As Europe and the US still struggle with economic downturn, the private aviation industry has turned to Asia for opportunities, Reggie Ho reports
Once upon a time, the following scenario was a relatively common occurrence in the West: the chairman of a company needs to have a meeting in another city three hours’ flight time away, but he has to be back the same day for other appointments. He therefore asks his personal assistant to charter a private jet. The PA has everything arranged within the hour, and off the chairman goes. The chauffeur pulls up at an executive airport and the chairman boards the plane within minutes – no checking in, no waiting, and no paperwork to take care of, as it has all been done before his arrival. He lands at another executive airport close to his meeting venue, and within two hours, he boards another flight back, in time for his client dinner. However, in today’s challenging world, with Europe and the US battling one of the most severe economic downturns in history, are these high-flying days gone? Perhaps not completely, but there’s no doubt executives in the West have become more cautious in using this expensive – not to mention politically incorrect – mode of travel. One needs only to look into the recent past when, in 2008, the chief executives of Ford, Chrysler and General Motors caused an outcry by flying privately to Washington, DC to make their case to the US Congress for a bailout. Three weeks later, they returned to the US capital by car. “If you are laying off people but you are still flying around in private jets, that doesn’t match. If you lead the corporation sustainably and respectfully, you have to send the right signal as the CEO,” says Björn Näf, chief executive of Hong Kong-based Metrojet, which is part of The Kadoorie group that also owns The Peninsula Hotels.
On the up
Perhaps Asia, where economic growth continues, is where the industry should turn for business opportunities?
Some encouraging figures support this supposition. Näf points out that the region is starting from a low base, and whereas the number of private jets is estimated to be around 2,500 in Europe, he puts the figure in Greater China at between 150 and 180. On the other hand, he is also expecting an average of 100 jets per year to be delivered in the coming decade.
According to Steve Varsano of The Jet Business, a street-level corporate aviation showroom for the acquisition and sale of private jet aircraft and ancillary services, although 60 per cent of the world’s private jets are still registered in the US, China seems to be catching up fast as some 35 per cent of the recent orders of large-cabin and ultra-long-range jets are from this rapidly growing Asian world power. But then one must also consider that, like ships, jets do not have to be registered or parked at the owners’ home bases. Singapore is a relatively mature market in the region for private aviation, but Varsano’s data put the number of registered jets in the country at only nine.
Growth of the sector can also be measured by private jet movements. According to Mike Walsh, chief executive of Asia Jet, a private charter company headquartered in Hong Kong, the number of private jet movements recorded in Hong Kong peaked at just over 5,100 last year, representing three years of annual increase in the mid-20s percentage.
Global players in the industry are also finding their way into the region to vie for a share of this expanding market. Last year, Gama Group, headquartered at Farnborough in the UK, announced plans to establish a base in Hong Kong, scheduled to start operating in the first half of this year. It will be the company’s fourth base after Europe, North America and the Middle East.
In Shanghai, the city’s first fixed-base operation (FBO) was set up last year at Hongqiao International Airport as a joint venture between the Shanghai Airport Authority and Hawker Pacific from Australia. Hongqiao was chosen over Pudong International Airport for its proximity to the city – an important aspect of executive aviation. Its more compact size also means that navigating around the facility takes less time.
Collectively the two airports accounted for about 2,950 movements in 2011, up from 2,000 in 2010, according to Walsh. “In other parts of Asia-Pacific similar growth in demand, especially in the charter market, is around 23 per cent annually.”
But Näf from Metrojet says not every company can afford the investment that it takes to enter Asia – it will take years to become established here. “You have to know how to live, work and do business in Asia… it’s a relationship business, you have to know the people,” he says. “You can’t say I have six aircraft or 50 per cent of my fleet on the ground, we are going to have dinner with a Chinese partner, sign a contract and start doing business – it’s impossible.”
