It's a Buyer's Market
Despite the near-term pandemic bump in air charter travel, the current economic lockdown and subsequent bear market is going to keep many would-be private flyers on the ground, staring into their thinner wallets instead of up toward the sky. This in turn will create market pressure on providers, especially those that are heavily leveraged and dependent on private equity, as much of the business jet sector growth in the past few years has been fueled by lots of PE activity. Private flyers will be seeing some really incredible deals. Perhaps a little too incredible.
What's the Downside?
Good deals you say? What could possibly be wrong with good deals? It is when a good deal slides into that category of a desperate play for revenue that air charter buyers need to be wary. This is especially true with large group air charter, whereby the charter aircraft that airlines utilize for large group charter flights cost more given their much larger passenger capacity and range capabilities. A typical air charter flight for a large group for say 300-400 passengers can run well into the six figures. While chartering a large group can be an incredible value on a per-person basis, the big numbers can attract attention from unscrupulous companies.
The landscape of previous downturns is littered with air charter companies going dark, some ignominiously winking out of existence, while others have imploded spectacularly, like a black hole, sucking in customer deposits along with them. Now more than ever, anyone involved with private air charter procurement should be paying close attention to five signs of an air charter company on the brink of parting you or your client from some hard-earned dollars, never to be heard from again.
Let's be clear; there is nothing wrong with an air charter broker or air charter airline beating the bushes during a recession, and getting creative. In fact, if you are really good at this, please send us your resume. There is a distinction however between good old-fashioned, honest effort and a scam to keep the plates spinning in the air. While we are excited about bringing some exceptionally good charter offerings to our air charter clients that arrange charter flights for large groups, as well as our business jet clients, we are also mindful of the potential pitfalls that air charter buyers should be aware of.
#1 Amazing Deals...but you Have to Send Money Today
The first sign something is amiss is too-good-to-be true price cuts, or some brand-new program such as a new jet card offering that is far less expensive than any previous offerings found in the market. The underlying economics of aircraft operations will not appreciably change. That is why it is very difficult to offer rates that are on the order of 50% less than what a particular company has been offering in the market. If they have that much of a competitive advantage, why have they kept it a secret until now? Be wary of any offer that just doesn't make any sense on its face. Be especially wary of offers stipulating a time limit whereby you need to send a deposit or the deal goes away. Run in the other direction.
#2 Who's Calling Please?
Anyone that is in the business to book air charter flights may be hearing from lots of strangers these days. Reputation and relationships matter. If you have an air charter broker that you trust, stick with them through these trying times. There will be lots of noise in the market in the coming months, but remember why you ended up with your air charter broker or air charter operator in the first place; you trust them. Ask those tough questions. Do they have adequate liquidity? What is their debt situation? Do they offer escrow protections? Understand how this market is affecting them and the operators that they utilize to make sure that you are doing your due diligence.
#3 There's Nobody Home
It may be too late when it happens, and this one is obvious, but if you call and the telephone rings into the night, or if your emails go unanswered, yeaaaah, that's a problem.
One way to determine if there is indeed a problem before this happens is to check social media and see if any staff members have abruptly departed or if they are out in the market looking for a new job. Also, keep an eye on any employee posts to determine what is really going on inside the company. The sooner you realize that there might be an issue, the more time you will have to react and to prevent more good money going after bad.
#4 You Start Getting Calls From Vendors
If you start getting calls from airport vendors for things such as unpaid fuel and catering bills that you have already paid to your air charter broker, this can be the reddest of red flags. Sure, invoicing mistakes are not uncommon, but if you start to see a pattern, this could be symptomatic of a deeper problem. What's worse, it can be very difficult to get unpaid vendors from looking to you even though you have already paid the broker. Keep on top of payments and be sure to get confirmations in writing that they have been received and that the vendors have in fact been paid.
#5 Can You Pay Early?
Advance payments are a standard industry practice, and these difficult times necessitate that air charter companies are equally as careful as their clients. In the case of many large group air charter flights, advance payment is required pursuant to DOT regulation. Getting asked to pay sooner than what your contract requires is another sign that the financial pressure may be on, and you should be very careful about any advance payments that you are sending. Stick to the contract. If you keep getting pressured to make a change, ask why. This situation can be mitigated by the air charter airlines that your air charter broker is working with to some extent. While financial hardship can befall any company, the pressure can be especially intense for undercapitalized operators, especially the airlines that are doing business in the large group air charter space given the high operating costs and stringent regulatory standards under which they operate. That said, business jet operators are by no means immune. We recommend the same degree of caution in either case.
It Will be OK!
The air charter sky isn't falling, and the market will weather this downturn. That said, there will be some painful days ahead and there invariably will be companies that don't make it. Ironically, it is quite often the high-flying companies that are expanding the fastest during the good times that have the most difficulty weathering a significant change in market. Conversely, the middle to long-term outlook for private air charter looks quite good given that it can be an effective tool for avoiding both the public as well as public spaces. It is the near-term when the market is volatile that we recommend caution and sticking to those companies that you have trusted through trying times before.