The persistent lack of meaningful growth in business aviation will fuel continued consolidation among service providers as they seek increased size and greater market clout to offset fixed costs and grow their brand, according to XOJet Chief Executive Officer Brad Stewart.
“You’re seeing sustained activity, but there won’t be a big surge—more like a continuous drip,” he said. “There is much more to go.” The most activity will be at the top end of the market where there will be a steady pace of mergers and acquisitions and strategic partnerships, he added. “With little or no organic growth, companies are looking to extract shareholder value, and there are advantages to scale.”
Not so coincidentally, Argus International, a business aviation market research firm, recently reported a 0.6% decrease in business jet activity in April, below its 2.2% year-over-year growth forecast. April activity was down 4.7% sequentially from March.
The use of fractional ownership and jet cards is waning, based on hours flown, and on-demand providers such as XOJet are picking up the volume, Stewart said. He described what’s happening as the “democratization” of private aviation, with the proliferation of the on-demand business model. (Fractional activity in April was down 4.7% compared to the same period in 2015, according to Argus.)
"This is such a disaggregated sector, which makes it absolutely ripe for consolidation," said Rolland Vincent of Rolland Vincent Associates, LLC, an aviation and aerospace market research firm in Plano, TX. "It started in the Great Recession of 2008-2009, and in this kind of a market—it has been very flat—you will see a lot more at both the upper and lower levels."
Looking ahead 5-10 years, Stewart believes the industry will look not too dissimilar from the way it does currently, except there will be fewer players, with no more than two competitors dominating each market segment. All of them will share certain characteristics: size, agility, an effective digital presence, and a strong “brand distribution system,” meaning customers will immediately recognize the value that companies bring to the market place. As part of their business strategy, this smaller field of competitors will also make a practice of vertically integrating closely aligned businesses that add both value and market presence.
San Francisco-based XOJet is likely to remain one of the majors. It already is among the leading private aviation service providers, with more than 5,000 clients. It’s celebrating its 10th anniversary. But Stewart is quick to note: “We can’t rest on our laurels. The key is to have a long-term vision of where you want to go. I believe in high performance, and a hallmark of that is a company who sees the future and takes advantage of opportunities.”
XOJet operates 17 Challenger 300 and 24 Citation jets of its own, and supplements its fleet with a partner network of more than 1,000 other aircraft. The company plans to announce another partnership—this one with a major digital-services provider—in the near future.
