Market growth, consolidation and cybercurrency: predictions for a challenging year

The private aviation sector grew more last year than at any time since the 2008 financial crisis, with activity up 4% year-on-year in Europe. And this growth is set to continue in 2018, according to PrivateFly.

The global private jet booking service saw its own flight sales increase by 51% year-on-year during 2017, and average spend per flight increase by 19.7%. The average age of its customers fell, from 41 in 2016 to 38 in the second half of last year.

Adam Twidell (pictured above), CEO and founder of PrivateFly, said the market was recovering now because the number of new ways to access private jets that were now available meant that more people were aware of the sector, and it was beginning to shake off its image as a “hidden area of travel” reserved for the elite few. New entrants into the industry, offering new ways to book flights on private jets, were boosting the business aviation business generally and the charter sector in particular.

“The charter market has really opened up,” he said. “I think that will continue.”

Twidell tells Corporate Jet Investor about his five predictions for business aviation in the year ahead:

Twidell’s Prediction Number One: We expect to see further market growth in 2018, in both Europe and the US. On-demand business jet charter – as opposed to outright or fractional ownership – will drive this, particularly via disruptive business models which offer enhanced accessibility and visibility.

Twidell: If you are looking at corporate risk and if you look at some test cases of people like Tesco – when the business has not gone well, the board has asked: “Why should we own corporate jets?” There is a real reluctance around owning corporate jets. We are seeing a huge shift right down to GE which is making a statement that it will be using charter more than ownership. GE hasn’t said that it is getting out of private aviation, but it has said it is using more charter, reflecting the wider landscape – it does not want to have as many aircraft on its books. At a corporate level, it does not want to own as many aircraft as it has previously.

When you come to the end of an economic cycle – as we are at the moment – people are cautious about where they are putting their money. They have seen depreciation in aircraft. There is a risk involved in ownership. Not only is the corporate customer shifting but the leisure customer is shifting towards the charter market. Then you add in the millennial attitude of not owning but sharing, and all of these things are boosting the charter market.

The economies of the US and Europe are hugely unpredictable and while that is a risk, people want to be cautious. We saw that in the previous economic cycle. People want to evolve how they are doing it. Smaller jets might do better – the Phenom 300, for example, is doing really well because it is a cheaper aircraft to operate and the economic benefits far outweigh the drawbacks of its size.

It is continuing to be a buyer’s market. We’re seeing depreciation at 50% after a few years and there will be aircraft coming onto the market as some of the larger aircraft operators hit harder times. There will be more aircraft coming onto the market, they cannot sit around not being utilised, so they will end up in the charter market.

Twidell’s Prediction Number Two: Private jet users will continue to get younger, and businesses must evolve to cater to them. Many people assume that the typical private jet customer is 50+, but that’s not the case these days. as our 2017 Private Jet Charter Trends report revealed. As millennials continue to enter the workforce, this younger generation will become the next private jet audience – demanding more choice, customisation and personalisation.

Twidell: In the future we will have an ageing population. We will have wealthier pensioners who might perhaps have more money than ever but less ability to spend it in terms of time. Despite that, our customers are getting younger – the people who are booking and flying jets. That has to be boosted by the millennial population who are new in the private jet space. There are the tech entrepreneurs, who have managed to get wealthier quicker than previous generations, and there is an attitude of the younger generation of enjoying experiences, not ownership. You see it throughout many sectors. The average millennial is not able to own a house so they want to enjoy their cash for experiences. They are much more ready to share, to do things with others. They are impulsive, and that is what business jets facilitate. The younger passengers are just prepared to go for it.

We have got to adapt how we interact with the customer. We can not dictate to them how they will book a private jet. They want it on any communication channel and, if someone has a bad buying experience, they will cause trouble on the internet. They have power and they do not want to be dictated to about payment methods etc. They want to be able to pay by cash or credit card or bitcoin. They want to be able to book it immediately but they also want superb service at the same time. Aircraft operators who have “difficult” owners will not be able to charter their aircraft because customers want an instant decision – they do not want to be waiting a week for an owner to decide whether his aircraft can be chartered.

