As has been the case with the business aviation during previous business cycles, the industry continues to exhibit lagging indicator behavior. Though the overall economy is growing again, the business aviation industry continues to be flat. While commercial aviation has returned to pre-recession levels – as of May 2010, economy travel volume had returned to 95% of pre-recession levels; premium to 90% – business aviation is still below pre-recession flight activity by 20-30% (total business jet flights in the 12 month period through September was 2.84 million vs. the industry’s record breaking 2007 when 4.82 flights were flown.
Similarly, the upper end of business aviation, large cabin class jets, appears to be doing just fine while the market for mid-size and light jets recovers slowly. Perhaps most telling is Gulfstream’s strong 3rd quarter results along with the company’s announcement of an additional $500M in spending and 1,000 new jobs to meet expected large cabin demand. So, while the Fortune 200 return to business aviation (punctuated by GM’s first private jet use since the U.S. government take-over), the rest of the industry eagerly awaits remaining business demand to pick-up.
Finally, while strengthened commercial airliners exert renewed price pressure on business travelers, business aviation operators are conversely feeling price pressure. Increasingly savvy buyers are driving prices downward (eliminating such pricing tactics as 2 hour minimums) while point-to-point, pre-quoted, and per-seat pricing are being offered by operators and brokers alike. In addition to these creative measures, the industry continues to adapt during its lagging recovery. NetJets acquired MarquisJet (consolidation), Hawker Beechcraft temporarily suspended 400XP production (rationing), and European VLJ operators downplayed prior air-taxi forecasts (strategy re-alignment).
However, hopeful signs of recovery were evident over the Thanksgiving weekend. As the economy continues to strengthen, business aviation will surely emerge stronger from the adaptations now taking place.
(Excerpted from the November, 2010, igojet e-newsletter. To receive future e-newsletters by email as well as the latest version with links to industry articles used for this article, please click here).
