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Archive for June, 2011

Microcosm

Submitted by Paul Maurer on Thursday, 06/30/2011 - 02:22

Uncertain government legislation, foreign investment support, sputtering domestic business activity, and elite class resentment…the U.S. economy? Perhaps. But these attributes definitely characterize the private aviation industry, as evidenced in events and stories from just this past month.

Firstly, Congress passed a record 20th FAA reauthorization bill extension, further delaying regulatory certainty about airspace fees, fuel taxes, aircraft navigation technology direction (NEXTGen), and flight plan privacy (BARR). These are just a few of the provisions contained in the proposed bill that will greatly affect both the general and commercial aviation industries. And just this week, President Obama called into question general aviation’s tax depreciation schedules.

On the foreign investment front, Cirrus finalized its merger plans with China Aviation Industry General Aircraft (CAIGA). Without this foreign investment, it’s unlikely Cirrus, maker of the most popular single engine piston aircraft in the world, would have continued to invest in its Vision Jet program. Similarly, Diamond Aircraft received an injection from an unnamed investor (my bet is it’s a foreign entity) to continue their D-JET program, a single turbine personal jet development project.

As for domestic business aviation activity, the picture remains quite muddled with JPMorgan saying that a “decisive recovery remains elusive”. Business aviation flight activity from May further illustrates this uncertainty as overall flights were up 2.7% over one year ago while Part 135 (traditional charter) fell almost 6%. Business jet flight activity is still 10% off the 2008 peak and is showing gradual signs of improvement.

Meanwhile, resentment of the corporate & individual elite was further exacerbated by several articles in the Wall Street Journal this month. The WSJ found through its analysis of recently released business jet activity that public corporations made, on average, 30% of their private jet flights to or from resort destinations. The wealthy’s immunity to such economic cycles (see large cabin flight activity from May’s ARGUS report…up 10+%) and the growing disparity between socio-economic classes is further contributing to this angst. Case in point: while vacation travelers are revolting against further commercial fare increases, predicted to hit $430 on average for round-trip domestic ticket, there was a story of a wealthy businessman who enthusiastically plunked down $1 million to enjoy 100 hours of flights, primarily to get to his favorite vacation spots.

Luckily, resentment hasn’t spilled over against business aviation providers like it has in the commercial space (for a chuckle, watch Conan O’Brien mock interview with a Delta Airlines executive)…yet.

The good news is that there continues to be evidence of innovation within the bizav space. Some with near-term relevancy, like JetSuite’s opening a new office complex and Sikorsky’s public support of Eclipse’s growth plans. Some with future ramifications like the solar plane, Impulse, that made a demonstration flight at this month’s Paris Air Show. However, there appears to be no game-changing technologies that will solve the industry’s macro economic challenges anytime soon.

(Excerpted from the June, 2011, Igojet e-newsletter. To receive future e-newsletters directly to your Inbox, please click here and sign up)


Don’t call it a comeback

Submitted by Paul Maurer on Friday, 06/03/2011 - 07:57

They’ve been here for years, very light jets (or entry level jets) that is, and they’re finally making inroads within the charter industry. Yet despite a recent significant jump in their utilization, the potential for these aircraft to gain market share has been discussed extensively since their debut in 2007. It’s only now that they are coming into their own, particularly in Europe where the vast majority of charter flights are between 1-2 hours.

However, the predicted revolution in charter business models (per-seat, shared, etc.) that many predicted would accompany the introduction of these efficient aircraft and bring prices down to commercial rates have yet to materialize. Traditional charter sales and aircraft management, a well proven business model, is still the norm for current VLJ ‘air-taxi’ companies.

Yet a new business model entrant, Social Flights, will be an excellent proving ground for new alternatives. And an even more efficient jet, the Cirrus Jet, continues apace with development and flew several fly-bys at Cirrus’ annual gathering this month.

For sure, weakness in charter demand and disappointing delivery statistics for the quarter continues to challenge the industry. Plus, it will be interesting to see if the DOT’s recent decision to eliminate the BARR (Blocked Aircraft Registration Request) program, thus exposing all private jet activity to the public, will affect demand. The Wall Street Journal published an excellent accounting of private jet activity from 2007-2010, much to the chagrin of the industry, yet of no seeming concern to Mark Cuban (go figure!). Perhaps the Fractionals will continue to lead the industry back to health as they can best offer identity privacy.

Regardless, private aircraft operators can count on commercial airlines’ lessening public appeal to regain lost business from the recession. Less flight availability due to airline consolidation, inconvenient security procedures, and ancillary fee madness (up to $22B in 2010, doubling since 2008) makes traditional commercial service a ripe target.

(Excerpted from the May, 2011, Igojet e-newsletter. To receive future e-newsletters directly to your Inbox, please click here and sign up)


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