Those looking for silver linings in the dark clouds over business aviation this week found themselves squinting to see any. If the Covid-19 pandemic’s repercussions for the industry still seemed ambiguous at the end of last week, there is now little doubt that the sector’s engines are spooling down and the industry is bracing for a period of inactivity. The only remaining questions seem to be for how long this might last and whether it could prove to be more than just a temporary interruption to what until now has been a rising tide for business aviation.
For now, the prospect of restrictions on domestic U.S. flights seems, mercifully, to have been averted. But elsewhere, the past few days have brought more worrying signs, such as business aircraft factory closures at Bombardier and Embraer, on the heels of Textron’s earlier furlough announcement.
In the UK, Harrods Aviation announced the temporary closure of its FBOs at London Luton and Stansted Airports, and London City Airport has closed at least until the end of April. The British Business and General Aviation trade group on March 26 warned that by the end of the month the country’s entire business aviation fleet will likely be grounded.
More discouragingly, there are signs that Asia is bracing for a second wave of coronavirus cases and taking steps to block new sources of infection by further restricting travel from other countries. From March 26, the Chinese government was effectively closing its border to all foreign travelers, bringing the crisis full circle from early February when it was Chinese citizens who found themselves persona non grata in a world that then largely saw the outbreak as a local problem.
As demand for passenger repatriation flights began to tail off towards the end of this week—an activity complicated by the need to navigate tightening government restrictions—operators found themselves increasingly shifting to cargo-carrying roles and flights in support of emergency medical operations. Charter broker Chapman Freeborn yesterday reported a surge in demand for aircraft to move humanitarian cargo and medical supplies. However, according to the European Business Aviation Association, some were adversely impacted by overly-rigid interpretation of rules by some national authorities, even though these missions are permitted under most current travel bans.
On March 26, data analyst WingX reported business aviation flights to and from Europe as being 24 percent down so far in March, compared to the same period in 2019. “The slowdown accelerated into a slump last week, with flight activity over the most recent weekend falling by 70 percent,” said the company.
Unsurprisingly, Italy—still Europe’s Covid-19 epicenter—has seen the steepest decline in traffic during March (65 percent down). Flights to and from France, Turkey, Belgium, the Netherlands, and Poland have fallen by at least 30 percent, as have transatlantic movements.
Conversely, the UK, where national lockdown regulations took effect late on March 23, saw only an 8 percent dip in flights. WingX recorded increases in flights from Sweden, Portugal, Latvia, and Estonia, as well as flights from Europe to China and the United Arab Emirates.
Charter marketplace Avinode’s latest forward-looking demand projections, published on March 25, highlight the flux-like trading conditions now prevailing as travelers and the operators serving them find themselves reacting to rapidly-changing personal and societal circumstances. “Whilst these market conditions continue, we should expect that future demand curves will look more like hockey sticks; they will be flat and then accelerate at the end,” said Harry Clarke, Avinode’s head of insights and analytics. “Brokers and operators that can act fast will be able to better take advantage of demand.”
By way of evidence, Clarke pointed to the market for intra-European trips, which looked very negative at the end of last week, only to then experience a modest uptick for short-notice flights. But beyond the end of next week, there appears to be not much on the charter booking radar in Europe.
In the U.S. market, Avinode has seen similar short-term fluctuations with last-minute improvements. “We appear to be seeing similar patterns in short-term demand in both the U.S. and Europe, although there is perhaps more uncertainty in the U.S. market, as it is unclear if restrictions will become stricter or looser in the next couple of weeks,” commented Clarke.
Avinode’s crystal ball sees some continued demand for intercontinental charters. Interestingly, its data highlights reveal above-average demand for flights out of Africa, Latin America, and Oceania, which, relatively speaking, have so far been less impacted by Covid-19.
This week, UBS published business jet utilization data showing minimal Covid-19 impact for the months of January and February, while warning that March data will show significant weakening. Its U.S. data showed year-to-date increases of 0.9 percent for the first two months of this year, and the bank said that early March showed continuing low growth just before the full impact of travel restrictions were felt later in the month.
Citing Eurocontrol data, UBS observed that jet usage rates in Europe had increased by 1.3 percent in February while commenting that it would have expected stronger performance at a time when business aircraft might have been expected to be busier as companies and individuals completed travel plans before the full impact of the emergency was felt.
But for UBS, flight numbers tracked so far constitute no more than a prelude for what is still to come for an industry that had, for the most part, been performing well until just a few weeks ago. “With business jet OEMs now suspending production and the potential for a global recession increasing we expect to see a significant impact to demand and deliveries,” commented UBS aerospace analyst Myles Walton, while also providing some historical perspective. “Through early 2009, after falling 11 percent in 2008, U.S. traffic was down 30 percent while deliveries fell off in 4Q08 and continued lower [around 25 percent] for each quarter through 3Q10. The fleet ended February [2020] at 22,500 [compared with 15,700 in September 2008] while aircraft available for sale continues to hover just under 2,200 [around 9.8 percent of the fleet]. Transactions remain down year on year.”
Teal Group’s vice president for analysis, Richard Aboulafia, was blunter in his assessment. “Whenever something bad happens to airlines (pandemic or terror), there’s an anecdotal upsurge in private aviation demand. This has never proved to be sustainable. In fact, business jet demand gets clobbered by crashing equity markets and corporate profits.”
Teal now anticipates significant decline in demand for new business aircraft, and especially in the large-cabin sector. “Again, watch fuel prices,” Aboulafia said. “Resource-rich countries and energy extraction companies drive large-cabin jet demand, so that segment will likely be hit hardest. We’re expecting a 20 percent decline in large cabin rates starting later this year. Small/medium jets will hit a new low, but down just modestly from today since they never recovered in 2008.”
Seeing the glass half full, business aviation analyst Brian Foley predicted that the industry is better prepared for this disease-driven downturn than it was for the man-made financial crisis of 2007. He pointed out that until just very recently, U.S. stock markets had been cruising at unprecedentedly high altitudes, 67 percent above where they had been 2007 and, at the same time, quarterly corporate profits have been around one third higher.
“Manufacturing was improving, job growth strong, consumer strength was meaningful, and business investment healthy,” he reflected. “The unemployment level hovered at historic lows. The most important economy to the industry was clearly in better shape before this downturn than it was in the last.”
All valid points, of course, but inevitably begging the question as to whether the crisis can be contained and reversed before all that high-flying prosperity is but a distant memory.