Private flying has seen a surge in interest since 2020, driven by high stock portfolios, easy access low-interest cash, and pandemic-induced desire not to be confined to airport cattle stalls. Recent metrics suggest that the white hot market is beginning to cool to a more manageable level and can be sustained. After a pandemic was declared in the air, people who were first interested in private aviation began to seek out charter and fractional plane providers. These business models provide instant access to a fleet without the need to purchase or maintain one. Charter providers have reported that up to 50% of their business was booked by private clients who have never flown before. These new clients made it difficult for small-scale providers to service these requests in a capital-intensive niche industry that is geared for lower utilization. Some providers, such as Berkshire Hathaway’s BRK.B NetJets Division, had to stop selling new charters in order to provide adequate service to existing clients. For those with the financial resources and the commitment to fly on their own terms, buying a used aircraft was an option. This popular trend saw the stock of used aircraft drop to near zero. As a result, prices rose quickly and it became a seller's marketplace. This left only the option of more expensive, less-expensive, unattractive duckling jets that require a long list of costly maintenance. Some first-time buyers found themselves frustrated and decided to buy a new plane. The manufacturers' order books began to grow just as the preowned, charter and fractional markets became saturated. Textron Aviation, a maker of private aircraft such as the Cessna Ciation business jet or King Air turboprop, reported in 2021 that 20% of their customers were brand new. The demand for next-available delivery slots soared, causing some manufacturers to extend their delivery times beyond 2025.
These exceptional times didn't last forever, as with all extreme swings from market norms. The first signs of the froth beginning to recede a little - but not in a way that is catastrophic, but that alleviates an overworked marketplace - are already starting to show. Inflation, falling stock and bond markets and rising interest rates are some of the catalysts. There is also the threat of recession and reduced virus anxiety. Although flyers may feel less secure or rich than they once did, it is possible to reduce or eliminate the high-priced private flight expense. This can help you at least mentally strengthen your finances. Many business aircraft novices are returning to their airline seats and economy, with no strings attached. WINGX reports that North American charter activity is down 23% from year-ago levels and is even 5% lower than the pre-pandemic levels. The ease with which chartering is possible is a key reason for this quick turnaround. Many of the first-time charter users were interested only in a single trip and were not financially able to afford the $20,000 one-way flight from New York to Palm Beach. AMSTAT reports that the inventory of pre-owned aircraft has increased by a third in the past six months. Although still at historic lows, there is a noticeable uptake in the availability of used aircraft. The industry that saw some used plane model prices rise by as much as 80 percent is now experiencing modest price drops. After some newly-minted owners of airplanes were educated about the annual maintenance and operating expenses, which can be many times the sale price, inventory is expected to continue increasing.
The association for preowned aircraft market IADA reported that sales transactions decreased by 6% year-to-date in the third quarter of 2022, compared to the same period in 2021. This follows a string record-setting year. As the U.S. tax deduction benefit that is 100% accelerated decreases to 80% in 2023, further decreases are possible. This will make the ownership proposition less appealing to some buyers.
New business jet makers have been seeing the downshift as well, as book-to-bill ratios, a measure of sales activity, decline somewhat. As testimony to this favorable sales flow, backlogs have swelled to multi-year highs, equivalent to a couple of years' production. Benefitting are such OEMs as Dassault, Bombardier, Gulfstream (General Dynamics GD ), Embraer and Textron's aviation division.
A decrease in charter activity and fewer preowned and new aircraft sales indicate that the peak for public interest in private aviation has passed. This is a relief for an industry which was never designed to become a mass transit system. It has been overtaken in the past few years.
There are long-term risks associated with this shift. After being unable to meet the demand for charter programs, fractional providers placed huge new aircraft fleet orders with manufacturers. These orders will remain in place as more aviation newcomers are unable to meet their demand. Charter/fractional companies who depend on client growth for their numbers and investors could also be at risk.
However, I estimate that less than 10% will continue to be introduced to general aviation. This still increases the market base for the industry. To finally remove the low-hanging fruits from the tree, it took nothing less than an epidemic.