The prevailing narrative is that the travel industry faced an unprecedented setback over the past 18 months. While this is true for most sub-sectors – for example, commercial airlines, traditional hospitality and travel management companies – a few verticals found themselves in an oasis and witnessed significant growth during this period. Vacation rental and extended-stay hospitality segments are two such commonly-cited examples. But another industry that enjoyed unprecedented success during the pandemic, yet didn’t receive as much coverage, was private aviation.
What happened to private aviation during COVID?
Like their commercial aviation counterparts, private aviation companies saw their revenues plunge to record lows in the first few months of the pandemic—10% of 2019 figures, by many estimates. But unlike their commercial aviation peers, private aviation operators bounced back in a matter of months and soared past 2019 levels.
Why? Because the pandemic opened entirely new market segments for the sector. Passengers weary of health risks associated with flying near hundreds of other passengers wanted the comparatively safer flying quarters private aviation allowed. Major reductions in commercial airline schedules made a charter flight the easiest way to get from one location to another. Finally, the U.S. capital and real estate markets ascended to record highs throughout the pandemic—meaning more passengers can afford the fares. As Jet Edge CEO Bill Papariella told me, “The people that fly with us are the people benefitting from this boom in the markets.”
Where does the industry go from here?
While the private aviation industry as a whole navigated the pandemic well, the industry outlook continues to be extremely positive. Following his company’s July IPO, Wheels Up CEO Kenny Dichter expressed high hopes for the long term. Revenue for the first quarter of 2021 rose 68% from the year-prior period, he said, and the company recorded a 56% increase in active members. But beyond just the perspective of the private aviation industry leaders, noteworthy investors backed up this outlook as well. For instance, KKR invested $150M in Jet Edge, which recently added 32 new aircrafts to its fleet.
So, as the private aviation industry sets course for the next few years ahead, some emerging industry trends will be interesting to keep an eye on:
As Jet Edge’s Papariella told me, we’re witnessing “a seismic shift” in private aviation. Over the last 24 months, we’ve seen significant mergers and acquisition activity as companies buy competitors and investors pour in new funding to advance their market share. “I think the weak performers will have a very hard time because the strong operators are going to have the planes. They’re going to have marketing support, and they’re going to have great customer service,” he said. “This pandemic is what we needed to clean up this fragmented market. By this time next year, you’re going to see four or five dominant players in the U.S. market.”
Companies without a clear strategy and distinct value proposition—operators that try to straddle aircraft management and charter management, for example—may find it challenging to survive.
During the pandemic, large aircraft OEMs such as Airbus and Boeing halted production of commercial aircrafts due to low booking volumes. Similarly, many of the prominent smaller aircraft OEMs such as Bombardier, Cessna, Embraer and Gulfstream slowed their production too, creating a massive supply shortage. Manufacturing isn’t expected to return to full steam until at least the end of 2022, significantly driving up prices for new aircraft and the resale value of used jets.
As first-time buyers fuel demand, “jets are moving quickly if they’re high-quality, and a lot of them are coming from (not publicly listed) sources,” said Rollie Vincent, a civil aviation analyst.
This is creating an interesting dynamic in the industry, especially given the high demand. For instance, the shortage of aircrafts and subsequent soaring prices could make now an opportune time for smaller players to exit at high valuations and lead to further consolidation.
Sophistication in commercial functions
While private jet brokers will continue to play a significant role as a revenue generation engine for the private aviation industry, similar to other industries, we are seeing new and innovative go-to-market levers being pulled. Membership programs and subscription models have made private aviation accessible to a much larger segment of the population with regional flights that are cost-competitive with business- and first-class seats on the major carriers. With Arizona-based Set Jet, for example, passengers can hop daily flights to major western cities for less than $500 (subscriptions begin at $99.95/month).
We’re also seeing significant enhancements in proprietary platforms and the overall digital experience aligned with travelers’ emerging preferences, and these investments are paying off. For example, private aviation company Sentient Jet saw $50 million in booked revenue through its mobile app in 2020. The industry will continue to move in this direction and, in the next three to five years, further grow its customer base by being more affordable and accessible.
Global attention on sustainability and low carbon footprint is affecting every industry, especially aviation. As research and development efforts to produce sustainable aircraft fuel continue, private jet operators who integrate carbon offset options into their pricing and offerings may be able to differentiate themselves in the market with this distinct and increasingly important value proposition. The general stigma associated with the industry’s carbon footprint, though, means companies will continue to grapple with this issue for some time.
How the private aviation industry evolves, especially as commercial aviation returns to normal levels, will be very interesting to observe. Regardless of how some of these trends pan out, the industry certainly is going to look very different in the next three to five years than it did just a few years ago.