It has been a rough two years for Europe's largest business aircraft operator and fractional ownership provider, NetJets Europe.
The financial meltdown of 2008 rocked the company, which had for years basked in the growing surge in business aircraft travel from Europe's thriving business community and wealthy elite.
NetJets Europe's heyday of prosperity and popularity was in contrast to its shaky beginnings. The Lisbon-based operator was set up 16 years ago by fractional ownership pioneer Richard Santulli as an extension of his thriving 10-year-old NetJets US sister company.
Like its older sibling a decade before, NetJets Europe struggled to gain acceptance in a continent where the negative "admirals barge" image of business aviation prevailed and where choices of business aircraft travel were limited to chartering or outright ownership.
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Santulli set out to change that public perception, widen the options for existing business aircraft users and lower the cost of entry for prospective flyers. Dividing an aircraft into fractions - an eighth, quarter or half share - would bring aircraft ownership within the reach of many more people, Santulli believed.
And he was right. After a bumpy start, NetJets' customer base began to climb along with its business jet fleet. In 2002, when its parent company was US investment firm Berkshire Hathaway, the company had 150 owners and 33 business jets. Within six years - at the height of the market - the tally had exceeded 1,600 customers and 164 aircraft. The operator's 2004 acquisition of Marquis Jet's popular block charter card helped to boost its customer base by lowering the cost of entry into business jet travel even further.
"NetJets has revolutionised the way people travel," says Eric Connor, chief executive of the European operation. "Through fractional ownership, NetJets has introduced a convenient and flexible way of using business jets and has brought unprecedented numbers of new users to this industry."
NetJets is also widely credited for raising the industry standard on customer service and safety through its hard line and uncompromising focus on user satisfaction. This remains a key plank in its future strategy, says Connor. "We have built a reputation on these two key elements and we cannot compromise on this," he adds.
But this approach failed to cushion NetJets from the worst economic downturn for seven decades. In late 2008, cash-strapped customers left the programme in droves and flight hours across its fleet of business jets slumped. The company suffered its steepest decline in the first quarter of 2009, when flight-hour volumes fell by 20%, forcing NetJets to re-evaluate and consolidate.
Within months, Connor was hand-picked by former NetJets chief executive and fellow Berkshire Hathaway veteran David Sokol to replace William Kelly at NetJets Europe's helm and steer the company through its most turbulent period.
Connor implemented cost-cutting initiatives targeting aircraft delivery schedules, fuel costs, catering and travel budgets. It cut its annual pilot salary bill by introducing a voluntary employment programme in 2009.
This scheme gives NetJets' 1,000-plus pilots five employment options, varying in duration from one to four years - long-term leave of absence, job sharing, leave of absence, temporary part-time and voluntary redundancy.
The programme was introduced to slash about 60,000 excess duty hours from NetJets' pilot roster - equivalent to 300 full-time posts. More than 500 pilots signed up to it.
For Connor, these initiatives have helped NetJets navigate through the crisis and position itself for the market rebound. Last year, NetJets Europe made efficiency savings of about €95 million ($138 million), and Connor says the company returned a modest operating profit for the first time in two years.
"We have been energised, focused and driven, and this has enabled us to drive through these savings without diluting the service we provide," he says.
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The company now has 150 aircraft and about 1,500 customers, evenly split between fractional, leasing and card customers. Flight volumes began to recover last year, with NetJets recording a 6% increase in activity compared with the previous 12 months - "despite the effect on our business of the Icelandic volcanic ash cloud", Connor points out.
NetJets' moratorium on aircraft deliveries has been in place since March 2009. "We cancelled and deferred a number of orders that were imminent, but we probably still have more than we need," says Connor.
Interest in the operator's light jet offering - notably, a Cessna Citation Bravo and a Hawker 400 - has remained weak, but demand for NetJets' large-cabin fleet - Dassault Falcon 2000, Falcon 7X and Gulfstream G550 - is picking up, says Connor.
NetJets' sweeping changes have also forced a shake-up in its product offering. The operator's aircraft portfolio has been drawn from Cessna, Dassault, Hawker and Gulfstream's business jet families, but the long-term future of these types within the NetJets family is uncertain. Last year, in a departure from tradition, NetJets placed orders for 130 Embraer Phenom 300 light jets and up to 120 Bombardier Global XRS, 7000 and 8000 long-range and ultra-long-range types.
"We are looking, ideally, at one or two aircraft models in each of the categories," says Connor. "The Phenom 300s will come on board in 2013 and they will replace the Hawker 400 first and later the Bravos."
The first Global XRSs will be added in the second half of 2012, but Connor will not be drawn on which of its long-range types it will replace.
"We are looking at the midsize market now, but haven't decided on any types yet," he says.
NetJets believes the new aircraft types will help the company to adapt to new markets, notably in eastern Europe.
"While demand is returning in NetJets Europe's mature business jet markets, such as France and the UK, in 2011, opportunities for the company lie in Russia," says Connor. "We already have a very good customer base in this region, but one of the things we are focusing on now is improving their experience. We are doing a lot of work with the airports and infrastructure to make sure we can match the type of service that our other European and US customers get on a daily basis."
Next year, NetJets will also seek to expand its presence in central and eastern Europe and the Balkans, "where there is a lot of opportunity", he adds. "North and West Africa is also showing good growth."
To boost flight volumes and expand its customer base in central Europe, in April NetJets rekindled its venture with Lufthansa after a four-year separation. The operator provides ad-hoc services on behalf of the German carrier's Lufthansa Private Jet subsidiary - a service previously provided by LPJ's defunct sister company, Swiss Private Aviation.
Connor says NetJets is not considering similar ventures with other European operators. "At this stage, this is an exclusive deal with Lufthansa, so providing our aircraft to other operators across Europe will not happen," he says. "However, we are always working to strengthen our offering and this includes partnering with the right brands that can add value for our customers."
The economic downturn has provided great opportunities for new entrants because the value of new and used aircraft fell to record levels. Although asking prices are now stating to stabilise, the market for fractional ownership remains steady.
Throughout the downturn, Connor has remained a supporter of the fractional ownership model - despite its army of critics - and says it remains a popular choice for many business aircraft users. "Fractional ownership makes up the largest chunk of our customer base," he says. "It still is a cost-efficient and attractive alternative to charter or full ownership for a customer who flies between 150h and 300h a year. You have all the benefits of owning an aircraft, but less of the costs."
Source: Flight International
