Jet charter market receives a boost in the Gulf

10 November 2009

Executive jet charter operators are experiencing a recovery in demand for their services after nine months of decline as economic confidence begins to return

In recent years, the Gulf region has emerged as the world’s most active aviation charter market. Just one executive charter operation was in service before 1999, but now there are at least 23 private operators in the region, ranging from royals-only airlines to seaplane charters for tourists.

Investment has piled into the aviation sector. Abu Dhabi’s Al-Bateen Executive airport, for example, has been transformed into a private, jet-only regional hub following an AED200m ($54m) overhaul this year.

Key facts

1,000 - Average number of hours a VIP aircraft is used in a year

23 per cent - Annual growth in the Middle East’s charter market from 2006 to 2008

Source: MEED

These new services are being offered in response to demand from a range of users, from European expatriate workers requiring a convenient means to reach multiple destinations in the Gulf, to chief executive officers (CEOs) needing to make return trips within a day to locations not covered by commerc-ial airlines.

For some operators, the region’s large population of royals has created a steady market. Senior officials who are also members of one of the Gulf’s ruling families and regular users of the royal-only franchises of national airlines, such as Qatar’s Amiri Flight.

While the economic downturn has forced many businessmen to use cheaper, commercial carriers, or suspend business travel altogether, executive jet charter operators detect a recovery in business as economic confidence returns. Some independent charter operators report growth in demand for short regional flights within the Middle East, while trips to and from Europe are becoming increasingly popular.

Tough market

But the good times of 2006-08 have not completely returned. “We were all hit badly from January 2009 onwards,” acknowledges Ammar Balkar, CEO of Elite Jets, a Dubai-based luxury private jet operator established in 2004, which now has a five-strong fleet. “It has been a hard nine months, but we are starting to see good growth in the aircraft charter market.”

As a result of the economic downturn, the industry has reported a decrease of up to 30 per cent in demand from corporate customers, according to the Middle East Business Aviation Association, which Balkar heads.

This follows a period of phenomenal demand for private jet services in the Gulf. Before the downturn began in late 2008, industry studies credited the Middle East’s charter market with 23 per cent year-on-year growth in the period 2006-08, with the local market for private jet services worth about $500m a year.

The regional business jet market had been expected to grow by as much as 20 per cent until and including 2012. Now, it is only likely to see single-digit growth next year.

But there is more resilience in the luxury end of the market, according to charter operators. “Things do seem to be recovering,” says Darren Brews, corporate communications manager at Dubai-based Air Charter International. “We are getting more enquiries on the medical evacuation side, for example, and also from corporate business and high net worth individuals.”

Whether this leads to a sustained upturn in business jet use in the region remains to be seen. Balkar forecasts a 3-5 per cent growth in 2010, but says a return to the double-digit growth of previous years is still out of reach.

“We have seen some high net worth individuals buying aircraft, which indicates that the availability of funds is there,” says Balkar.

High net worth individuals with liquidity are more likely to buy aircraft in today’s buyers’ market, with suppliers offering discounts. “Customers can get 20-30 per cent reductions right now,” says Balkar.

Some charter firms are better insulated from economic fluctuations than others. According to John Morgan, vice-president of commercial operations at Abu Dhabi’s Royal Jet, the company’s strategy of diversifying its customer base has provided protection in the downturn. “Royal Jet’s client base includes government personnel, high-net-worth individuals, medical evacuations, royalty and heads of state, all of whose bookings have remained stable and on target,” says Morgan.

Royal Jet was launched in May 2003 as the commercial arm of Abu Dhabi’s Amiri Flight, now known as the Presidential Flight Authority, which has a 50 per cent interest in the company. With a fleet of 10 aircraft, the luxury flight operator has a base at Abu Dhabi International airport, where it operates the only private terminal.

The medical evacuation market, which facilitates private patient transfers to medical centres within or outside the region, makes up 14 per cent of Royal Jet’s business and this side of the market has been less affected by the downturn.

