2021 was a record year for the business jet industry. And its boom will most likely continue, in our opinion.
Investors should take notice. Berkshire Hathaway, Warren Buffett’s company, understands this. It owns NetJets, a company that provides its clients with access to private jets on a membership basis.
Why is this industry taking off? The pandemic has a lot to do with it.
Covid has wreaked havoc on the commercial aviation industry. Schedules changed; some destinations became unavailable and cancellations are a common scenario. Business travellers need reliable travel plans and don’t have the appetite to show up at an airport 4 hours in advance for Covid testing protocols.
People’s habits also changed. Executives and other groups of customers decided to start using private jets to avoid contact and potential infection. Flying private has become significantly more affordable for the mainstream population which is the biggest driver.
Most people would much rather travel comfortably in a private plane if it was affordable and avoid the hectic atmosphere of commercial airlines and airports which generally treat people like cattle at its gates. Watching the horror stories of people on commercial aircraft on our weekly news channel of fighting and yelling is something most travelers would love to opt out of.
Finally, flying private became cheaper with the introduction of fractional ownership and other access schemes over the past few years. You can even buy a single seat now, which is both affordable, in our view, and gives you access to flying private.
These factors created perfect conditions for the business jet industry to take off.
And it did.
WingX, an aviation research company, says that as of November 2021, 4.2 million flights had taken place in 2021, which was a record.
This situation had several consequences… We will look at each of them shortly. Here’s a summary.
First, the jet manufacturers are overwhelmed with demand.
Second, the used-jet market is in a frenzied state. Companies reselling used aircraft see massive demand and low inventories of available jets.
Third, fractional ownership companies are scrambling to buy enough planes to match growing demand.
Let’s get into the details and see what it means for investors.
Jet Makers’ Sales and Profitability Improve
Take Textron, the maker of Citation business jets. Textron is a publicly-traded company.
In 2020, its revenues fell by about 14%. Last year, they recovered, and in 2023 the company is projected to generate $14.3 billion, higher than in 2019.
But more than that… right now, it has a $4-billion order backlog, the highest in over ten years.
Textron is not alone here… Industry analysts say that orders for new planes stretch for over two years industry-wide.
Just for comparison, commercial airline traffic is down about one-third from its pre-Covid levels, according to the International Civil Aviation Organization.
Meanwhile, private jets traffic is skyrocketing compared to its pre-pandemic level.
And better yet for the private jet industry… Inventories of used jets are at historic lows.
But not only are flights and jets in high demand. Stocks of private jet companies get investor attention as well.
Wheels Up, a private jet startup, went public in November 2021. It was described as “the Zipcar of private jets.”
It went public through a SPAC, and at the time of the deal, it was valued at over $2 billion.
In our opinion, more deals are likely to happen this year and beyond because…
Jet Access Business Is Booming
Even for a large corporation, purchasing a private jet is a big investment.
This is why companies like NetJets exist. They sell access to private jets on a membership basis or offer fractional ownership.
With some of them, you can even buy a single seat.
As a reminder, there are a lot of ways to access a private jet:
Charter: good for one-off trips.
Membership: usually good for occasional travelers. Memberships tend to have annual fees, but no flight hours are included.
Jet cards: good for those traveling more frequently. They often require buying a minimum number of hours.
Fractional ownership: one of the cheapest options on a per-flight basis.
Single-seat options have become available as well. Which is the most popular choice that makes flying private very affordable. Travelers now buy single seats from LA to Vegas regularly for the same price as flying commercial while not having to deal with commercial airport headaches. This trend of short commutes in private aircraft is a popular trend among a variety of routes in America.
All of these made the industry more democratic and available to more people.
So much so that back in August 2021, NetJets, as well as other players in the private jet business, halted new card sales due to overwhelming demand.
NetJets now says it will restart card sales sometime this year.
Other players report a similar level of interest…
FlyEliteJets, a UK-based private jet management company, says its bookings soared 150% since the Covid pandemic began.
Fractional ownership has been growing as a business over the past several years. Industry experts say that they see a lot of new customers coming in.
In other words, access to private jets is a growing market with cutthroat competition for planes and a lot of new customers who may never go back to flying commercial after getting a taste of private jet transportation.
Operators Expanding Their Offerings
Many private jet operators are on the wait list for electric jets which will further drop the cost of private jet travel by a significant amount as the biggest cost to operate these aircrafts is fuel. This is when you will see the private aircraft sector begin a hyper growth cycle.
Many private jet operators are also getting eagerly awaiting the eVTOL (electric vertical take-off and landing) air taxis to add to their fleet of private aircraft.
Various white papers have pegged this market in the billions or trillion of dollars, with Morgan Stanley estimating it at $9 trillion by 2050.
eVOTL developers include pioneers such as Joby (USA), Kitty hawk (USA), Volocopter (Germany), Beta Technologies (USA), Lilium (Germany) and Vertical Aerospace (UK). Some of these companies have begun low volume production and we believe mass production is just on the horizon and will be coming soon.
Slovakia’s Transport Authority just cleared the Aircar with a certificate of air worthiness. This is the first step for mass production of this vehicle.
Many aircraft manufactures are quickly trying to get their models approved so they can begin selling them to aircraft operators. We wouldn’t be surprised to see companies like NetJets begin offering these eVOTL aircraft as an additional option for its clientele within the city or long-range trips.
What’s Ahead for the Private Jet Business?
The demand for private jets will likely stay strong, as backlog numbers suggest.
In the US in particular, demand for private jet flights is already at pre-pandemic levels. Around the holiday season, private jet flights were 21% above their 2019 marks.
Europe, the Middle East, and Asia are also growing at double-digit rates.
Fractional jet trends are even stronger, according to Forbes.
Christmas week flights last year were 45% above their 2019 levels.
And fractional ownership continues to take market share from full ownership. Charter and fractional are now responsible for about 53% of the total.
In other words, it’s boom time for private jet makers and related businesses, in our view.
We are watching this space closely.
Thank you for your loyal readership,
The Financial Star team