by Dan Drohan, who had sold                   Koch told AIN, “but we’ve seen positive
  a far lower level of activity that reflects       aircraft under management–which proved                    his company, Sunset Aviation, to JetDi-                  trends in the last 60 days. Part of it is sea-
  the malaise affecting the global economy.        too unwieldy to manage effectively. The                   rect, only to see Sunset shut down as                    sonal, but much of it is an indication of
      The demise of pioneering air-taxi oper-      result was that the companies split, leaving              JetDirect’s financial problems mounted.                   an improving economy.”
  ator DayJet last September didn’t appear to      Sentient Jet with its jet card and brokerage              Solairus, based in the San Francisco Bay                     Wayfarer started on April 17, about the
  indicate problems in the charter industry in     businesses but now owned by Macquarie                     Area, recently earned 10-seat-or-more                    same time the charter market reached bot-
  general, because DayJet was trying to            Global Opportunity Partners and JetDirect                 authorization from the FAA.                              tom, according to Koch. “I think it’s only
  bring a new charter business model to life.      ceasing operations and eventually going                      Presidential Aviation, based in Fort                  going to get better. In an improving econ-
  The idea was to sell individual seats on a       bankrupt in April this year.                              Lauderdale, Fla., was another company                    omy executive charter is going to be the
  fleet of Eclipse 500 very light jets, with                                                                                                                           first part of the market experiencing an
  prices varying depending on how much                                                                                                                                uptick. The business need for our services
  flexibility the traveler had on departure                                                                                                                            is still there and will continue to grow.
  time. Passengers who could accommodate                                                                                                                              People are going to charter first before
  a bigger window on departure time paid                                                                                                                              they buy a fractional share or an airplane.”
  less than passengers who requested a                                                                                                                                    The charter industry is always growing
  smaller window. DayJet’s area of opera-                                                                                                                             and changing, and like other segments of
  tions in the Southeast U.S. was designed to                                                                                                                         the aviation industry such as manufactur-
  fill a niche not served by the airlines, offer-                                                                                                                      ing and fractional shares, the economy
  ing transportation to airports that would                                                                                                                           has brought about changes that ultimately
  save hours of driving time and that would                                                                                                                           level the playing field to what might be a
  be almost impossible to reach via airlines.                                                                                                                         new and lower level of business activity.
                                                   DayJet proposed a per-seat, on-demand charter service using a fleet of Eclipses. The company struggled to
      DayJet’s demise did not stem from the        find enough customers to achieve profitability and went out of business nearly a year after it started operations.       Right now, most charter companies are
  choice of airplane, according to founder Ed                                                                                                                         struggling to remain profitable and safe.
  Iacobucci. While the Eclipse 500 had                The shutdown of JetDirect left hun-                    sold to JetDirect that managed to extricate              Strong players are doing relatively well,
  teething problems, the fundamental prob-         dreds of former employees with unpaid                     itself from the JetDirect meltdown. And                  and according to charter operators inter-
  lem that caused DayJet to fail at its attempt    payroll and benefits, management clients                   former JetDirect maintenance company                     viewed for this report, weaker operators
  to create a viable per-seat charter market       owed money for services they had                          JetCorp of St. Louis was sold to Canada-                 are cutting prices in a desperate attempt to
  was the company’s inability to raise enough      already paid for and charter vendors not                  based Flying Colours just before JetDirect               generate some business and cash flow.
  capital. At the time of DayJet’s shutdown, it    compensated for trips they had flown.                     shut down. The roster of famous and no-                      As is always the case when times are
  was selling less than half the daily tickets     The employees filed a lawsuit against the                  longer-operating companies that were                     tough, speculation abounds and anony-
  needed to survive, Iacobucci told AIN last       owners and managers of JetDirect, and                     part of JetDirect also includes Tag Avia-                mous sources try to provide information
  year. The business model “was a thing of         that lawsuit has yet to be resolved,                      tion USA (assets of which were sold, not                 that purports to show companies in some
  beauty when it was running,” he said.            although a judge has dismissed some                       the entire company), Atlantic Aviation                   sort of trouble.
      As DayJet was winding down its opera-        motions of the original complaint.                        Flight Services, Summit Jet, Regal Avia-                     XOJet has been a frequent target of
  tions, another grand attempt to upend the           Besides Sentient Flight Group, all that                tion, Spirit Aviation, Hawker Beechcraft                 scuttlebutt within the industry, and one
  traditional charter and aircraft management      is left of the JetDirect experiment is a                  Charter Management, The Air Group and                                           Continues on page 22



