Industry Blogs : Aircraft Interiors International
The charter operator sector is on the edge of an M&A frenzy. The past few months have seen several mergers including the high profile reverse takeover of Gama Aviation, by UK operator Hangar8 in December 2014. This follows Luxaviation Group’s acquisition of London Executive Aviation (LEA), earlier in the year.
The newly formed Gama Aviation PLC will now be a top five global operator, offering a 144-strong fleet, across all major geographical markets. And the consolidation of LEA and Luxaviation has also created a major player, offering one of Europe’s biggest fleets of 90 aircraft.
A still-challenging trading environment and government regulations are forcing scale – both in terms of aircraft numbers and geographical coverage – to be the only route to profitability for aircraft operators.
The benefits can be significant in the form of better buying power for fuel, landing fees, insurance and crew, as well as client retention – being able to offer clients a broader range of aircraft and geographical reach. Empty legs can also be better utilised in a larger business or group.
A direct relationship between fleet size and business success
Last month PrivateFly hosted an industry round table, inviting representatives from several of the operators in our network – including Gama Aviation, LEA, GlobeAir and Blink. We looked at the commercial challenges for private jet operators and the subject of fleet size and scale was a prevailing theme. Everyone agreed that in today’s market, there is a direct relationship between aircraft numbers and business success.
Richard Koe, managing director of industry intelligence provider WINGX-Advance presented some statistics, showing the size of fleet required for operators to move into profit. The magic number depends on the business model of the aircraft operator ie:
1) Charter dedicated: The operator owns their aircraft outright and offers them for commercial charter.
2) Charter managed: The operator manages an aircraft and arranges charter on behalf of the aircraft’s private owner – when they are not using it.
3) Private managed: The operator manages aircraft for private owners who don’t offer their aircraft for commercial charter.
Each operator type has different operational challenges and rewards. Charter dedicated companies work on the basis of a ‘higher risk, higher reward’ model, whereas the others have a lower risk and lower reward.
For charter dedicated operators there is a bigger share of the charter revenue to be had, but at a much higher cost of business. There is also the pressure to maintain business levels in the European low season (November – February), as they are dependent on charter revenue. Depreciation is also a bigger factor, due to the aircrafts’ greater utilisation compared to those belonging to private owners.
On average, across all business models, the figures indicate that operators with more than seven aircraft in their fleet are more commercially viable in today’s challenging business environment. A charter dedicated operation needed 10 or more aircraft to break even, whereas the other business models could become profitable with four or five.
The average operator offers two or three aircraft
Europe is still very much a fragmented market with a total of 1,600 operators holding an AOC (Aircraft Operator’s Certificate), but the vast majority (95%) offer a fleet size of fewer than 10 aircraft. Almost half have just one aircraft and the average operator offers two or three.
This is why from a customer perspective; it has been difficult to compare the market. Technology such as PrivateFly is now making it easier, by linking the customer to available charter aircraft through an online marketplace.
So what further mergers and acquisitions will follow in 2015? Our industry is a fast-changing and fragmented one, and with operators under increasing commercial pressure, I don’t doubt there will be many.