Transcript Business Aviation in the European Economy

The Role of Business Aviation in the
European Economy
Philip Thomas
Oxford Economics
13 March 2013
Business Aviation in the European Economy
 Perhaps the best place to start is near to where Brian left off – the
PwC study of 2007.
 PwC used Economic Impact Analysis – using Supply and Use tables
to trace out industry supply-chains – to estimate how much GDP and
employment is linked to business aviation at the national level.
 Its main finding – that the sector directly employs 63,000 people in the
EU. Including supply-chain linkages, brings the total to 157,000.
 They stopped short of quantifying the value to the direct passenger
benefits.
 Did not look how business aviation airports benefit the local economy.
Business Aviation in the European Economy
 Based on discussions with users, PwC did identify the following key
user benefits
■ Flexibility and convenience
■ Time savings
■ Cost savings
■ Deal facilitation
■ Perceived safety advantages
Business Aviation in the European Economy
Source: Business Jet Travelers’ Reader’s Choice Survey 2011
 More recent surveys of business aviation passengers identify a
similar set of preferences
Business Aviation in the European Economy
 Even through the economic crisis the business aviation network has
continued to widen, reaching 88,000 airport pairs by 2011.
 In 2011, there were over 1,400 flights between Europe and India using
business aviation.
 Over a quarter of on major operator’s revenues in 2011 were derived
from multiple destination itineraries as opposed to one way or return
trips.
 80% of business aviation users are believed to be business
executives.
Business Aviation in the European Economy
Business Aviation is concentrated at regional airports
The proportion of
flights using
regional
airports
Source: Eurocontrol, 2011
■
70% of business aviation flights take off and land at airports handling fewer
than 100 departures per day.
Business Aviation in the European Economy
Business Aviation complements the scheduled network
The blue shaded part to each bar shows the proportion of routes and
flights that serve city pairs without a daily scheduled service.
96%
total of 88,800 routes
66%
0%
20%
40%
total of 704,000 flights
60%
80%
100%
Source: Eurocontrol, 2011
■
96% - the proportion of city pairs served by business aviation in 2011 that had NO daily
scheduled connection.
Business Aviation in the European Economy
Business Aviation complements the scheduled network
The blue shaded part to each bar shows the proportion of routes and
flights that serve city pairs without a daily scheduled service.
96%
total of 88,800 routes
66%
0%
20%
40%
total of 704,000 flights
60%
80%
100%
Source: Eurocontrol, 2011
■
66% - the proportion of business aviation flights in 2011 that served city pairs with NO daily
scheduled connection.
Business Aviation in the European Economy

Passenger surveys identify value of time as a key reason for using business aviation.

The value that passengers place on time savings is frequently used in aviation studies
to place a value of expanding passenger choice.

We used regression analysis to estimate a value of time for the users of business
aviation.

Business aviation is often associated with high-value trips (“deal making”). Can we
place a market-based valuation of an hour saved during such important trips?

We were given access to a detailed dataset on business aviation flights. The dataset
covered:
■ 3,400 flights
■ 110 routes
■ All flights took place during 2011
Business Aviation in the European Economy

We used a regression model to explain how a number of key factors determine the cost of
business aviation flights. The explanatory variables included:
■
the route,
■
passenger numbers,
■
distance flown,
■
distance of delivery legs,
■
the type of aircraft,
■
flight time with passengers on board,

All these factors might contribute to the overall cost of the flight. Our aim is to isolate the
contribution made by passengers’ flight time. How much were users willing-to-pay to cut an
hour off a business aviation flight?

The model suggests €510/hour. This is over 8 times the upper valuation of €63/hour reported
in Eurocontrol’s “Standard Inputs for Cost Benefit Analyses’.
Business Aviation in the European Economy

This relative value of time captures how much users are willing-to-pay for the much greater
flexibility offered by business aviation.

We might expect this higher relative valuation to be reflected in the average price (yield) for
business aviation and scheduled business flights.

We estimated an “adjusted yield” for business aviation by dividing total revenue by total
passenger kilometres. Using data from IATA, we did likewise for scheduled business flights.
The adjusted yield was
■
around €4 per passenger kilometre for business aviation
■
43 cents per passenger kilometre for scheduled business flights

The ratio of the two adjusted yields is around nine. (Similar to the ratio of value of time.)

These estimates imply that whereas business aviation accounts for
■
under 1% of business passenger kilometres flown.
■
It’s market share of the overall aviation business market is close to 9%.
Business aviation in the local economy
In the second part of our study we looked the impact of business
aviation on local economies.
In particular we considered ■ The role that business aviation plays in creating business “clusters”
■ Investment in people and infrastructure
Examples of business aviation clusters
■ At its main centres, business aviation can support a significant
number of jobs. Studies at Paris and Farnborough show that
business aviation directly employs 4,000 and 1,000 jobs
respectively. (Source: Paris Chambers of Commerce, TAG
Farnborough).
■ Business aviation “purpose” is to enable clients to fly wherever
and whenever they need to. To meet this need the sector
spreads its ground operations across a large number airports.
■ This geographical spread means that many regional airports
benefit from the direct and indirect business that business
aviation brings with it.
Business aviation in the local economy
■ Airports with business aviation connections benefit local
economies in a number of ways
■ From local employment - the majority of employees live within a
ten mile radius (TAG Farnborough)…
■ and from additional investment at the airport. Examples include
● £100m at TAG Farnborough since 2002
● €10-15 million by PrivatAir at Geneva-Cointrin over the past decade
● €70 million at Paris Le Bourget since 2004…
● …and a further €120million expected over the next decade.
Business aviation in the local economy
■ Airshows showcase the locality and bring in significant business
■ 2010 Farnborough Airshow generated £17million for local economy
■ Manufacturing companies also benefit from the continuing demand for
new business aviation aircraft
■ PwC estimated that the manufacture of business aviation aircraft
generates €9 billion in 2007
■ The sector continues to place orders, e.g., NetJets recent order for 100
new jets
■ Despite the recession, employment in the sector appears to be
growing in the sector
■ PwC estimates that business aviation operators directly employed
24,000 people in 2007 (with a further 42,000 directly employed in
manufacturing)
■ We canvassed 17 leading operators. All but 2 reported employment
growth of between 50% to 100% over the past decade.