Swine Flu Boosts Charter Operators as Airlines Lose Top Fliers

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Sept. 15 (Bloomberg) -- Swine flu is helping charter operators like Air Charter Services Plc and Jet Direct Service Ltd. win top-paying business travelers from the major airlines as the global spread of the pandemic accelerates.



Revenue at Air Charter, a Kingston upon Thames, England- based operator with $200 million in annual sales, increased at an average rate of 32 percent month-on-month from May to August, Chief Executive Officer Tony Bauckham said.



“Most are high-net-worth individuals,” Bauckham said in an interview. “We’ve run 54 more flights in August than last year in executive jets alone, and some of that is an offshoot of not wanting to go to the general aviation terminals.”



Demand for private travel during the swine flu pandemic is boosting the charter business, worth about $33 billion a year worldwide. If the shift continues, it may hurt British Airways Plc, Air France-KLM Group and rival carriers providing scheduled service. Airlines, already facing losses due to the recession, bank on business- and first-class travelers for profit.



“North of 50 percent of revenue on the bigger carriers’ long-haul flights is from premium customers,” said Penny Butcher, a Morgan Stanley aviation analyst in London. “Obviously it’s something they guard very, very carefully.”



Swine flu has infected more than 254,000 people since April and killed more than 2,800, according to the World Health Organization. The number of fatalities has more than doubled in the last month, with infections rising 10-fold since June.



Increased Traffic



“Swine flu has certainly increased traffic,” said Rob Dore, a director at Jet Direct Service Ltd. based in Shoreham- by-Sea, England. “Predominantly it’s the largest corporate clients. They are concerned about the wellbeing of their staff from a commercial, as well as a moral, standpoint.”



Charter passengers can usually fly from a private terminal at a small airfield, and book a plane for themselves or their business group. Charter companies typically charge about 2,000 pounds per hour for a mid-size jet, Air Partner Plc Chief Executive Officer David Savile said.



The price for a flight from London to New York, which is 7 1/2 hours, would be about 15,000 pounds ($25,000) for someone flying alone. A first-class, one-way ticket on British Airways from London to New York costs 4,102 pounds, according to the airline’s Web site.



$6 Billion Loss



The airline industry lost more than $6 billion in the first half as the recession sapped demand and swine flu concerns caused customers to travel less, according to International Air Transport Association estimates. Worldwide travel in business and first class declined 21 percent in the first half, according to the trade group.



“A lot of people are not traveling because of swine flu,” Adel Ali, CEO of United Arab Emirates-based Air Arabia PJSC, said last month. “Swine flu is a bigger threat than the economy.”



Still, airlines so far said they haven’t seen much additional impact from moves to chartered jets. “It’s business as usual at British Airways,” spokesman Philip Allport said when asked about the impact of swine flu on the airline’s premium travelers.



When southeast Asia suffered the 2003 outbreak of Severe Acute Respiratory Syndrome, executives requested private jets in order to fly alone and avoid crowded aircraft, charter operators said. Gatwick, England-based Air Partner, which estimates the worldwide charter business is worth about 20 billion pounds ($33 billion), predicts that pattern will repeat itself.



“When SARS struck, people wanted to use a private jet,” CEO Savile said. “They didn’t want to sit in an enclosed space with others.”



Overall Drop



The rate-of-decline in the use of chartered business jets in the U.S. has slowed since the beginning of the year to a 10 percent drop in July from a 30 percent plunge in February, according to Federal Aviation Administration data. Europe has seen a similar recovery, with the use of business jets falling 14 percent in July from a 24 percent drop in February, according to data from Eurocontrol, a Brussels-based air traffic monitor.



“We’ve gotten calls from various parts of the world,” New York-based Imperial Jets Inc. Chief Executive Officer Howard Gollomp said. Customers in the U.S., Middle East and India have voiced concern about the illness, he said.



The added passengers with swine flu concerns come on top of an overall increase in charter activity linked to the economic recovery now taking hold, the CEOs said. Germany and France unexpectedly exited their recessions in the second quarter and growth in the U.S. is forecast to resume this quarter. As business rebounds for charter operators, airlines are waiting to see if swine flu will continue to depress travel.



“The big risk would be if the virus turns more hostile,” said Frank Skodzik, an airline analyst at Commerzbank AG in Frankfurt. “That would be a major threat to air travel.”



To contact the reporter on this story: Howard Mustoe in London at hmustoe@bloomberg.net.
 
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