20aaAviation International News • November 2009 • www.ainonline.com
Decline in flying                                                                           “There is a glut of Part 135 aircraft at
                                                                                        the moment, and that’s one of the reasons
                                                                                        there’s so much pricing pressure,” said
                                                                                                                                                                                             Operators Weigh Value of Wholesale versus Retail Sales
                                                                                                                                                                                         Charter operators may sell wholesale,        president of sales at Segrave Aviation. “If
intensifies                                                                              Joe Moeggenberg, president of ARG/US,
                                                                                        an aviation consultancy and data service
                                                                                                                                                                                    retail or both. Wholesale operators market
                                                                                                                                                                                    their fleets to charter brokers, who act as
                                                                                                                                                                                                                                      we were aggressive enough on the NBAA
                                                                                                                                                                                                                                      [flight posting] boards and hit the phones
price pressures                                                                         in Cincinnati.                                                                              their retail sales arms. The Travel Manage-
                                                                                                                                                                                    ment Company for example, is a wholesale
                                                                                                                                                                                                                                      hard enough, there was business there,
                                                                                                                                                                                                                                      and consumers liked it.”
                                                                                                            The Decline in Charter                                                  operator, and takes pride in the fact that its         But Segrave found the traditional 85-15
by James Wynbrandt
                                                                                            How badly is the charter industry hurt-                                                 fleet has no identifiable branding. A retail      revenue-sharing management agreement
    The downturn of the last year has                                                   ing? It depends on who you ask, what they                                                   charter operation deals directly with the pub-    between aircraft owner and charter operator
wounded most operators but felled few                                                   track and how they crunch their numbers.                                                    lic. It often creates a brand, with messaging     wasn’t suited to its point-to-point model.
(the high-profile demise of JetDirect                                                   AIN requested data on charter operations                                                    typically focused on service, convenience              “With the traditional 85-15 deal with the
notwithstanding). As of this September,                                                 from CharterX Wyvern, OneSky Jets and                                                       and quality rather than price. And some           owner, you’re only rewarded so much for
2,233 active Part 135 certificates were on                                               ARG/US. CharterX Wyvern uses data on                                                        operators sell to both markets. Priester Avia-    business savvy,” Brennan noted, because
file with the FAA (17 were dual Part                                                    Part 135 operations it receives directly
                                                                                                                                                                                    tion, for example, has a wholesale and a          although the operator makes money on
121/135 certificates) versus 2,240 certifi-                                               from the FAA. OneSky Jets tracks a dis-
                                                                                                                                                                                    retail sales force.                               every flight, even if the aircraft is chartered
cates a year ago. (Operators aren’t                                                     crete fleet of 2,623 charter aircraft using
                                                                                                                                                                                         “The wholesale market is quite a bit         out for less than the direct operating cost,
required to surrender certificates immedi-                                               data from the FAA. And ARG/US collects
                                                                                                                                                                                    smaller, and there’s a tremendous amount of       the upside is limited by the operator’s 15-
ately if they cease operations, but there is                                            and corrects data from the FAA. All three
no indication these totals include large                                                data providers show charter activity is                                                     relationship marketing: constant communi-         percent share. (Conversely, this arrangement
numbers of defunct businesses.)                                                         down, but their figures vary substantially                                                   cations, updates of availability, working to      can lead owners to question whether the
    The registered fleet size has also                                                  as a result of these differences in data col-                                               find a mutual solution and things along those      manager is low-balling quote requests or
changed little over the past year, compris-                                             lection. (As an example cited by ARG/US,                                                    lines,” said president and COO Andrew             being diligent about securing the lowest
ing 8,224 aircraft at the beginning of this                                             if a charter crew cancels IFR before land-                                                  Priester. “The retail marketplace is really       prices on the costs of services passed along
September compared with 8,202 at the                                                    ing at its destination, the FAA may not                                                     about developing long-term relationships          to the owner.)
same time last year. A significant per-                                                 show that flight as having occurred.)                                                        with executives, high-net-worth individuals,           Thus, Segrave rewrote all its manage-
centage of this fleet racks up little or no                                                  Here’s a thumbnail picture for August                                                   people along those lines. Managing the rela-      ment contracts as lease-rate agreements.
charter time. Nearly 900 (890) Part 135                                                 2009 compared with August 2008: Char-                                                       tionships is different.”                          Segrave now foots fixed costs such as crews
operators have just one aircraft on their                                               terX reports that charter activity in light,                                                                                                  and insurance, and pays the owner a fixed
certificates, which are likely used prima-                                               midsize and heavy jets is down 26.4 per-                                                               Point-to-Point                         amount per hour for use of the aircraft.
rily by their owners. Tracking data                                                     cent. OneSky finds the number of flights of                                                           and the Floating Fleet
                                                                                                                                                                                                                                           “When we took that on, it became a dif-
indicates several hundred additional air-                                               its tracked fleet declined from 30,589 to                                                        Over the past year point-to-point, or one-    ferent model. It made us the best stewards
craft in the charter fleet are not being                                                26,113 (-17.1 percent) and the number of                                                    way pricing, has made a case for its viability,   of the aircraft,” Brennan said. “Now it’s up to
flown at all currently. And some managed                                                 flight hours dropped from 28,000 to                                                          arriving aboard the “floating fleet” business       us to get the best price on fuel and hotels.”
aircraft on charter certificates are never                                               20,817 (-34.5 percent). ARG/US, however,                                                    model. The floating fleet operates on the              The aircraft owner pays an identical
hired out, according to operators.                                                      finds overall charter trips during the same                                                  principle that a pool of aircraft can be lever-   hourly aircraft fee and pro-rated fixed
Nonetheless, there is no shortage of                                                    period, including all Part 135 jets and                                                     aged more efficiently and profitably through       costs. “So if it’s $50,000 per month in
capacity in the fleet.                                                                                                                 Continues on page 24                          sales of one-way fares using an itinerant         fixed costs, and the owner uses the aircraft
                                                                                                                                                                                    fleet, rather than basing aircraft at one loca-    for three days, we divide that into 50, and
                                                     Top Charter Routes–U.S.                                                                                                        tion and selling on a standard round-trip         they pay that portion. It makes it simple.”
                                                         (2008 and 2009)                                                                                                            pricing model.                                         The Travel Management Company (TMC)
                                                                                                                                                                                        Charter customers have traditionally          in Elkhart, Ind., a wholesale operator, was
                                                                                                                                                                           on
                                                                                                                                                                     s ost




                                                                                 s Vegas 1
                                                                                           95 trips
                                                                                                                                                                                    paid round-trip rates, even when traveling
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                                                                             a
                                                                       York-L                                                                                                                                                         founded in 2006 specifically to profit from
                                                                 New
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                                                                                                                                                                           Boston   only one way, because the aircraft incurs the
                                                             ‘




                                                                                                                                                                        ‘
                                                                                                                                                                                                                                      the point-to-point market. “From the get-go,
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                                                                  as Veg
                                                             ork-L                                                                                                     New York     flight costs of returning to its base. That
                                                        New Y                            rk 98 tri
                                                                                                   ps                                                                                                                                 we thought a floating fleet was the best
                                                                                                             ‘




 San Francisco                                                                  s-New Yo
                                                    ‘




                                                                     Las Vega                                                                  Philadelphia                         pricing structure is thought to dissuade
  ‘
                                                                                                                                                                                                                                      option,” said general manager Scott Weiss.
                                                                                      384 trips
      102




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                                                                                                                                                                                    many potential one-way charter customers.
                                                                                                                                       New Yo




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                                                            Los Ange
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                                                                                                                                                                                                                                      “The goal is to keep the airplanes in the high-
            298
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                                                                                                             ip
                                                                                                      337 tr
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  143




                                                                                                                                            Orla




                                                                                             w York                                                                                 Under the floating fleet model, the operator’s
                                                                                                                                             Miami-New York 267
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                             Las Vegas                                                                                                                                                                                                demand markets; there are several across
                                                                                                                                            P hi




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                454                                                                                                                                                                 goal is to sell a one-way trip for perhaps 1.5
            ‘




                                                                                              17 trip
                                                                                                     s                                                                                                                                the country. New York-Florida is a big market
                                                                                                                                                      N
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                                                                                         3
                                                                                                                                                        ew York
                                                                                                                                                         ew York

                                                                                                                                                         i




                                                                                 Angeles
                                                                                                                                                           386 trips




 Los Angeles                                                    New York-Los                                      rips                                                              times what it would cost for each leg at
                                                                                                         322 t                                                                                                                        in the fall and winter. If an airplane leaves a
                                                          ‘




                                                                                                                                                              iami 4




                                                                                             eles
                                                                                                                                                               iami 85 trips




                                                                                      os Ang
                                                                           New York-L
                                                                                                                                                                 79 trips
                                                                                                                                                                 270 trips




                                                                                                                                                                                    a round-trip rate, creating the potential to      market, say from New York it goes to
                                                                     ‘




                                                                                                                                                                     02 trip




                                                                                                                                                       ‘
                                                                                                                                                                      trip




                                                                                                                                                                                    boost charter revenues by an equal percent-       Billings, Montana, our goal is to price it back
                                                                                                                                                                          s




                                                                                                                                            ‘
                                                                                                                                                                             s




                                                                                                                                        ‘          ‘      ‘                         age. But the downside risk has stymied            into the [high-demand] market.”
                                                                                                                                     Orlando                                        providers in the past.                                 TMC operates a fleet of wholly owned
                                                                                         Miami-Lo
                                                                                                                                                                                        “The big issue is repositioning risk, and
                                                                                    ‘




        July 2008                                                                                s Angeles 1
                                                                                                            03               trips                                                                                                    Hawker 800/850XPs, 400XPs, Beechjet 400s
                                                                                                                                                   ’




