Is the “air taxi hype” of a few years ago dead? Edwin Brenninkmeyer, CEO of aviation consultants Oriens Advisors, presents a commercial case study.
n previous columns, we’ve considered customer education, the requirement for future business jet operators to think more commercially than ever before and we suggested a possible future role for business aviation airports. All these themes assume high utilisation.
The assumption is that there is a large new market of customers out there to be educated, thus requiring disciplined, scalable business with professional corporate governance to support this growth that provides airports with more demand for business facilities for the end users of these operators.
But is there really a market out there and is the “air taxi hype” of a few years ago dead? For the purposes of this commentary, air taxi is assumed to refer to commercial operations of business-jet style aircraft, undertaken at near airline pricing.
There are three implications behind this definition that require further investigation, if “air taxi” as we have defined it, is to work:
Can seats on business jet aircraft really be sold at near airline prices?
If so, how big is the market?
Which business models are most likely to succeed?
Full-fare return economy tickets in Europe currently vary from a few tens of Euros to around €1000 on some routes, especially if booked last minute. Business class costs barely more than full fare economy, at present. If we assume the current reality that the average business jet load factor is between 2-3 passengers, regardless of aircraft size, this sets pricing for the whole aircraft return trip at downwards of €3000 which works for short-hop flights of 30 – 45 minutes in duration, the sweet-spot for the classic entry level twin jet. On such short hops, one can also add a fourth person comfortably, thereby further driving down cost.
A case study from a corporate client with a routine travel need from Siena to Basle with four people demonstrates the air taxi advantage. Using traditional travel, the journey time was 11 hours and 35 minutes and spanned 1.5 days, costing the company €3070 plus other hospitality expenses . With an entry level jet, this journey takes 4 hours 15 minutes and becomes a day-trip, including the meeting, at a cost of €4570. If one factors in productivity at €175 per hour for one executive and €100 per hour for two junior staff members, this results in a saving to the company of €1531. Clearly, there is less benefit vs traditional transport for a classic London – Paris run but then again, 70% of popular business aviation routes in Europe are not served by the airlines, and if anything, airlines are currently cutting schedules.
As we have seen above, the air taxi will not replace airlines, rather complement them; therefore care must be taken when using airline statistics as a reference for air taxi market size. However for indicative purposes let us assume that airline passengers who purchase business and non-discounted economy fares represent the potential market for travel in entry level jets to destinations either not served by airlines, or to more convenient airports on comparable airline routes (eg Biggin – Le Bourget rather than LHR – CDG).
In Europe in 2008, the airline industry generated total revenues of $122.7bn, representing a total annual compound growth rate of 10.7% during the period 2003 – 2007 (Datamonitor, 2008). Approximately 40% of these flights may be considered business flights of which perhaps half are full-fare, non-discounted economy class fares or business class (OAG Sept 2008). This gives a European market size of $24bn, growing at 10% per annum. Private jet travel has been the fastest-growing sector in general aviation in recent years. 8.9% in 2005 and forecast to grow at a further 10% CAGR (Teal Group, 2010) in Europe for the next six years. This coupled with indicators such as the recent price increase announced by Embraer on the Phenom 100 reflects a possible strong rebound of the entry-level market, and overall expansion in the European light jet marketplace.
A word about the different air taxi models
Those air taxi companies which have survived through the recession are still largely selling "whole aircraft" air taxi products - with short term availability, lower costs and greater airport flexibility supported by great customer service allowing them to survive the recession. The opportunity which scale brings may well finally provide the wherewithal to deliver a cost effective and passenger acceptable PSOD business model.
It is also telling that the airlines are dipping their toes back into this market space - with the recently announced BA partnership with CitationAir. Indeed Qatar now have a branded fleet of Challenger “private” jets. So, operators with sensible asset strategies, good cash-flow, a largely variable cost base coupled to a strategic growth model which targets affordable scale should be well positioned to take on this exciting market opportunity and demonstrate a future for a form of Air Taxi model.