“It has been a hard nine months, but we are starting to see good growth in the aircraft charter market”

Ammar Balkar, CEO, Elite Jets

The airline, boasting a valuable royal cachet, began operations in Saudi Arabia in June this year and plans to double its fleet of aircraft to 20 by 2013. “Royal Jet has expanded its charter product offerings and geographical presence,” says Morgan. “This strategy has delivered immense returns for the company since its inception earlier this year.”

The company’s charter business has turned out multi-million-dollar profits in its first year of operation. Royal Jet claims to have had a good year so far, with a 15 per cent increase in VIP charters year on year and strong demand for flights in and out of Europe.

There are other factors that help make the Middle East a more resilient business jet market. While private jet use has a stigma of conspicuous consumption in the West, the more aspirational business culture of the Gulf means private jet users in the region receive little criticism.

The increasingly sophisticated facilities on offer in business jets will add to their appeal. All the leading manufacturers are present in the Gulf market, with models including the Embraer Legacy, the Challenger 604 and the Lear Jet. The Boeing Business Jet, which typically seats 25-40 passengers, comes with a master bedroom, washrooms, conference and dining areas as standard.

“Lear Jets are always popular, but customers are also loyal to the Boeing because it is a flying house and more comfortable,” says Brews. “You can stand up in it and it even has bedrooms.”

Local charter operators are also bringing new models onto the market. In September, Elite Jets unveiled a new addition to its fleet, a Falcon 900 DX wide-bodied business jet with international range.

The specification of new models is getting higher all the time. Elite Jets’ Gulfstream G450 offers on-board business tools including high-speed data ports, Satcom telephone with wireless handset, wireless access for laptop computers, fax and email services.

It is the convenience above all that keeps customers boarding business jets. For many CEOs, it is common to fly from Abu Dhabi to Riyadh, then on to Kuwait and back to Abu Dhabi, in one day. Such an itinerary would be difficult if they were forced to rely on commercial carriers. 

With the growing number of charter companies offering business jets in the Gulf comes a diverse range of business models. New market entrants are refinements on the traditional charter operations.

Low-cost option

For example, Project Phoenix, a US company that renovates commercial jets for the business market, launched its regional operations at the Dubai Air Show in 2007, aiming to offer cost-effective options. Project Phoenix sells bespoke conversions of the Bombardier CRJ-200 15-seat aircraft to charter operators.

The company estimates the life of the airframe (the craft’s mechanical structure) at 80,000 hours.

“If we sell it for 10,000 hours then that is still 70,000 hours remaining,” says Mike Creed, vice-president for sales at Project Phoenix. “As the average VIP aircraft will do about 1,000 hours a year, you would have 70 years before you would need to replace it.”

While Creed acknowledges that business has slowed this year, he says the low-price model, a renovated and refurbished plane, has enabled it to win new business.

“We are tending to get deals where people may want to upgrade to a bigger cabin, but want to get better value for money,” says Creed. “We are also getting those customers who want to trade down, but might want large aircraft.”

One business jet model that has come under pressure during the credit crunch is the fractional ownership scheme pioneered by the US’ NetJets, under which investors own a share of the aircraft. Saudi Arabia’s National Air Services owns the local NetJets franchise. But fractional owners have frequently opted to give their stakes back to operators such as NetJets.

“The fractional ownership concept has never worked in our region, primarily because there are no tax issues here,” says Balkar. “In Europe, it is tax-deductible to buy a share in an aircraft [for business use]. Also, why would you buy one tenth of an aircraft when you can buy the whole thing?”

For most business jet operators, the Middle East looks set to remain a robust market. As Royal Jet’s Morgan says, for businesses scrutinising their bottom lines, the economic case for hiring a private jet can be surprisingly attractive in a market where there is a glut of aircraft on the ground.

“When you analyse the costs of productivity, reduced turnaround times at airports, the possibility of flying to a business meeting and returning on the same day, and the confidentiality that comes with a private booking, it often works out to be less expensive than sending executives on scheduled flights within the region,” he says.

With home comforts like plasma-screen TVs, the appeal of the Lear jet and the Boeing Business Jet is likely to continue to outweigh that of the commercial airliner for many Gulf business executives.

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