        July 2009                                                                                                                                      Miami
                                                                                                                                                                                    having to move the airplane to a new loca-        and Cessna Citation S/IIs. Weiss credits the
Source: CharterX Wyvern                                                                                                                                                             tion to pick up a customer,” said David           limited number of aircraft types as part of the
                                                                                                                                                                                    Siegel, CEO of charter operator XOJet in San      reason for TMC’s success.
                                                 Top Charter Routes–Non U.S.                                                                                                        Carlos, Calif., one of a handful of floating           “The crews and maintenance are all the
                                                       (2008 and 2009)                                                                                                              fleet operators. “We’re willing to take the       same,” Weiss noted. “Other [operators]
                                                                                                                                                                                    repositioning risk because we know that by        are using a whole hodgepodge fleet, and
                                                                                                                                                                                    offering fixed prices we’re likely to pick up      that makes it tough to manage crews
                                                                       don 1
                                                                               17 trips
                                                                   L on                                                                                                             another trip. We can have aircraft float
                                                                                                                         ‘




                                                                rk-                                                                                                                                                                   and maintenance.”
                                            Toronto-New York Yo           -London 95 trips
                                                72 trips Ne
                                                           w        York                                                                                                            around these high-demand markets.”
                                                                                                                              ‘




                                                              New                  60 trips                                                                                                                                                Operators also say a critical mass of air-
                                                                                                                                                             Lo 58




                                                  Toronto-New York        ew York                            London
                                                                                                                                                               nd t




                                                       45 trips   e va-N                                                                                                                XOJet began offering one-way pricing
                                                                                                                                                                 on rip




                                                             G en                  1 trips                                                                                                                                            craft is required to make the floating fleet
                                                                          -Paris 5
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                                                                                                                                                                   -P s




                                          Vegas 36 tr                   k                                        ‘ Paris
                                                                 w Yor
                                                                                                                                                                     ar




                                     -Las            ips                                64   trips
                                                                         ‘




                                                             Ne                                                                                                                     on select routes in its fleet of new Citation
                                                                                                                                                                        is




                          to                                                  ew York                Barcelona ‘ Geneva                                                                                                               model work. “It gets easier as you hit 15 air-
                      ron        Toronto                         London-N
      Las Vegas To                               ‘                                             7 tri
                                                                                                    ps
                                                                           ‘




                                                                                                                                        ‘




                                                                                                                     Nice                                                           Xs in August 2008, subsequently expanding
                                 ‘




                             Chicago
                                                         ‘




                                                                                                                                                                 Lo 56




                                                   New York London-New York 12                                                                                                                                                        craft to quote [a price for a flight],” said
                                                                                                                                                                   nd tr




    Los Angeles                                                                                        Madrid                a
                                                                                                                         lon
                                                                                                                                                                     on ips
                                                                                   ‘




                         Chicago-Bahamas       ‘ New York-Bahamas                                                    rce                                                            the rates to more than 4,000 city pairs.
                                                                                                                             ‘




                                                                                                                                                                                                                                      Weiss. “I can quote anything a broker throws
                                                                                                                                                                       -N




                              72 trips                                                         s                   Ba s
                                                                                                                                                                         ice




                                                 ‘                                        trip                  id- trip
                                                        79 trips                      55                     dr                                                                     Charter wholesaler Segrave Aviation is
                      Lo s




                                    Miami          Bahamas                        don                      Ma 43                                                                                                                      at me; sometimes I’m not the best price, but
                                                         ‘




                                                                             -Lon
                                                        ‘
                        An




                                                                                                                                 ‘




                                Miami-Bahamas                         geles                      s                                                                                  credited with creating the floating fleet         if you have only one or two [airplanes] it’s
                           ge




                es
                                                             Los An                            ip
                                    251 trips                                           47 tr
                             l




                   -S
                      an                                                   Miami-Nice                                                                                               model earlier this decade.
                         Jos                  Miami-Bahamas                                                                                                                                                                           tough to quote.”
                             e3
                               8 trip           122 trips New York-Bahamas
                                               ‘




                                      s                             65 trips                                                                                                            “We found out when we first started                “Once you get to 20 airplanes, you’ve got
                                                   San Jose
                July 2008                                                                                                                                                           this seven or eight years ago, we can run         a critical mass in a fleet,” said XOJet’s Siegel.
                July 2009
                                                                                                                                                                                    these jets up and down the East Coast and         “We’ve got 25 Citation Xs right now.”
Source: CharterX Wyvern                                                                                                                                                             make money,” said Richard Brennan, vice                                  Continues on page 24



                                                                                                                                                                                       www.ainonline.com • November 2009 • Aviation International Newsaa21
  charter report                                                                                                                              Trends that Made News
                                                                                                               Several developments shaped the charter
                                                                                                            world over the past year. Here are three that
                                                                                                            bear noting:
                                                                                                                                                                trip, [Charter Logic] will give it to us.”
                                                                                                                                                                     Phillips isn’t hesitant to use his broker arm
                                                                                                                                                                for a round trip, either, if it makes more sense
                                                                                                            Pricing Transparency                                for the customer. “Today, we’re trying to opti-
                                                         former Tag Aviation executives such as
  Recession deals                                        Jake Cartwright and Gil Wolin, Solairus                XOJet’s one-way fixed-price fares have           mize. We won’t send our airplane just because

