Tue, Sep 01, 2009
Business Analyst Says "Business Models Must Adapt"
With shakeups in the executive suite, major startup failures and
questions of survival for some established providers, Brian Foley
Associates president Brian Foley concludes the fractional jet
industry is in the midst of major transformation. "Regrettably
there'll be more turmoil in the charter, air taxi and fractional
arenas before year-end," he notes. "We're only in the fifth
inning."
Brian Foley
The recent $1.5B cancellation of Bombardier Learjet 60 XR orders
and options by Portugal-based Jet Republic should have come as no
surprise. "A year ago we publicly warned that start-up fractional
companies would be particularly vulnerable during this downturn,"
reminds Foley. "But this was especially dramatic because it
concerned one of the largest business jet fleet orders ever
placed."
Fractional fleet sizes are flattening out, evidence that the
industry has matured and discovered that demand is not limitless.
"The problem," Foley says, "is that the existing business model is
geared to rapid growth. So long as fleets expanded, providers could
profit by buying new aircraft at discounts and selling them at list
price to customers. But now, with fleet size very nearly constant,
the emphasis must be on making the operational side profitable --
or changing the business model altogether."
Despite the current unsettled state, Foley points to three
positives for the sector. "Given all of the recent negative
business jet publicity, it's believed that the market will lean a
little more toward ownership structures that keep the jet under the
radar such as leasing, jet cards, charter and of course
fractional." And second "Those fractional companies that can adapt
and survive will eventually end up in a world with fewer
competitors and hence the ability to raise prices -- a must for
long-term viability. Three: We're predicting double-digit
percentage gains in year-over-year fractional flight activity
(operations) later this year, which will be a healthy sign the
slump has bottomed out and turned the corner."
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