Twidell’s Prediction Number Three: Consolidation of businesses within our industry has been a key theme over the past few years. And in 2018, I think we’ll also see more M&A activity with charter brokers in particular. Both the customer and the industry would benefit from less fragmentation in this segment – the combined buying power of mega brokers is on the horizon.

Twidell: If you look at what’s been happening over the last five years, we’ve had consolidation in the FBO network (Landmark was acquired by Signature, for example, and other FBOs are having to form alliances to compete with the likes of them) and we have seen huge consolidation within the aircraft operators. If you just continue the line, it takes you to the charter market. Also, when you look at the leading charter brokers like Air Charter Service or Air Partner, they have a very small market share and have not been able to expand their businesses. None of them have been able to reach the million dollar mark. Why is that? It is the same in the US – the big brokers of the last decade haven’t been able to grow that model. Why is that?

When you that, and see the size of the market, it is ripe for disruption and ripe for M&A activity.

I think that would be a good thing for the industry in general. For the customer, look at what they want – they want more consistency of service. As companies grow and get bigger, their supply chain does too and the consistency of service you have is much more certain.

Mega brokers are mega in their market share, their size, their revenue, their turnover, the areas they cover. I think there is going to be more consolidation between brokers on both sides of the Atlantic. There has been some, but the markets have operated for too long as separate markets. Customers are very international, and I do not understand why brokers aren’t the same.

As broker firms consolidate, companies will be able to have a much greater share of both the US and European markets and we will start to see mega brokers work together and start to merge.

Twidell’s Prediction Number Four: New aircraft coming into service in 2018 are set to challenge some of the star names. At one end of the market, we have the Pilatus PC-24, a rival to the highly successful Embraer Phenom 300 (the bestselling new jet in the world over the past few years). Then there’s the hotly-anticipated Bombardier Global 7000, aiming to steal share from the Gulfstream G650ER – the ultra high net worth’s iconic jet of choice. 

Twidell: The Cessna Latitude is a really interesting aircraft to keep track of in 2018, too. It is slightly more expensive than the Cessna XL but much better. I think it will do brilliantly.

Twidell’s Prediction Number Five: Payment transactions is another area ripe for disruption in 2018, and block chain financial technology has the potential to become a much more mainstream solution in our industry. Payment in bitcoin (and etherium and others) may still be niche, but its popularity is growing rapidly. PrivateFly was the world’s first private jet company to offer bitcoin payment back in 2014 and we have since seen demand grow significantly.

Twidell: When you ask aircraft operators and charter brokers what is painful in business, they will blame each other but they will also tell you payments – it is a very complicated process. The banks have been sleeping for the last five years and have not moved with what customers and merchants want. Bitcoin makes [payment] more simple and cheaper for customers and merchants.

There is a lot of pain around credit cards and payments that has never been solved. It is expensive, slow and fraught with difficulties. Cybercurrencies make it instantaneous and low-cost. The number of transactions with cybercurrencies we are seeing over the last few months is 10 times what we saw last year – there is always the risk that some of the cybercurrencies are bubbles but private jet customers are not satisfied with traditional payment methods and they want change. So if it is not bitcoin, it will be something else – the momentum is there. We are at the dawn of a new age of payments.

Twidell concluded he was “incredibly optimistic” about 2018 and the many challenges it would present to the private jet industry – from Brexit, to the state of the financial markets, to new models, to M&A activity. “It’s awash with different things to navigate,” he said. “A lot of companies will get stuck in the mud but, as a young dynamic company, PrivateFly, and others, will be able to weave their way on their tiptoes and dart their way round the obstacles.

“This is the time to not be distracted, but to focus on what we do well as an industry – the customer; offering great service to the customer; putting the customer at the front of everything we do.”

Twidell is one of the speakers at this year’s Corporate Jet London conference at the end of January. There is more information on the event and how to attend here.