  industry a serious blow                                is placing itself into the market for larger       brought a new level of transparency to charter      it’s our airplane. By knowing every model
                                                                                                                                                                available, we’ll create a lot more options for
                                                         jets located around the U.S.                       costs. “This is an industry that’s been opaque
    Continued from page 20                                                                                                                                      [the customer] and we won’t have to go out-
                                                             Another group of former Tag executives         in terms of pricing,” said David Siegel, XOJet’s
  recent report suggested that the company               led by COO Larry Edeal launched char-              CEO. “It’s difficult to compare prices on trips     side our business to do that any more.”
  was selling off its Citation X fleet. The               ter/management operation Y2K Aviation in           and get good information. And there are oper-            Phillips, a charter industry veteran, is
  misinformation likely stemmed from the                 September. Currently Y2K has just one air-         ators and brokers that have profited from this       sold on the hybrid concept. “I think you’ve
  fact that six Citation Xs the firm was leas-            craft, a Global Express based in Hillsboro,        opaqueness, but the customer always loses           got to have both,” he said. “They’re good for
  ing recently changed hands and from                    Ore., but the company is offering aircraft         with that. We just think transparency and full      each other. We’ve been in this over a year. I
  XOJet’s assistance to “other parties to sell           and charter management as well as Part             information is always best for the consumer.”       think there’s a huge advantage to the model
  their Citation Xs,” according to XOJet vice            135 charters throughout the U.S.                       The low rates themselves–$19,000 transcon       we developed.”
  president of marketing Tony Kavanagh.                      Edeal spent 10 years at Tag Aviation and       in a Citation X or New York to south Florida for    Charter Auction
  “There are no current plans to sell any                managed the Global Express. He stayed              $12,000–have also stirred the industry. “We’re          Online charter auction, which enabled
  Citation Xs from the XOJet fleet.”                      with the airplane after its owners left Tag        able to offer this pricing because we have a
      XOJet had 30 Citation Xs on order and              (when the FAA revoked Tag sister company                                                               retail customers to post and providers to bid
                                                                                                            more efficient model,” Siegel said. “We have 50     on prospective charter flights, had a bad year.
  as of early last month had taken delivery of           AMI Jet Charter’s Part 135 certificate in
                                                                                                            percent more revenue per airplane than our          Jets.com, the progenitor of the online charter
  25 of them. “As with all operators,”                   late 2007 for reasons that the agency has
                                                                                                            competitors’ business models. We get paid           auction concept and creator of the enabling
  Kavanagh said, “we have adjusted our sky-              never fully explained). Edeal and his team
                                                                                                            more of the time we’re flying.”                      online platform, ceased operations this year.
  line to respond to the macro environment               applied for and received a Part 135 certifi-
                                                                                                                Siegel also noted that these rates are          OneSky Jets acquired the company’s assets,
  in private aviation. However, unlike most,             cate for Y2K Aviation earlier this year, and
  we feel fortunate to have an active line of            they plan to employ the Tag model of hav-          below XOJet’s average fares. “I wouldn’t say        but OneSky CEO Greg Johnson does not
  credit to buy both new and used airplanes              ing the aircraft’s primary team located with       that they’re particularly profitable [flights] for    sound bullish on the charter auction concept.
  and intend to use this downturn as an                  the aircraft and supervised by Y2K head-           us, but this program is really to stimulate trial       “I fundamentally believe that this is a rela-
  opportunity to acquire a superior fleet at              quarters. “They run the operation in               and awareness of our product,” he said. “So         tionship-based business,” Johnson said.
  cyclical low prices. We have, in fact, both            accordance with what’s in the manual, and          part of our view is it’s a marketing expense.”      “Those fliers who do feel comfortable shop-
  upgraded and added products over the last              we supervise the managers,” Edeal said.            The Operator-Broker Hybrid                          ping like to do so within a defined set of
  12 months.” XOJet has also taken delivery                  The plan for Y2K is to help compa-                 Scott Phillips, president and founder of        operators or a broker performing due dili-
  of three Bombardier Challenger 300s so                 nies that are considering downsizing their         Jet 1, a charter operator in Naples, Fla., has      gence. It takes more than just a good price on
  far out of its 80-aircraft order announced at          flight departments earn 50 to 100 hours             created a hybrid model by establishing an           an Internet Web site to win business. This
  the NBAA Convention in 2007.                           of annual charter revenue so they can              independent brokerage arm, Charter Logic,           economy hasn’t changed that.”
      There has also been speculation recently           keep their aircraft.                               run by CEO Jordan Brown. “One feeds the                 Johnson said that OneSky was interested
  that charter/management firm Segrave Avi-                   “There’s a lot of activity out there,”
                                                                                                            other,” Phillips said. “Somebody calls for a        primarily in the Jets.com database, and
  ation was about to run out of money.                   Edeal said. “I’ve been quoting trips for
                                                                                                            one-way, we’ll give them to Charter Logic;          while his company will host an auction func-
  Segrave president Jim Segrave explained                the last six or seven months. We’re doing
                                                                                                            they can beat our price all day long. The same      tion on its site, he doesn’t see it as a major
  that Pegasus Elite Aviation, which Segrave             OK. I think one of the other reasons is
  helped launch in August 2007, has closed.              that we’re building a foundation here;             thing if they call Charter Logic for a round        business driver.                          –J.W.
  “However, Pegasus paid every invoice, bill             when the market does turn, I think people
  and debt it owed to every vendor without               who have the Part 135 certificate and           moved there from nearby Burbank Glen-                  recession has had on flight operations in
  any exceptions,” he told AIN. “Segrave                 quality aircraft and service will just start    dale Pasadena Airport in August 2008.                  the business aviation marketplace. U.S.
  Aviation is well capitalized with signifi-              shooting up. We need that foundation            During the past year, according to Scott               takeoffs and landings were down slightly
  cant cash reserves as well as financially               before we can take off. Our investors           Cutshall, director of sales and manage-                in August, to 303,000, about 1 percent
  strong owners and not going anywhere.                  understand that; they want to do it right.      ment services, TWC has added seven                     lower than in July. Compared with last
  There is a group of disgruntled pilots who             Most of us came from the Tag culture of         new management clients that were for-                  August, flight operations dropped 12 per-
                                                         ‘Let’s do it right.’ That model has been        mer JetDirect customers as well as new                 cent, “the smallest drop since July 2008,”
                                                         ingrained in us; it can be done and it can      clients. The company’s Van Nuys hangar                 according to JPMorgan, but still histori-
                                                         be done well, and that’s what we live by.”      is full and its maintenance shop is busy.              cally lower than the 360,000 per month
                                                             ACP Jet Charters of West Palm Beach,        “The only down segment is charter and                  average since 2000.
                                                         Fla., sees an untapped market for jet cards     aircraft sales,” Cutshall said, “although                  The Aviation Research Group/U.S.
                                                         and launched retail jet card service InJet in   we [sold] two airplanes this year.”                    business aircraft activity report shows
                                                         late September. One might think that there          Aircraft owners are aware that charter             charter flying down 11.8 percent for
                                                         are plenty of jet card programs available to    flying is down, he acknowledged, but                   August 2009 versus August 2008. The
                                                         satisfy the marketplace, with fractional-       they are more interested in working with               largest drop was in the turboprop seg-
  Newly launched management services provider            share operators, brokers and block-charter      a high-quality management company                      ment at 12.8 percent, while large-cabin
  Y2K Aviation offers this Global Express for charter.
                                                         programs, but InJet promises “to be the         than trying to get every possible charter              jets suffered the least, with a drop of 8.2
                                                         most innovative in the industry” and to         hour for their aircraft.                               percent. More details about the state of
  were laid off by Pegasus intent on slander-            “offer unmatched flexibility to its mem-             The latest JPMorgan Business Jet                   the charter market are available in the
  ing Segrave due to the close connection of             bers.” InJet’s program includes the InJet       Monthly report underscores the effect the              following section of this report.        J
  the two companies.”                                    25 jet card with guaranteed rates in 25-,
     Some bold entrepreneurs still see                   50- and 100-hour blocks; Touch 10, for
  opportunity in the charter market and                  charter buyers who want to sample the                   Charter Best Practices Guide Available
  have opened new companies. Drohan and                  service without a large outlay of capital;               NBAA in September released best-practices guidelines
  Solairus Aviation are a good example, not              and InJet One, traditional pay-as-you-go
                                                                                                              for charter brokers that outline the regulatory environment
  only surviving the JetDirect debacle by                charter. InJet 25 owners can earn a dis-
                                                                                                              in which air-charter brokers work, along with business-
  obtaining a new charter operating certifi-              count by flying a round trip on the same
                                                                                                              practice recommendations to benefit air-charter
  cate but also by expanding the company.                aircraft instead of just one occupied leg.
                                                                                                              consumers, operators and brokers alike. In the course of
  Drohan’s original company, Sunset Avia-                    Another example of an operator tak-
                                                                                                              their work, brokers encounter a number of federal and
  tion, which he sold to JetDirect (and for              ing advantage of opportunities during the
  which he was never fully paid), focused                recession is charter/management com-                 state agencies that may have jurisdiction over their busi-
  on Northern California charter using                   pany TWC Aviation, which is celebrating              nesses, and NBAA’s guidelines help brokers navigate
  smaller jets and turboprops. By obtaining              its one-year anniversary at Van Nuys Air-            regulatory requirements and develop best practices.      I
  new 10-seat-or-more approval and hiring                port in Southern California, having


