AINsight: Wealth and New Attitudes Toward Air Travel

 - December 3, 2021, 11:34 AM

I have spoken many times during the pandemic’s effect on air travel, both airlines and private aviation. But 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 airline travelers, 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 percent bonus depreciation, coupled with a complete lack of desire to travel commercially with populated public airports and packed aircraft, there has been an unimaginable shift to private air travel.

This shift is stretching every corner of the business aviation industry to its 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 airplanes 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 an airplane.

This is also occurring at the same time airline travel is increasing. Airline pilot recruitment efforts have been lagging since the Great Recession, but the benefits of flying for an airline—including set schedules and salaries—are luring pilots away from business 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 airplanes that had been on the market for 500 days have been culled.

So we are dealing with one aircraft at a time entering the market as opposed to multiple options for a buyer. As a result, multiple full-price offers are generated on day one of the listings. 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 are 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.

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 2020. This critical segment of the industry has been virtually grounded by the pandemic. This means that the huge unaparalled growth of first-time buyers has depleted our available inventory.

I predict that in 2022 this important transacting segment will be back. Once these corporate clients are back, inventory levels will start to regenerate.

Next, once current owners have confidence restored that added inventory levels will allow them to replace a relinquished airplane, 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 airplanes sold, the charter pool will grow, and the need now for airplanes 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 would then not be stretched as thin.

Once all of this happens, we will start to enjoy as an industry the new lasting demand rather than be daunted by it.

Jay Mesinger is the CEO and founder of Mesinger Jet Sales, an international aircraft brokerage firm. With 47 years of successfully buying and selling aircraft, Mesinger Jet Sales has a global reputation for personalized, transparent service.