Chicago air charter firms suffering along with commercial carriers
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by Matt Marquez
Medill Reports
Feb 04, 2009
Chicago business aviation operators have fastened their seatbelts and prepared for the worst, because they say there’s no end in sight for the economic turbulence engulfing their industry.
The financial troubles of major commercial airlines like United Airlines and American Airlines, subsidiaries of UAL Corp. and AMR Corp. respectively, have already received widespread attention, but the struggles of business aviation companies that provide travel service to corporations and private individuals have largely flown under the radar.
Andy Schweickert, a representative of DB Aviation Inc., says his company is one of the two largest Chicago-based air charter operations – companies that fly clients around in leased airplanes – with a fleet of 23 aircraft and service to thousands of airports throughout the country that aren't served by the airlines. But that hasn’t stopped the recession from cutting into the charter operator’s bottom line.
Schweickert estimates that DB Aviation’s 2008 charter sales fell 25 percent from the year before, when the company recorded $57 million in revenue and was listed as Chicago’s 318th largest private company in Crain’s Chicago Business.
“Customers are becoming more and more cost conscious,” Schweickert said, adding that many of DB Aviation’s larger aircraft are seeing less and less use as clients opt to use smaller, cheaper planes.
DB Aviation is not alone in feeling the economic pinch. Business aircraft activity fell throughout the nation by 22 percent in December 2008 compared with the year-earlier period, according to a recent report by Argus Research Co., an investment research firm that tracks aircraft use. The report included activity from planes that seat fewer than seven passengers and resemble the inside of a small car, to aircraft with cabins large enough to hold 15 people and a conference room.
Managing Director Michael Sylvester of Blue Star Jets Inc.’s Chicago branch said the flagging economy has left its mark on his private-jet brokerage company, which arranges client travel through various charter services.
“I hate to say this, but business could be doing better,” Sylvester said. He noted that his company actually increased its number of clients in 2008 from the year before, but “they’re taking fewer trips over to Europe and there are more local trips from the Midwest to Florida” – which cost less.
The economic downturn also has reduced the number of once-a-year fliers, customers whom Blue Star Jets tries to cultivate into long-term clients, Sylvester said.
Industry experts agree that a negative image may be compounding business aviation’s economic struggles.
Katy Glynn, president of the Chicago Area Business Aviation Association, a training and networking group for local business aviation operators, said the industry’s image has taken a beating as CEOs and other business leaders have come under fire for making use of private planes.
“We got slammed over the Detroit automakers,” Glynn said, referring to the publicity surrounding executives of General Motors Corp., Ford Motor Co. and Chrysler Motors LLC when they flew in separate private jets to Washington, D.C. last year to request a federal bailout.
“The public sees business travel as a luxury, not as what it is – an enhancement tool to get key people where they have to be,” Glynn said.
Sylvester agrees that a poor public image has likely hurt his business as customers decide to avoid the association with executives regarded as symbols of financial excess.
“We haven’t heard directly from clients that they’re worried about image; but when you see it’s the leading story for weeks and weeks in a row – yeah, that makes a difference,” he said.
Business aviation consultant and Shaircraft Solutions LLC CEO James Butler helps individuals and corporations buy and sell aircraft for private use. Right now, Butler says, increased public scrutiny means fewer companies may be willing to buy.
“Rightly or wrongly, it’s not a great time to go to the board and ask to buy a new aircraft,” Butler said, noting that some companies are instead choosing to use jet cards, which allow fliers to buy flight time like a pre-paid phone card, or fly through a charter service.
“Jet cards and charter services you can write off as business expenses rather than having them show up as an asset – which is examined by regulators and investors,” Butler said.
And as the business aviation industry falters, jobs for mechanics, cleaners and manufacturers are also at risk, says Professor Triant Flouris, dean of aviation sciences at Daniel Webster College. Flouris warns that countless white- and blue-collar jobs depend on the industry’s survival.
But even with the current economic struggles, Schweickert says that his DB Aviation will be able to survive, if not thrive, because of its strong financial position and the nature of the industry.
“[Business aviation] is cyclical. It’ll be booming in some years and down in others,” he said.
Schweickert pointed out that DB Aviation is continuing to hire pilots and roll out new planes, although plane acquisition periods that can take more than a year mean the company’s fleet size does not directly relate to its financial fortunes. But Schweickert says that having a varied fleet will be key to his company’s future success.
“Obviously, the more, different types of aircraft we can offer, the more missions we can fly,” he said.
Experts see a more complicated future for the business aviation industry.
“How long the economic downturns lasts – that’s going to determine what happens,” Butler said. “But as we come out of this, I expect fuel prices to go back up as the economy expands,” causing fuel costs to again become an issue.
Regardless of fuel prices, image issues and cost-cutting fliers, Sylvester insists that there will always be a need for his Blue Star Jets.
“I have a client next week who needs to be in two places at one time. He wouldn’t even be able to make it to his first meeting without our service.”
©2009 Medill Reports - Chicago, Northwestern University. A publication of the Medill School. |