22aaAviation International News • November 2009 • www.ainonline.com
  charter report
  Decline in flying                                              and COO of Chicago-based Priester Avia-
                                                                tion. “We’re down 30 to 35 percent on a
  intensifies price pressure                                     12-month average.”
    Continued from page 21
                                                                               The Price of Charter
  turboprops, declined only 11.7 percent,                           Excess capacity and decreased demand
  from a total of 58,969 to 52,013. The                         have made a buyer’s market for charter
  ARG/US data also shows the aircraft flying                     over the past year. In addition to lowering
  longer flights than does the OneSky data,                      hourly rates, many operators have waived
  averaging 80 minutes per flight (up from                       standard two-hour minimums.                                 Elkhart, Ind.-based Travel Management company owns its fleet–rather than managing aircraft for
  78 minutes in August 2008).                                       “The reduction in demand has created                    owners–a business model to which it attributes its profitability.
     Other factors also skew data. For                          price pressure across the board,” said
  example, every time a Part 135-registered                     OneSky’s Johnson. “On some of the most                      on transcontinental routes. And some of                aboard a fleet of new Citation Xs and
  aircraft flies, even when carrying its own-                    popular routes the prices are down as                       the greatest price pressure came not                   now offers all-inclusive coast-to-coast
  ers rather than on charter, it appears on                     much as 20 percent.”                                        from desperation but by design. San                    fares of $19,000 and New York-South
  records as a charter flight. Meanwhile,                           Asked for comparative costs on popu-                    Carlos, Calif.-based XOJet introduced                  Florida flights for $12,000.
  data on the use of Part 91 (not-for-hire)                     lar routes over the past year, Jim Betlyon,                 one-way fixed prices in August 2008                                             Continues on page 68
  turboprops and jets over the past year                        president of Trenton, New Jersey-based
  indicates private owners cut back less on                     CharterX Wyvern, said, “It is difficult to
  flying than have charter customers. As                        demonstrate; anecdotally prices are at
  Greg Johnson, president and CEO of                            breakeven or less. Some operators are                                    Operators Weigh Value of Wholesale versus Retail Sales
  OneSky Jets, explained, “What this                            quoting at less than DOC [direct operat-                          Continued from page 21                           customers are now receptive to making deals
  means is that the drop in hours being                         ing cost] to keep the airplane moving and                           A larger fleet can also absorb a bigger        on fees, services and fuel. That’s especially
  reported here is probably understated [for                    have some revenue going to the owner                            support staff and greater investment in the        important to floating fleets, which are forever
  the drop in charter hours] because it can-                    and themselves.”
                                                                                                                                business, both advantages in this relation-        on the road. Segrave has recently established
  not account for and filter out the owner                          Wayne Rizzi, president of broker Air
                                                                                                                                ship-centered, high-dollar arena. Segrave has      preferred relationships with Signature,
  flying on charter aircraft.”                                   Royale International, said that a New
                                                                                                                                four programmers on staff who work solely          SheltAir and Landmark.
     Several anecdotal reports present a                        York to London round trip aboard a GIV
                                                                                                                                on the company’s proprietary software, capa-            “Before, Signature wouldn’t even think
  bleaker picture.                                              is now about $83,100, compared with
     “I don’t believe it’s a secret: the last                   $92,900 a year ago, an 11-percent drop.                         ble of generating automated, contract-ready        about talking to a [charter] operator,” said
  year has been very difficult for all charter                      The most aggressive pricing has been                        responses to requests for quotes 24/7.             Brennan. “Now it’s working deals with Seg-
  operators,” said Andrew Priester, president                   between the Northeast and Florida and                           “Today alone we sent out 192 quotes for $5.7       rave and it’s happy with how much fuel we’re
                                                                                                                                million,” Brennan reported on a recent late        buying. That’s part of our model; we’ve had
                                                                                                                                afternoon. Segrave uses CharterX’s business-       to be aggressive on travel costs.”
                                           Top Charter Destinations–U.S.
                                                                                                                                to-business charter market portal for its               Operators don’t need floating fleets to
                                                 (2008 and 2009)
                                                                                                                                online booking.                                    play in the point-to-point market space.
                                                                                                                                    “We continue to think technology is the        Online portals such as CharterX and a
                                                                                                       1,367 trips              way to go,” said Brennan. And it doesn’t have
                                                                                                       1,530 trips                                                                 company’s internal databases of customers
                                                                                                       Boston                   to be proprietary. “Every pilot has a Black-       and their travel preferences simplify mar-
                                                                 2,019 trips
                                                                 1,996 trips                                  7,627 trips       Berry and inputs fuel burn,” he continued.         keting one-way trips. “We’ve really adapted
     1,586 trips                                                                        1,276 trips           7,854 trips
                                                                 Chicago             Philadelphia             New York          “We’re tracking fuel burn during flight to see      to the point-to-point market,” said Priester
     1,928 trips
     San Francisco                                                              Washington, D.C.                                how we’re flying these airplanes: are we fly-        of Priester Aviation, which operates aircraft
                     2,527 trips                                                1,574 trips
                                                                                1,832 trips                                     ing efficiently and using long-range cruise? If    from more than half a dozen locations
                     3,477 trips
                     Las Vegas                                                                                                  one pilot is continuously burning more fuel        around the mid-continent region. “We’ve
           5,104 trips                                                                                                          than another pilot, he’ll hear from the chief      definitely had more people requesting
           5,832 trips                                          1,162 trips                                                     pilot: ‘How are you flying this?’ or ‘Is there an
                                                                1,327 trips                                                                                                        point-to-point service. So with really
           Los Angeles
                                                                Dallas                                                          issue with the jet?’ We’re really aware of         aggressive marketing of one-way trips, let-
                                                                                     1,277 trips                                these things.”                                     ting people know where they’re available,
                                                                                     Orlando                                        Operational costs are different for a float-    we’re able to take advantage of that. It has
                                                                                                       3,916 trips              ing versus a fixed fleet. With no home, a          become an important part of the charter
      July 2008                                                                                        4,352 trips
                                                                                                                                floating fleet doesn’t need a base hangar.         marketplace.”
      July 2009                                                                                        Miami
                                                                                                                                “Our 50,000-square-foot hangar is always                (Should an empty leg of a paid round-trip
  Source: CharterX Wyvern                                                                                                       empty,” said Weiss of TMC. But road costs          flight be sold, it is customary to return a por-
                                                                                                                                are high. “We’ve got a lot of airline tickets to   tion of the initial charter customer’s
                                                                                                                                buy” for commuting flight crews, he said. In        payment.)
                                        Top Charter Destinations–Non U.S.
                                                                                                                                terms of expenses, he said, “I think the float-          Is this growing point-to-point market
                                                 (2008 and 2009)
                                                                                                                                ing fleet is kind of a wash.”                       just another form of bubble? The fact is, not
                                                                                                                                    But any money operators can save on the        all charter operators have much demand for
                                                                                                                                road is money earned. TMC’s pilots maintain        one-ways. “Seventy-five to 80 percent of
                                                                                 1,314 trips
                                                                                 1,718 trips                                    a 15-days-on/13-off work schedule, rather          our business is companies booking an air-
                                                                       435 trips London                     Moscow
                            958 trips
                                              474 trips                624 trips                                                than the more common eight-on/six-off crew         craft for the duration of the trip, with
                                              353 trips                             311 trips               315 trips
    Vancouver               801 trips
                                              Montreal                 Paris            Geneva                                  cycle to reduce travel expenses. Weiss and         multiple cities,” said Batchelder of Elliott
    389 trips               Toronto                                                       Rome
    389 trips                                                       Madrid       Nice                                           the rest of TMC’s management are former            Aviation. But Batchelder allows that some
                                        683 trips                   721 trips    300 trips 300 trips
                                        814 trips                                460 trips                                      charter pilots themselves, and they believe        regular clients will make seasonal one-way
                                        Bahamas
                                                                                                                                that provides invaluable experience for run-       trips to vacation homes, for example. And
                                                    San Juan
                                                    270 trips                                                                   ning a charter company.                            what happens then? “In that case, we’ll
                July 2008
                                                    314 trips                                                                       Fortunately for these and all operators        contact local charter operators, national
                July 2009
                                                                                                                                today, FBOs that just over a year ago were         brokers, and let them know we have an air-
                                                                                                                                preoccupied with fractional and jet card           plane flying back to Minnesota.”          –J.W.
  Source: CharterX Wyvern




