By Rob Morris
Can private jet companies in the Gulf region stay in the air amid the financial downturn?
Last year, every self-respecting businessman in the GCC was using private jets. This year, many are heading back to legacy airlines. Can private jet companies stay in the air?Casually boarding a luxury jet minutes before takeoff, knowing any extravagant request would be satisfied when cruising through the clouds, was once the preserve of the rich and famous. Not anymore. In recent years, the rapid rise of executive travel in the Middle East has seen an upsurge in corporate types snubbing commercial seats for the more salubrious surroundings of a business jet.
Given the choice between quaffing champagne, canapés and caviar, or sampling soggy omelettes and unsavoury meat dishes with mushy vegetables, many executives have unsurprisingly found themselves seduced by lavish corporate travel.
"It's a means of transportation with flexibility and privacy to fly wherever and whenever you want with whoever you want," says Ammar Balkar, CEO of the Middle East Business Aviation Association (MEBAA). "Time is important and making two or three meetings in various countries around the region in one day is also crucial for cutting costs and flexibility."
But while demand has risen in recent years, executive travel in the Middle East is far from immune to the economic crisis. In early 2009, analysts claimed the sector's eighteen percent yearly growth would continue, leading to an $800m industry by 2012. Such figures, however, may need revising in light of the sector's performance during this year's opening half.
As head of the Middle East's business aviation authority, Balkar has the inside track on the sector's health. According to his estimate, demand for executive flights is down 30-40 percent compared with last year as cash conscious businessmen scale back their travel plans.
"The downturn is a concern and like many industries you have to be very cautious about your spending, looking at the unnecessary or exaggerated expenses and cutting down. We might have operators trying to sell or undercut each other to take business, so it is worrying but as I said we hope by October or November we will see demand up by 20 percent.
"This kind of industry needs financial support and good back up, so I hope we don't see companies going out of business," he adds. "It could happen, why not? If this [downturn] continues to next year it might force operators out of business."
While Balkar paints a grim picture, operators in the region are more buoyant, with many claiming the drop in demand is more likely between 20-25 percent. Earlier this year, charter flights operator Arab Wings announced it was launching a sister company in Sharjah to provide business jet flights for government officials and executives. Unperturbed by the financial crisis, the Jordanian company obtained an Air Operators certificate to form Gulf Wings, which would also provide aircraft management services for luxury jet owners.
When announcing the plans, Arab Wings' general manager Ahmad Abu Ghazaleh said the company was committed to offering top level services during tough times. Prior to launching this new venture, Arab Wings had ten private jets for business travel and medical evacuation.
Vistajet is another company expecting growth amid poor market conditions. In March, the private jet company's founder Thomas Flohr told Arabian Business that Vistajet was targeting 25 percent growth this year. The figure would have been 50 percent had it not been for the downturn, Flohr added.
In a more recent interview, Flohr reiterated the company's growth target, insisting business jet operators in the Middle East were suffering far less than their European or US counterparts. "In the first quarter, the world was still in shock and wondering where the financial markets were going," he says. "But people who haven't called for six to nine months are doing so and they're interested again. Put it this way, the phone is ringing again and that's something we have seen from March to April onwards."Are we going to go back to the levels from 12-18 months ago? No, but we are seeing normalisation and people know where they stand," Flohr adds. "No matter where you are in terms of wealth, you want to know whether you still have your job, some of your assets, and if everything is fine? I believe by sometime in 2010 we will see levels of flying that we saw in 2007 and the early part of 2008."
Wavering demand is partly attributed to the steep prices that some businessmen pay for corporate travel. A typical one-way flight from Dubai to London with Vistajet can cost up to $85,000, Flohr says. The price depends on several factors including destination, time of travel, in-flight services, ongoing transport at the arrival airport and catering. The aircraft passengers fly in, ranging from Gulfstreams, Learjets and Challengers to Boeing Business Jets, also has a major bearing on cost.
Shopping around can unearth far cheaper rates, Balkar explains. Despite heading an executive travel organisation, he often flies commercially for business and pleasure. But on rare occasions, Balkar and up to four or five other businessmen can charter aircraft travelling within the Middle East for as little as $6000 return. "I leave at 7am in the morning and I'm back in the office at 2pm," he enthuses.
Clients paying top dollar receive the best air travel experience that money can buy, according to Shane O'Hare, president and CEO of Abu Dhabi's executive travel company Royal Jet.
Those willing to splash the cash can arrive at the airport 15 minutes before departure and are escorted to an aircraft parked 50 metres from the terminal. All catering and beverages are chosen by the client when the booking is made, while onboard passengers will find live TV, in-flight entertainment and bedrooms on some of the planes. "We will deliver anything, provided it's legal," O'Hare says.
While once happy to spend big on luxury travel, some businessmen now balk at the cost in the current climate. But high-net worth individuals are still willing to pay top dollar for premium travel. Indeed, celebrities, politicians and royals, for whom money is no object, remain a welcome source of income for business jet operators in the Middle East.
Adhering to strict anonymity policies, most company bosses are unwilling to mention names, although Flohr does admit that Formula One boss Flavio Briatore and former F1 world champion Lewis Hamilton have flown with Vistajet.
Royal Jet has also had its fair share of high profile names, none of which O'Hare is willing to disclose. But he is more open to revealing the whims of the famous, which range from the typical to the bizarre. "I can tell you we have a charter which will be carrying just pets," he reveals. "We have high demand for carrying falcons and we fly different aircraft with just baggage or special cargo for customers."
Dietary requirements and cabin temperature are other areas that draw specific requests from the rich and famous. And some of the corporate bosses still using business jet services can be just as demanding, not that O'Hare and Flohr mind. If anything, they would like to see more corporate types issuing instructions for their respective flights, which O'Hare considers likely once the economic upswing kicks in.
"You have to remember for the last three to five years, GDP growth has been between six and nine percent depending on the country, so you have had very high momentum in the region" he says. "A lot of business has been going on in this part of the world, with much interest and growth. That doesn't just apply to the UAE, but also Saudi Arabia, Kuwait, Bahrain, Oman and other GCC countries.
That really has been the primary reason why the Middle East market is performing better than other regions, even though there has been a fairly big correction globally. We're down to maybe two to three percent normal growth levels, but the momentum is still there."
The truly tired and very old argument that executive jet travel is all about convenience has run its course. Flying in a G550 is a right of the often newly rich or corporately bloated. You meet many of the old rich who fly economy or, at best, business, on commercial because they can't justify the expense and hate the flash. Private jets are by no means private, as Michael Jackson learned when his conversations were secretly recorded. As the car maker plutocrats discovered, private jets send the very worst statement of corporate greed. Maybe when the scent of new money wears off the in Gulf the private jet industry will simply fade away. But that could take an awfully long time.