But for those who have managed to set up here, he furthers, the Asian market has a lot of potential, and the region is expected to continue to do relatively well even though the sluggishness in both Europe’s and America’s economies will trickle through to Asia. “The economy will maybe slow down in growth, but it is still growing. It is not going into recession. If you have 6 per cent, maybe you slow down to four. This is still economic growth, this is still value creation, this is still job creation, this is still movement. In Asia, everybody moves.”
The only concern is, with demand growing faster than resources, the quality of service is endangered, Näf concludes.
Hurdles before success
In most cases, the jets are owned by wealthy individuals for private use, and managing and maintaining them for clients makes up most of the revenue of companies such as Metrojet. The charter side is growing, but being a new market, Asia cannot be compared with Europe or the US when it comes to the efficiency one expects from private aviation.
“Currently, we recommend three days’ lead time from enquiry to take-off, which is staggeringly different from our Western colleagues who can have an aircraft in the air within hours of confirmation,” says Gavin Copus, Asia-Pacific chief executive of Air Service Charter, which has seven offices around the world, including one in Hong Kong.
“Cities like Bangkok, Jakarta, Taipei, Shanghai, Singapore and Kuala Lumpur have airports closer to the city than their respective main international hubs, which offer the most convenient access. Bangkok, Hong Kong, Singapore and Shanghai offer the best VIP terminals,” Copus says. “Having said that, private terminals or fixed-base operators are still in their infancy.”
Gimpo (Seoul), Narita (Tokyo), Sydney, Haikou (Hainan Island) and Mumbai are also among the facilities primed to serve private jets, but landing permits are harder to get at some destinations in the region, especially the less developed cities in China. The problem is, these are also places where executives want to go to explore new business opportunities. “Some airports are off limits and some only allow Chinese registered aircraft to land there. However, we are finding that regulations are changing and improving month by month,” says Copus.
The fact that 70 per cent of China’s airspace is still tightly controlled by the military means it will be a while before the country’s private aviation picks up, even though the population’s rapidly growing wealth means there will be demand for it. In China’s 12th five-year plan, announced in the parliamentary session held in Beijing last year, promotion of the general aviation industry’s development was included, and relaxing airspace control will definitely be one consideration. But it will still take years for facilities to be built.
“There are about 5,000 airports in the US that can accommodate jets and only about 170 in China. They are building more airports at a fast pace but they have a long way to go to satisfy the demand,” The Jet Business’s Varsano says.
Slowly forward
Shanghai and Beijing will certainly see speedy improvements in facilities and efficiency, and at the moment the capital city is experiencing a bottleneck as more and more private jets come in and out of its hub. This in turn is spurring the development and growth potential of surrounding regional airports in cities such as Tianjin, Yantai, Qingdao, Shenyang and Dalian.
Hong Kong has the advantage of the Business Aviation Centre at its international airport, a private sector venture backed by multinational companies. It remains the main facility servicing the China market as well as the rest of the region. But space is running out fast. “We have reached the ceiling. We are putting the jets next to each other, wings overlapping, whereas before we had space between aircraft,” Näf says of the almost 60-strong fleet under Metrojet’s management.
Although there are other airports in the Pearl River Delta (PRD) region, the Hong Kong hub is still preferred. “We have an aircraft in Macau, but sometimes the client doesn’t want that. At the moment we can still offer a parking slot in Hong Kong, but there will come a point in time when we will have to look around.”
The facility has space left, but the Hong Kong Airport Authority has to allocate it. “There is increasing pressure and the industry is having discussions with the Airport Authority for more space in order to expand the parking for our aircraft,” says Näf. “I think it will happen, but it’s a matter of being a bit surprised by the fast growth, both for the Airport Authority and for aviation regulators.”
Other than Hong Kong, the PRD region has six airports, and another ambitious player is Shenzhen International Airport, where mainland company Deerjet, part of the HNA Group, opened its FBO last year. There are also a couple of underutilised ones such as Foshan Shadi Airport, a former military facility that went through an upgrade and opened for civil use at the end of 2009. These can potentially become executive facilities but time is needed to establish partnerships. For now, companies have to go a little further and work with facilities that are more ready, such as Clark Air Base in the Philippines.