24aaAviation International News • November 2009 • www.ainonline.com
  charter report
  The European                                 related to the types of customer who gen-
                                               erally fly on large aircraft. “It’s probably
                                               because there’s a disproportionate amount
  charter market                               of chartering done by governments at that
                                               end of the market,” he said. “Govern-
  SLOWING BUSINESS SHINES A LIGHT              ments aren’t immediately impacted by
  ON THE SECTOR’S OTHER CHALLENGES this crisis.”                                               London Executive Aviation
                                                   Another discrepancy lies in the size of     reported a 20-percent drop in
  by Jennifer Harrington-Snell                 operations that have been most affected.        charter for its larger aircraft,
                                               Large operators, with more overhead,            such as the Falcon 900EX.
      Predictably enough, the economic appear to have been affected to a greater
  downturn and its impact on business avi- degree than smaller operators. Cardiff,           than what we charge for a turboprop.”           and if that means we lose business because
  ation has been by far the biggest issue on Wales-based Dragonfly Air Charter, which             The problem, according to LEA’s             some monkey operator charges less, so be
  the minds of European operators over the operates three King Air 200s, has made it         Margetson-Rushmore, is that some oper-          it. We will never lower our standards.”
  past year. As one operator explained, in through the recession relatively unscathed,       ators believe they should lower prices in           In addition to price undercutting, there
  the past 12 months “business aviation fell according to founder and CEO Howard             a recession. “Actually, the opposite is         has also been an increase in black-market
  off a cliff.” But the economy is not the Palser. “We’re a small company,” he said.         true,” he said. “You have the same cost         charter activity, which takes two forms:
  only weighty issue; the downturn has “We were able to sustain this downturn                base in overhead and less volume going          private users chartering out their aircraft
  brought to light a number of other rather better than large operations that have           through. You actually need to charge            to friends and family, and illegal opera-
  concerns, including price undercutting, large numbers of pilots and expensive air-         more, increase revenue.”                        tions from non-European operators.
  black-market operations and strained planes, where the costs can rapidly escalate.             Operators who charge less are not               The UK Civil Aviation Authority
  business relations with U.S. operators.      If you have a small operation, fewer staff    always the safest ones, according to            (CAA) recently launched a publicity
      Above all, however, the recession is and fewer aircraft, you tend to keep those        David Macdonald, sales director of char-        campaign to educate end users about the
  still the key issue on which operators are aircraft flying and keep the business jog-       ter broker Air Partner. “The thing about        problem. “Most companies planning to
  focused. “The economy has been a major ging along, pending the upturn.”                    price is interesting,” Macdonald said. “In      undertake work that legally requires an
  dump for us,” said Edgar van Schaik, vice        The large operators have also noted       a recession, everything is about price.         AOC abide by the law and hold the cer-
  president of charter sales for Geneva- the discrepancy. And in some cases, the             And price is a factor for lazy operators,       tificate,” said David Chapman, a member
  based PrivatAir. “Any operator that tells discrepancy has resulted in resentment,          people who have nothing [else] to offer.”       of the CAA Safety Regulation Group.
  you that business has been                            especially in cases where ques-          Although brokers and operators alike        “However, as in all walks of life, some
  fantastic is lying. I don’t know                      tionable aviation companies have     complain about low prices, some compa-          companies and individuals choose to
  one single operator that’s not                        fared better than reputable opera-   nies insist low prices are good for business.   ignore the requirements and operate ille-
  suffering.”                                           tors. According to van Schaik,       UK charter broker EMTjets advertises            gal public-transport flights.”
      Figures vary widely, but                          “The people who actually con-        itself as an online “charter marketplace,”          The CAA has published information,
  most operators and organiza-                          tribute something and have added     where operators can bid for business. The       including a list of authorized AOC hold-
  tions agree that business has                         value are the ones who are suffer-   company claims to provide the most com-         ers and a special leaflet to customers, on
  dropped 20 to 40 percent over-                        ing the most because we have the     petitive rates to customers and advertises      the organization’s Web site. It will also
  all. According to Pedro                               heavy overhead,” he explained.       empty-leg flights at 25 to 50 percent less       “continue to investigate and, if necessary,
  Vicente Azua, COO of the                              “Good operators are struggling       than the cost of average trips.                 prosecute companies and individuals that
  European Business Aviation David Macdonald,           for survival, while little brokers       EMTjet manager Jonathan Lloyd               fail to follow the requirements.”
  Association (EBAA), business Air Partner              who have no overhead, no addi-       insists that the business model is good             The organization said it is difficult to
  might be even worse were it                           tional value, are surviving.”        for both operators and customers, from          determine how often this actually occurs,
  not for the large number of aircraft owners                                                an environmental and a financial stand-          but agents routinely conduct random spot
  in Europe. “Most owners have their air-                     Pricing Wars                   point. “Operators make a profit from            checks at various airports and urge oper-
  craft with a charter operator,” he said.         Operators who act as brokers have         each empty leg that is sold,” he said.          ators and users to report illegal activity.
  “That’s why most of the operators still taken the largest hit, van Schaik said.            “The charter has already been paid for,         Punishment can include up to two years
  have business. Owners are still flying. The “Business itself has not dropped off that       and if we can fill the aircraft coming          in prison and/or unlimited fines.
  real charter part of the business is suffer- much. There’s still a fair amount of air-     back, they’re much happier.”                        Illegal charter activity has always
  ing, however, because there aren’t that craft movement. However, the number of                 Approximately 1,700 operators, about        been an issue, Air Partner’s Macdonald
  many people coming in from the street people who actually made money on those              80 percent European, have signed on to          said. The problem has simply gotten
  and chartering an aircraft.”                 transactions has dropped dramatically.”       the EMTjets Web site, with an additional        worse over the past year or so. “Because
      There is also some indication that oper-     At one time, there might have been        seven to 10 more signing up each week,          of the economy, more aircraft are being
  ators of large business jets have been less two or three brokers involved in one           Lloyd said, adding that empty-leg regula-       pushed illegally. You have owners out
  affected by the downturn than operators of transaction, van Schaik explained. “In          tions in Europe are not quite as stringent      there who are feeling the pinch, and
  smaller jets. “I can’t categorize it easily previous years, the sky was the limit.         as those in the U.S.                            because of the pressure they’re under
  and say that it has impacted one section What you saw happening was double or                  Another problem, according to van           there is a much bigger temptation for
  worse than another, but it seems that the triple brokerage. There were two or three        Schaik, is an increase in the number of         them to charter the aircraft illegally.”
  heavy-iron end was less affected than the brokers involved in one deal.”                   questionable operators from areas such              The only way to address the issue is
  lighter iron,” according to Guy Lachlan,         Now, customers either go directly to      as Eastern Europe and Russia who                for the industry to police itself, Macdon-
  CEO of the British Business & General the operator or use a questionable broker            charge lower prices than their European         ald said. “It is a problem, but the industry
  Aviation Association (BBGA). “Beyond who quotes the lowest price.                          counterparts. And because of the reces-         has become much more aware of it. I
  that, it’s very hard to form a conclusion.”      According to the most recent figures       sion, clients are more willing to choose a      think you’re going to see a lot more ille-
      Among the operators that confirmed from Eurocontrol, the year-to-date                   flight based on the cost.                        gal operators being reported; if we don’t
  that assessment was London Executive decline in the number of business jet                     “Even though it might appear the            tell the authorities what’s going on, the
  Aviation (LEA), which saw a 20-percent flights throughout the EU was 18.4 per-              same on paper, a Swiss-registered Gulf-         authorities can’t do anything about it.”
  drop in flight hours among its medium- cent, less than the 20 to 40 percent figure           stream might not be the same as a
  size jets and a 40- to 50-percent drop most operators are quoting.                         Gulfstream from another area,” van                      International Relations
  among the entry-level airplanes, such as         One of the biggest problems operators     Schaik said.                                       A large segment of the black-market
  its King Air 200s and VLJs, according to are facing as a direct result of the down-            Due in part to issues such as these, Pri-   operations involve charter companies
  LEA chief executive Patrick Margetson- turn is pressure on pricing. “There are             vatAir has its own in-house auditor to          from non-European countries, namely
  Rushmore. “It’s nearly business as usual organizations out there that are undercut-        evaluate the safety standards of each of its    North America, who operate illegally
  on the larger aircraft,” he said.            ting prices,” Dragonfly’s Palser said.        operator partners. “One thing is for sure:      with the EU. Some operators are well
      Lachlan said the discrepancy could be “You see jets flying for considerably less        safety is absolutely our utmost concern,                             Continues on page 69



