The COVID-19 pandemic has taken the world largely by surprise, especially as regards the speed with which countries have closed their borders, restricted travel and seen a sharp drop in economic activity. The outbreak has had a significant negative impact on the aviation and shipping sectors, with an increasing number of countries partially or totally closing their borders, coupled with a widespread awareness that people could catch or spread the virus through travel.
The difficulties faced, in particular by commercial aviation and the cruise industry, have garnered substantial media attention, but important developments have also been occurring in the luxury transportation market.
Travel by private aircraft offers more space, more privacy and almost complete separation from the remainder of the travelling public, so it is not surprising we have seen substantial recent increases in demand. The increase began in January, as people left China, which, at the time, was the most severely affected by the outbreak. Demand has since moved west with the virus, and we have also seen movement as those who had exited Asia now return as restrictions are eased. Hong Kong International Airport, for example, reported one of its busiest days on record for private jet activity in March, as those with the means to do so used private aircraft to return home.
In line with this movement, private operator MyJetAsia reported an 80-90 per cent increase in private jet demand throughout February, and New Delhi-based JetSetGo noted a nine-fold increase in enquiries for private travel. Private charter provider Jettly has reported that typically, during this time of year, they receive 2,000-3,000 flight requests each day, but this year, the number of requests has doubled.
as one commentator has noted, ‘Once you fly private, you don’t really want to go back,’ and clients that have now had a taste of private flying may well grow into loyal customers on the other side of the virus
However, it can be difficult to discern from the reports a clear trend in demand levels. While there has been an increase in interest from potential new customers, it has also been suggested that the majority of charter enquiries did not materialise into actual business, perhaps as people may have been dissuaded by the premium prices of private travel. It has also been reported that private jet flights were down around 40 per cent in the United States towards the end of March, and with popular private travel airports like London City Airport shutting down for all flights for at least a month, it may be that early positivity in the market was premature. In line with these erratic trends, the NBAA reports an anticipated “W”-shaped recovery curve, with demand rising as restrictions are eased which is then tempered by new financial realities, before gradually building up again.
More positively, others have noticed an increase in their revenues – for example, the CEO of U.S.-based private jet brokerage Paramount has stated that business through the first half of March was up by 25-30 per cent on the previous year. And as one commentator has noted, “Once you fly private, you don’t really want to go back,” and clients that have now had a taste of private flying may well grow into loyal customers on the other side of the virus.
The luxury yacht market is having to adapt during these times of global pandemic and in the longer term, it appears that contractual arrangements in relation to yacht charters will have to be amended accordingly. The Mediterranean Yacht Brokers Association will be making alterations to its standard charter contracts to give protection to those who wish to charter yachts but are concerned about the future impacts of the virus, such as travel restrictions being imposed (or not lifted) that may restrict their ability to travel to specified locations. The development of these additions to charter agreements highlights that brokers and shipowners are having to adapt in response to the downturn in business and therefore make charter agreements more attractive. The right to cancel pre-arranged existing charters scheduled for the next few months will be imperative.
The development of these additions to charter agreements highlights that brokers and ship owners are having to adapt in response to the downturn
Another impact (at least for the next seasonal cycle) will likely be that those who do not cancel their charter agreements will be looking to alter their destinations. Traditionally, the Mediterranean was the destination of choice during the summer, with the Caribbean preferred during the winter months. With Mediterranean countries such as Italy and Spain being some of the hardest hit by the virus, those travelling by yacht are unlikely to be wanting (or able) to travel to these destinations in the upcoming summer months. Brokers have noted that in response to the virus, many clients have made enquiries about travelling to traditional winter locations such as the Caribbean and Bahamas, and even to destinations such as Alaska and Scandinavia.
Clouds in the crystal ball
The IMF has suggested that the pandemic may cause a global recession at least as severe as the global financial crisis experienced in 2008-09. While it is easy to assume that luxury markets benefit from the same access to resources as their clients, it would be an error to underestimate the scale of the challenges facing private transportation.
As was demonstrated recently when a private jet containing several passengers from the UK was turned away from France, travel restrictions are now a very real part of our lives, and there is no way to know if we will be able to return to the pre-virus level of freedom. Reflecting this, the National Business Aviation Association has written to U.S. legislators asking that any relief package for the aviation industry be extended to operators in the private jet market, many of whom are now facing serious liquidity issues as their customer base stays home. In the meantime, people are adapting to address current needs – Textron, for example, has announced a financing program for Citation owners wanting to upgrade or modify their aircraft while flights are restricted, both to assist customers in spreading the cost of doing so and to maintain demand at its service centres.
temporary windfalls experienced by private jet and yacht companies due to a surge in enquiries or short-term charters are likely to be outweighed by travel restrictions and the recession that may follow the virus
Similarly, and despite news reports of high-net-worth individuals sheltering from the outbreak on luxury yachts, other reports suggest that COVID-19 is actually exerting downward pressure on the luxury yacht market. For example, Sunseeker, one of the UK’s largest yacht building companies, will be laying off staff members coupled with salary reductions for existing staff for the next two months due to the spread of the virus. Superyacht management company Y.CO has noted a drop in enquiries, with U.S.-based yacht broker Denison Yachting confirming that they have had buyers pull out of potential purchases due to the spread of the virus and are therefore waiting to see how the market progresses. Westport, one of the largest shipbuilders in North America, recently announced that it was laying off more than 300 employees in response to the COVID-19 pandemic.
The next 12 months are likely to be a turbulent time for luxury aviation and yachting companies whether they are operators, manufacturers, suppliers, brokers or owners. It remains to be seen whether government relief packages will be extended to these markets. Temporary windfalls experienced by private jet and yacht companies due to a surge in enquiries or short-term charters are likely to be outweighed by travel restrictions and the recession that may follow the virus, and such a recession will place significant strain on both the private aircraft and luxury yacht markets. Nevertheless, as noted there are signs of resilience and adaptation in these fields, so there is also reason for optimism.