Our 2022-2023 business jet market forecast
President Harry Truman famously asked for a one-handed economist saying: “All my economists say, ‘on one hand … on the other.’”
This is particularly true now. You get one economic announcement saying that the US economy is in recession, then you hear that unemployment is down to the lowest level since 1969.
Let’s be bearish and assume that we are going to see a global slowdown. Here is a (one-handed) forecast for what will be a fascinating business aviation downturn.
Charter demand will fall first. “We have been tracking a slowdown in the charter market since July, with activity falling progressively shorter on comparative weeks in 2021. Until early August this slowdown was only obvious in the US but is now also happening in Europe,” Richard Koe, MD, WINGX tells CJI. “Whilst activity is falling behind the extraordinary Covid rebound last year, bizjet sectors are still almost 20% up on the comparable period in 2019, pre Covid.”
WINGX forecasts that 2022 activity will fall short of 2021, as the economy and consumer sentiment weakens, but should end up around 10% higher than 2019, the pre-Covid peak year.
During the Global Financial Crisis, WINGX data shows that business jet flights started falling in January 2008. By May 2008, flights were down 9% compared with the year before and in August 2008 down 17%. Flights finally hit a low in October 2009 for both the US (down 22%) and Europe (down 17%). The US recession ended in June 2009.
Even if we see a similar drop, flights will still match 2019 (with aircraft delivering at 2019 levels already). But demand will not fall as much as in 2008. In downturns consumers substitute a product for a cheaper one. For business flights the two main substitutions are flying commercially or video conferencing.
Customers will of course switch to airlines if they cannot afford to fly privately (as they did in 2008). But they will fight it harder than before. Airlines have been hammered by Covid and passengers are now paying more for a worse experience.
Nobody is flying commercial anymore because the airports and airlines are too busy.
The pandemic rapidly increased the use of video conferencing and changed working habits. Companies have not stopped travelling, however, instead they have raised their threshold for travelling. People will use Zoom or Teams for low value meetings, but travel for important ones. Covid actually proved how uniquely valuable face-to-face meetings are. People stuck at home also realised how important vacations are to them. We are now seeing more people blend business trips and leisure for these reasons.
This is why business jet flights have risen and people are still flying on airlines (despite the hassle). But because of supply chain issues, manufacturers have not been able to keep up with this demand.
In 2013 Citi published what it called its “Lost Decade thesis” saying that deliveries up to 2019 would disappoint because of the overhang of over-deliveries in the 2000s. This will not happen now.
OEMs delivered 25% fewer business jets between 2017 and 2021 than they did in the five years up to 2008. This will be the first business jet downturn where deliveries fell before a recession started.
Three-year backlogs give manufacturers the ability to swap slots when customers get in trouble. Gulfstream demonstrated this with the hugely successful launch of the G650. It started taking orders in April 2008 – at the peak of the market – but because it only started deliveries in 2012 it had few cancellations. The four years gave customers time to restore their confidence (and cash) just as backlogs will now. When demand returns they will benefit from the marketing funnel of people who have chartered, owned jet cards or fractional because of Covid.
Business aviation always follows the global economy and will not be immune to any downturn. The post-Covid bounce will not last forever. But there are lots of reasons to be more optimistic about this downturn than in 2008. There is no need for the other hand.