26aaAviation International News • November 2009 • www.ainonline.com
  charter report                                                                                                                   25,000




                                                                                                                                   20,000
                                                                                                                                                                                                                                                                                                                     Total Flight Hours versus S&P 500
                                                                                                                                                                                                                                                                                                                                                                                              (one year)
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    1,400



                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    1,300



                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    1,200
  Decline in flying                                    Those opposed to ownership cite the
                                                   cost of paying for and maintaining the




                                                                                                         Total Flight Hours
                                                                                                                                   15,000
  intensifies price pressure                        aircraft, which can leave owners exposed                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         1,100




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         S&P Points
     Continued from page 24
                                                   in a down market. And the fact that most
                                                   aircraft used for charter are under man-                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         1,000
                                                                                                                                   10,000
      “It just demystifies the whole process agement may be what’s keeping many
  for everybody,” said XOJet CEO David operators afloat.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             900
  Siegel about fixed pricing. “It really forces        “If the charter companies were all
  everybody in the whole value chain, dependent on charter revenue, the reality                                                     5,000
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    800
  whether a broker or operator or somebody is, some companies might have ceased
  else, to demonstrate what [they are] actu- business,” said OneSky’s Johnson. “But
  ally doing for the customer.”                    the fact there hasn’t been carnage means                                              0                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          700
                                                                                                                                                          Aug. ’08                Sept. ’08                              Oct. ’08                                         Nov. ’08                                            Dec. ’08                                        Jan. ’09                           Feb. ’09                   March ’09                          Apr. ’09                                May ’09                                        June ’09                                              July ’09
      Some operators, while not cutting aircraft owners are lowering rates or                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    Source: Charter X

  rates, have forgone customary increases. lowering expectations [on charter rev-                                                                                                                                                                                     Light                                                               Midsize                                                   Heavy                                     S&P

  “Historically, Elliott [Aviation]                           enue], and continuing to pay
  will raise charter rates for CPI                            management fees.”                                                   30,000
                                                                                                                                                                                                                                                                                                                    Total Flight Hours versus S&P 500
                                                                                                                                                                                                                                                                                                                                                                                         (five years)                                                                                                                                                                                                                                                          1,600
  [consumer price index],” said                                  But successful operators that
  Toby Batchelder, sales man-                                 own their fleets can be equally                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   1,500
  ager of the Minneapolis-based                               adamant.                                                            25,000                           AIN Monthly/Illustrator Stuff/026_FltHrsS&POneYr.eps
  operator. “In 2009 we did not                                  “We own everything; we                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       1,400

  have a price increase on hourly                             don’t manage any airplanes,
                                                                                                                                  20,000                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      1,300
  rates, mainly because fuel is                               so that’s a huge benefit to us,”



                                                                                                        Total Flight Hours
  cheaper today. In that sense                                said TMC’s Weiss. “[The                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         1,200




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         S&P Points
  prices have come down.”                                     aircraft] never have to be                                          15,000
      Other operators have held fast Scott Phillips,          somewhere because an owner                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      1,100
  on rate cards. “The charter mar- Jet 1 president            needs them, and there are no
  ket did not slow down because the prices problems with owner approvals [of indi-                                                10,000                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      1,000
  of charter were too high,” said Priester. vidual charter flights].”
  “It slowed because the purchasing habits            An important element in the TMC                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         900
                                                                                                                                    5,000
  of charter customers changed. We have model, unusual for fleet owners, is that
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              800
  been resisting lowering the charter rates. the aircraft were purchased outright,
  We really believe people who are flying bought with proceeds from company                                                               0                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    700
  on the airplanes are willing to spend owner Peter Liegl’s sale of his Forest
                                                                                                                                               July ’04




                                                                                                                                                                                               March ’05

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                                                                                                                                                                                                                              July ’05




                                                                                                                                                                                                                                                                                                                 March ’06

                                                                                                                                                                                                                                                                                                                                        May ’06

                                                                                                                                                                                                                                                                                                                                                        July ’06




                                                                                                                                                                                                                                                                                                                                                                                                                  March ’07

                                                                                                                                                                                                                                                                                                                                                                                                                              May ’07

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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             March ’08

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             May ’08

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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      Nov. ’08
  money on the quality of the operation.”          River RV business to Warren Buffett’s
                                                                                                                                                                                                                                                           Light                                                                Midsize                                                            Heavy                                S&P                                                                                                                                                           Source: Charter X
      Scott Weiss, general manager of the Berkshire Hathaway holding company.
  Travel Management Company (TMC) “We don’t have any debt; everything is
  in Elkhart, Ind., a wholesale operator, paid for. I can see if you went into this                                               80,000
                                                                                                                                                                                                                                                                                                                                           Total Charter Flight Activity
                                                                                                                                                                                                                                                                                                                                                                              (2006-2009 YTD)
  sounded a similar note. “We stuck to our with a lot of debt, it would be tough,”
  guns on pricing, and stuck to a service Weiss conceded.                                                                                                         AIN Monthly/Illustrator Stuff/026_FltHrsS&PFiveYr.eps
  everybody needed. We’ve had a lot of                But a managed fleet is no panacea to                                         70,000
  good brokers out there say, ‘Even though cash-flow problems. During the recent
  [the trip quote] may be $1,000 more, a boom times operators hungry for lift
  new [Hawker] 400XP will show up, and if offered attractive management contracts
                                                                                                                                  60,000
  it breaks, they’ll get a replacement there.’” to owners, with low fees and assurances
                                                                                                        Number of Trips




