May 01 2020

Key Takeaways:

  • Demand for private air travel may experience an increase as travel restrictions and stay-at-home orders ease in the coming months.
  • Record lows in the price of jet fuel and an overstock of airplane manufacturer inventory could decrease the cost of flying private.
  • Concerns over the health risk of flying commercially and the likely reduction in commercial flights offered could increase demand by company executives and other travelers that prioritize efficiency and flexibility.

The global health crisis stemming from the novel coronavirus pandemic has caused far-reaching negative economic impacts across industries. The worldwide travel industry has been no exception. However, there are certain indicators, coupled with historical considerations, that point to potential long-term growth in one area: private air travel.

There was a significant spike in the use of private aviation in early 2020, borne largely from clients working to transport family members out of infected areas that had severely limited or shut down commercial air travel.  Since then, the private jet market has fallen in line with the economy at large as shelter in place orders have eliminated nearly all travel.

However, as shelter in place orders are phased out and travel restrictions lifted, could the private jet industry not only return to early 2020 levels but also experience a period of growth?  Economic and practical considerations suggest that it is possible. After all, it has happened before.

Although the commercial airline industry was greatly depressed after the tragedy of September 11, 2001, the demand for private charter flights saw a surge.  For example, of the 20,000 commercially licensed charter aircraft in the United States in 2001, 80% saw an increase in year-over-year bookings in the fourth quarter of 2001.  Company executives and other travelers began to shift their preference to private charter flights in order to take advantage of quick travel and flexible scheduling in the wake of stringent security in commercial airline hangars and a reduction in flight availability.  The increase in the private jet market proved not to be a short-term lift, but a long-term period of growth as companies showed an increased willingness to spend more on private air travel for the sake of convenience, safety, and efficiency.

Factors existing in the current economic and sociopolitical environment may also contribute to a change in preference to private air travel as the need for travel returns in the second half of 2020.  

These include:

  • Low cost of jet fuel: The first quarter of 2020 recorded the largest contraction in oil demand since the global financial crisis of 2008. For example, by March 4, wholesale U.S. Gulf Coast jet fuel had fallen by 50 cents from its January 1 price to a low of $1.42 per gallon.  Jet fuel is commonly more susceptible to market volatility than other refined oil products. As a result, jet fuel is set to drop an estimated 47% in the second quarter of 2020 from a year prior, two time the forecasted decline in gasoline and three times the forecasted decline in diesel fuel. The decrease in the cost of jet fuel will likely contribute to a decrease in the cost of flying privately.
     
  • Increase in inventory: Airplane manufacturers have produced aircraft for an expected demand in 2020 that has not materialized in light of recent events.  In addition, the focus of manufacturers has lately been on the production of fuel-efficient aircraft to combat rising oil prices.  This has resulted in a surplus inventory of aircraft that may not demand as high a price from consumers as anticipated.
     
  • Passenger health: As commercial airlines consider how to make their flights safe for a public that will emerge from this health crisis very aware of the potential for a virus to be spread in a confined space such as an airplane, private charter flights holding a very small number of passengers and crew may prove an attractive option, especially for the elderly and immuno-compromised who may be less eager to take an unnecessary risk. 
     
  • Convenience:  The amount of flights offered commercially will undoubtedly be depressed as demand remains low for leisure and other non-essential travel.  Business travel will likely be the first to recoup, as it was in late 2001.  The flexibility and efficiency of private air travel may again prove decisive for companies as it has in the past.

While all sectors of the economy consider how we can recover from this crisis and where we go from here, there is room for optimism, especially for industries that can offer a product or service that can market itself as an efficient, flexible, cost-effective, and safer alternative. These factors could contribute in the long-term to a rise in demand for private air travel. We encourage our clients to consider this prospective trend and how they may make their customers aware of the potential benefits of aircraft financing at this time.