Mesinger Pulse: Wealth and New Attitudes Towards Air Travel
Originally published as a blog for AINsight for Aviation International News on 12/3/21
I have spoken many times during the pandemic about the effects that would land on the back of air travel. I speak about this both based on commercial travel and private travel. Who would have thought in their wildest modeling that the demand for travel would shift as dramatically as it has? If you think of a fulcrum and the center balance was equal parts commercial air travel versus private air travel the balance itself kept all providers capable of delivering a good product.
For the commercial traveler, flights generally left on time and arrived at their destinations safely. For the private traveler, providers could manage the load without panic and distress. During the pandemic, in many segments of our society, a new and grand wealth began to emerge. With this wealth, and the lure of 100% Bonus Depreciation, coupled with a complete lack of desire to travel commercially and populate public airports and packed aircraft there has been an unimaginable shift to private air travel.
This shift is stretching us in every corner of our industry, to our most difficult ends. Who could have modeled this growth and demand and what action would we have been able to take? Jet card providers are having to fulfill unprecedented lift demand at a time when every charter operator and fractional provider are being asked at once to be on a ramp in the next 12 hours to provide a customer lift. At the same time, the price of fuel and pilot salaries are increasing, and the third-party charter rates are exceeding the modeled pricing structure built into the jet card’s lift budgets.
How can you ask all customers to potentially back down from the trip they individually expect? Impossible. Imagine if you had purchased the minimum card share and are now being told it may take 90 days to fulfill the lift request. Not a pretty picture. I have prospects ask me all the time, if there are no more planes measurably being operated, why are there pilot shortages? One clear reason is the increased utilization of each plane being flown for charter requires the addition of a third or even fourth pilot to a plane. This is also occurring at the same time commercial travel is increasing. Airline pilot recruitment efforts have been lagging since the great recession, but the benefits of flying for an airline, such as set schedules and salaries are luring pilots away from general aviation.
Now let’s shift the focus to whole aircraft ownership. This area is also stretched to the max. There are no longer multiple aircraft of each type for sale. Even planes that had been on the market for 500 days have been culled out. So, we are dealing with one aircraft at a time entering the market as opposed to multiple options for a buyer at any given time. As a result, multiple full price offers are generated on day one of the listing. This leaves many sellers to say, well that was easy but now how do I break the tie? Simple, start a bidding war. Not only is price a new threshold but terms as well. Limited pre-buys are often allowed or expected from a seller leaving buyers to not perform the appropriate due diligence for an acquisition as complex as an aircraft.
So, after reading this far into the article you could be wondering, is this the end as we know it of our wonderful industry. Absolutely not!! Here is what I predict will lighten the load and start the shift back to a manageable business climate. The wealth created will not go away and the aversion to flying commercially will most likely not subside. What will change will be who is in the market transacting aircraft. We have largely been working without the benefit of corporate clients since March of 2020. This critical segment of the industry has been virtually grounded by the pandemic. This means that the huge unappareled growth of first-time buyers has depleted our available inventory. I predict that in 2022 this important transacting segment will be back. Once they are, inventory levels will start to regenerate. Next, once current owners have confidence restored that added inventory levels will allow them to replace a relinquished plane, they will start getting back to the idea it is safe to sell and not hold back until replaced. This too will add more inventory. Once there are more planes sold the charter pool will grow, and the need now for planes to fly 600 hours a year will likely go back to a more normal 350 hours a year. The charter market and jet card providers will not be stretched as thin any longer. I think we will start to enjoy as an industry the new lasting demand rather than be daunted by it.