(For more on PRD airports, turn to page 58.)
The big picture
Other than business travel, affluent leisure travellers also charter private jets for their trips, especially to exotic destinations such as Myanmar and Laos, where there are few, if any, air services by major commercial flight operators, according to Florian Preuss, general manager of MJets in Thailand. The operator is based at Don Muang Airport, in Bangkok instead of Suvarnabhumi, because it’s closer to town, smaller and less congested.
“Asia, and the Mekong region in particular, is experiencing a healthy split between business and leisure travellers,” Preuss says. “Traffic within Thailand has remained strong to key destinations like Bangkok, Phuket and Samui and also to tourist destinations in the north such as Chiang Rai and Chiang Mai. Charters to and within Vietnam, and to Hong Kong, Singapore, Siem Reap in Cambodia, the Maldives and select Middle Eastern destinations have also remained strong and shown steady growth. India and China have increased in popularity for business and leisure at a faster pace.”
Ironically, according to Preuss low-cost carriers (LCCs) play a role in helping private aviation, even though they are serving the other end of the market spectrum. “When you have an airline like Air Asia flying to a remote region, communities there will have to build airports for the volume of traffic being pumped in, and this stimulates aviation infrastructure development,” he says.
Another example is Indonesia, an archipelago of 238 million people spread across some 17,508 islands, many of them inaccessible through commercial flights. The country has a rapidly growing economy with an expanding LCC market, as illustrated by ambitious Lion Air, which has committed to an order of 201 B737 MAXs and 29 Next Generation B737-900ERs (extended range) from Boeing, with purchase rights for an additional 150 aircraft valued at more than US$14 billion if bought at list price. The airline flies to more than 36 cities in Indonesia in addition to a number of international destinations.
Every indicator is pointing to a bright future for private aviation in Asia – the only worry, it seems, is to catch up with demand. This, however, is a problem the industry players are only too happy to wrestle with.
The most popular private jet models in Asia
Gulfstream G550, Embraer Legacy 600 and Gulfstream G450 (versus Cessna Citation Mustang, XLS and CJ3 in Europe)
Source: The Jet Business
Heavy jets such as Gulfstream G450S and G550S, Bombardier Global Express XRSs and Challenger 605s, with the capacity to transport up to 16 passengers (preferred more for their long-range capabilities)
Source: Air Charter Service
Tips on chartering private jets
As in the West, one-way return legs are available for charter. They occur sometimes when clients need to stay at a destination for a few days and instead of paying the layover charge, they ask the operator to ferry the jet back and sell the return leg to offset costs. Some operators only offer return legs to their loyal clients.
Purchasing block hours, which come with priority booking and other support services, is recommended for any client who flies more than three times a year, according to Asia Jet. The company offers this at an entry-level price of US$250,000.
How much does it cost?
Metrojet – Depends on the aircraft type: a Gulfstream G200 (up to 10 passengers), for a three days/two nights roundtrip from Hong Kong to Singapore or Hong Kong to Beijing, costs about US$60,000; from Hong Kong to Tokyo around US$74,000 (all-inclusive).
MJets – Hourly rate for a Cessna Citation CJ3, for up to eight passengers, is US$3,500 per hour, plus costs such as the grounding fee and landing permit of up to 30 per cent extra. For a trip from Bangkok to Hong Kong, the price is US$27,000, including the ferry leg.
Asia Jet – For a round trip on a Gulfstream G200 with a full passenger load of 10 and a two-night stay, per person: from Hong Kong to Taipei costs US$2,584; to Phuket US$4,748; to Singapore US$5,107. For Shanghai to Hong Kong the cost is US$4,642 and Beijing to Hong Kong US$8,475.