      “We’re actually raising prices,” said of strong charter revenue. But those
  Richard Brennan, vice president for sales
  at Segrave Aviation, a wholesale operator                                                                                       50,000

  based in Kinston, N.C. “You can’t get to
  profitability with every jet flying at a loss.
  It’s just not going to work.’”                                                                                                  40,000




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              Source: ARG/US
               Owned Versus
               Managed Fleets
                                                                                                                                   30,000
                                                   Charter aircraft such as a Priester Challenger 601                                                     January                 February                                   March                                               April                                                   May                                        June                               July                        August                     September                                October                                        November December
      The past year has brought into focus         are not sitting on the ramp because the price of
  differences in operational philosophies          charter is too high, Priester maintains.                                                                                                                                                                                                                  2006                                                                   2007                                            2008                                         2009
  between the owned- versus managed-fleet
  model. When business was brisk and               arrangements have proved painful for                                                                                                                                                                         Nautical Miles Flown per Week by Aircraft Class
  money was cheap, shortcomings of opera-          operators taking a hit on management                                            2,000,000

  tors trying to execute on either model           fees and owners feeling shortchanged on                                         1,800,000

  weren’t so apparent. Many charter opera-         promised revenue. These disillusioned                                           1,600,000                      AIN Monthly/Illustrator Stuff/026_FlightActivity.eps
  tors have aircraft they own as well as           owners make this an operator’s market in                                        1,400,000
                                                                                                           Nautical Miles Flown




  aircraft they manage and charter for private     terms of having a pick of aircraft to man-                                      1,200,000
  owners. Other operators have either owned        age, but operators are being cautious
                                                                                                                                   1,000,000
  or managed fleets, and rarely have opinions       about whose aircraft they agree to handle.
  about the models been so sharply drawn.              “There’s plenty of management oppor-                                         800,000


      “You can’t be an owner and charge            tunity,” said Brennan of Segrave, which                                          600,000

  enough for charter to break even; you’re         has both owned and managed aircraft in its                                       400,000

  dead in the water,” said Scott Phillips, pres-   fleet. “The question is, is there enough                                          200,000

  ident and founder of Jet 1 in Naples, Fla. “I    charter out there for it? We’ve been realis-                                           0
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         Source: OneSky




  used to own more than half my airplanes.         tic with our owners on what the market is
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  In 2006, I sold my airplanes and said, ‘I’m      doing. You can’t have an owner who wants
  going strictly into management.’”                to fly 30, 35 [charter] hours per month.” J                                                                                                                                                      Light                                                                     Midsize                                                     Super-midsize                                               Heavy                                          Turboprop




                                                                                                                                  AIN Monthly/Illustrator Stuff/026_Charter_nmflown.eps
68aaAviation International News • November 2009 • www.ainonline.com
                                                 King Air operator Dragonfly has seen little
                                                 change in business because of its low overhead.                                                 as wasting money, said LEA’s Marget-
European charter                                                                                                                                 son-Rushmore. “A number of people
  Continued from page 26                                                                                                                         who fly, who still have a need to fly,
aware that the flights they conduct are                                                                                                          are actually flying scheduled [airlines]
illegal. Unfortunately, there are no hard                                                                                                        because they don’t want to be seen as
and fast numbers as to how often this                                                                                                            being wasteful, spending excessively or
occurs, according to the UK Department                                                                                                           causing carbon emissions. We’re the sac-
for Transport. “These are illegal opera-                                                                                                         rificial lamb, the scapegoat.”
tions; therefore, they go undetected,” a                                                                                                             And the sad fact remains that business
spokesman said. However, when an                rights have been denied, need to be better         Brown said. “We’ve had about four             aviation still has a negative connotation
illegal operation is uncovered, the UK          educated about the Open Skies agree-               months of experience with it, and both        for most people, said Dragonfly’s Palser.
government has the authority to detain          ment, according to Macdonald.                      U.S. and European operators believe it is a   The good news, however, is that in spite of
the aircraft by order of the Secretary of          The TSA’s security rules for European           much more efficient, user-friendly system.    business aviation’s perceptions problems,
State and impose fines and jail time.            operators have also been a contentious             There are some software issues that need      the economy–and business–appear to be
    In other cases, operators are simply        issue. BBGA’s Lachlan said the TSA’s               to be worked out, but the government indi-    picking up slowly.
not aware of the rules. “One issue has          “onerous procedures” have made it diffi-           cated that once that’s accomplished it            “Luckily we have noticed a change in
been the lack of understanding by Ameri-        cult to operate foreign business jets in the       wants to stop all paper applications and      trend over the past few months,” Fries
can operators about what they can and           U.S. However, a recent meeting between             use this system.”                             said. “People are once again flying more.
can’t do here in Europe,” Macdonald             U.S. and European officials “has gone a                                                          In July, we at DC Aviation again had just
said. “The Open Skies agreement allows          long way to answering the concerns of                    Perceptions and Outlook                 as many flights as at the same time the
them to come over here and have free-           European operators,” Lachlan said.                    Although the European business avia-       previous year.” There has also been an
dom of movement with their passengers,             According to Steve Brown, NBAA’s                tion industry hasn’t suffered quite as        increase in requests for larger aircraft.
as long as the flight originates and ends        senior vice president of operations and            much as its U.S. counterpart, perception      The company has responded by focusing
in the U.S. But some carriers think they        administration, the key difficulty for for-        is still a problem. Stuttgart, Germany-       on managing Challengers, Globals, Gulf-
can come over here and look for business        eign operators is a lack of standardization        based DC Aviation is just one of many         streams, the Legacy and Airbuses.
[from European customers]. They can’t.”         in applying the principles and policies            companies that have experienced the               Likewise, Margetson-Rushmore said
    He added, “If they think they can come      that already exist. As a result of the meet-       fallout. “All in all, our branch is suffer-   he is also seeing an increase in inquiries.
into Europe, and the Europeans are going        ing, however, the various U.S. agencies            ing, especially since the managers of [the    “If you spoke to me a month ago, I would
to stand by and watch them take their busi-     pledged to revise their forms to make it           three major domestic car manufacturers]       have said we were just bouncing along
ness, it’s not going to happen. If a European   easier for foreign operators.                      appeared before Congress in the U.S.,”        the bottom. But we’ve seen the level of
operator wanted to conduct a flight from            There was also some discussion about            said CEO Steffen Fries. “That really hurt     inquiries go up. We were down to 30 or
New York to Boston, would American              the Electronic Advance Passenger                   us, as some [clients] then decided to stop    40 inquiries a day; and now we’re up to
operators object? Of course they would.”        Information System, or eApis. “It’s an             flying, not only due to cost factors, but     more than 100 a day. It’s a good sign, but
    American charter operators, espe-           electronic, online system that has been            also for socio-political reasons.”            it will be a really good sign when
cially those whose permits and traffic          created for U.S. Customs and the TSA,”                Customers don’t want to be perceived       inquiries convert to bookings.”          J




                                                                                                         www.ainonline.com • November 2009 • Aviation International Newsaa69

				
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