New Data Hints at Market Peak—or Triggers Wishful Thinking

A spate of early 2023 reports suggest that charter rates and demand may have peaked last year, a storyline in sync with moderating trends seen in preowned transactions, VIP completions, and refurbishments, and overall business aviation flight activity. Travelers who’ve seen charter rates climb sharply with the post-pandemic demand-driven lift shortage would welcome this development but a celebration may be premature, according to countervailing data.

Among recent indicators hinting at a slowdown: business jet flight activity in the U.S. in the first half of February decreased 1 percent overall year-over-year (to 93,500 segments), but branded charter activity fell 17 percent for the same period, according to WingX. Concurrently, excluding the U.S., worldwide activity was flat year-over-year, but flights by Part 135 (charter), 91K (fractional), and other commercial providers collectively dropped 9 percent compared with a year ago.

Another bellwether metric: the 562 business aircraft that flew to this year’s Super Bowl, held on February 12, represented a 25 percent decline from last year’s total, “reflecting a decrease in Part 135 operations,” according to the Hamburg, Germany–based bizav data specialist. The calculation doesn’t factor in the relative allures of the host cities—Los Angeles in 2022 vs. Glendale, Arizona, in 2023—but in the past five years, Super Bowls in Miami and Tampa, Florida, also attracted more business aircraft than Glendale, which outdrew only Atlanta.

“Charter,” declared WingX, “is the relative weak spot” in business aviation flight activity.

Meanwhile, there’s evidence of lower charter pricing. Overall hourly rates in January ended some 6 percent below December’s average in the U.S., according to consumer charter marketplace platform JetASAP. The rates for occupied flight hours, including Federal Excise Tax and fuel surcharges, fell 6 percent for light jets to $6,602; 5 percent for midsize jets to $8,083; 16 percent for super-midsize jets to $10,177; and 7 percent for heavy jets to $12,496. Turboprop hourly rates remained stable at $4,133, however. (These costs are based on charter quotes for some 2,800 trip requests, provided from among the more than 700 operators participating in the Boca-Raton, Florida firm’s marketplace.)

Additionally, B2B charter market platform Avinode reports softening prices in Europe. The Swedish company’s price index (a market basket encompassing all aircraft categories) peaked on the Continent last July at just over 135; the index uses a rate of 100, set on Jan. 1, 2018, as its baseline. It’s now at about 125; At its low, in the spring of 2020, the index had fallen to about 90.

Some Data Shows Rising Prices

But contrarily, Avinode also reports that its price index of charter rates within the U.S.—which bottomed out at under 75 in the first half of 2020—hit a new peak this January at just above 130, surpassing the previous high set last spring.

Meanwhile, Private Jet Card Comparisons, which tracks more than 50 operators and 250 access programs in the U.S., says hourly rates “continue to increase” across all aircraft types and now average $11,748 per hour, up 39.8 percent from their low at the end of 2020. It also reports that 62 percent of private jet fliers seeking to switch providers cite increased prices as the reason.

As for indications of reduced demand, the operative word is “relative,” as WingX acknowledged in comparing recent activity with charter’s “huge highs in the last 12 months.” Similarly, a recent forecast from Argus International predicts that overall flight activity this year will decline by 0.9 percent, yet that would still best 2019’s robust figures (by pre-COVID standards) by 14.5 percent, the Colorado-based firm points out.

Another perspective on demand: in a recent market brief, aircraft financier Global Jet Capital noted that many economists anticipate a recession in 2023—an event typically associated with a decline in lift demand—but that “business aviation’s unique value proposition has ensured [that] the business jet market is resilient.” Moreover, the industry’s flood of new, post-pandemic customers remains committed to private lift, the Connecticut company says, declaring, “The broadening of the business aviation user base has endured.” 

But given such economic concerns, Global Jet Capital did caution that the industry’s resilience “will likely be tested this year.” 

Even if economic headwinds were to become a factor, however, supply constraints would hobble the ability to meet demand. Some owners have withdrawn their aircraft from the charter fleet, and consolidation among large operators has also reduced the number of aircraft available on the open market, says Wendi Matthews-Ortiz, vice president of executive aviation in the U.S. for U.K. charter broker Hunt & Palmer. 

Deals Are Hard to Find

Discounted empty legs have also disappeared, and when she finds last-minute deals, customers still complain that it’s “50 percent more than the last trip,” Matthews-Ortiz says. As a result, for the first time in 25 years in the business, she has had to tell clients no aircraft are available at their price points.

At Aviation Portfolio, which advises clients of major charter, jet card, and fractional programs on access strategies, founder and CEO Craig Ross says flatly, “I do not expect charter pricing to come down this year.” He cites aircraft owners’ changed behavior and attitudes and the dynamic pricing algorithms now used by major floating fleet operators as two big reasons for that view. Private owners, he says, “have gotten a taste for the first time in 30 years of higher margins, higher returns on their charter, and more punitive cancellation fees,” and show no inclination “to loosen those increased rates and more restrictive terms.”

Additionally, many aircraft 10 years old and younger have left the charter fleet. Says Ross: “The pandemic gave private owners a chance to take a step back and say, ‘I have a seven-figure-a-year expense to own a plane, and a couple hundred grand in charter offset is not really putting a dent in my overall expense. It's annoying, and my pilots don't want to do charter.’”

Meanwhile, during the post-pandemic demand surge, Ross says, large floating-fleet owner-operators have evolved their dynamic pricing algorithms, which would require substantial adjustment before pricing would drop to a noticeable level. “I don't see them doing that at the moment,” he says.

Evidence of Increased Flexibility Emerges

Were demand to soften, it would likely first manifest subtly. Already, Private Jet Card Comparisons notes signs of increased flexibility among some providers, seen for example in a decrease in average daily minimum times from 109.3 minutes in the second quarter of last year to 94.7 minutes last quarter, which could effectively lower the price of the shortest flights.

Decreased demand could also mean faster recovery times—perhaps the same day, rather than a day or two later as is now the case, says Ross.

But whether prices and demand come down or not, there’s no guarantee that service will return to pre-pandemic levels, as he has advised clients of his California-based consultancy. “As a result of the supply-chain, pilot-shortage, and pandemic issues, there's a whole list of excuses that has allowed our industry to lower the bar for service,” he says. 

Doubtless, Ross speaks for his clients and many other customers when he adds, “We understand those industry issues are real, but you're running a business. You’ve got to figure out how to get better, how to improve, how to evolve. You don't wave the white flag and say, ‘It's an industry thing, so we're just not going be as good as we used to be.’”