Alibaba’s online shopping platform Taobao was offering some unexpected items for sale last month – three Boeing 747s, seized by a court in Shenzhen when a cargo airline went bust.
After failing to dispose of the aircraft privately, the court turned to the country’s favourite e-commerce site, inviting offers above a reserve price of Rmb122 million ($18.5 million).
Would-be bidders should be warned that the jumbos aren’t much of an option for personal travel. And indeed, private jet operator VistaJet has long argued that it makes much more sense to pay for private flights on an hourly rate rather than own an aircraft outright. The Malta-based operator, which offers a unique, subscription-based business model, has just secured $200 million in investment from Rhône Capital as it grows its global network. The transaction values VistaJet – which operates a fleet of more than 70 mid-sized and long-range jets – at more than $2.5 billion.
WiC met the company’s chairman and founder Thomas Flohr, and Leona Qi, its president in Asia, to learn more about what makes VistaJet different and how China is part of its plans to conquer the skies.
Where does China fit into VistaJet’s overall strategy?
Thomas Flohr: After we launched VistaJet in Europe in 2004 we soon turned to the Middle East and Asia as new markets. That meant that we were flying into China from very early on and we have gained a lot of operational experience. In the early days it could be challenging getting approvals for flight plans or landings. In some cases the application processes could take a few days, which defeated the purpose of flying privately. But the situation in China has improved dramatically since then, putting VistaJet in an excellent position for the next phase of its growth.
One of our main strengths is that we offer genuinely global coverage and in that regard China is a crucial piece of the puzzle. Our clients are international, so we have to be international as well. Entrepreneurs, hedge funds, the global banks and multinational companies all have business in China – and we fly them there.
Of course, China is also a significant source of new customers. Our business model is to bring efficiencies to flying privately that ownership of aircraft rarely provides. People who purchase aircraft but utilise them for just 200 or 300 hours a year are bearing significant capital costs for a relatively small number of flight hours. So our offer to customers in China is the same as elsewhere – an unparalleled service across a global network that brings all the benefits of a personal jet without the responsibilities of owning one.
Hasn’t Xi Jinping’s campaign against extravagant spending made tycoons wary of spending on private jets?
Flohr: We don’t have a formal view on how the campaign has affected the market. But what I will say is that it seems much more logical to charter a flight from a third party than own an aircraft in an environment in which wasteful or excessive spending is frowned upon.
I think we saw a more fundamental change in attitude from the authorities a few years ago when the government first started to embrace business aviation as an industry. That was because the government understands that an economy using business jets is more efficient. In fact, we refer to our aircraft as ‘time machines’ because they give top business talent more time and opportunity to excel. Our customers aren’t wasting time queuing up at airports or changing their schedules to fit in with commercial flights. They are focusing their time and energy on their businesses, which is beneficial to the economy as a whole.
How have the authorities been helping to develop private aviation?
Flohr: The main way is that more airports are being opened up for private flights. The key to growing the market in China is to add more airports and smaller airfields across the country and to set up more FBOs to service private flights [fixed base operators are commercial firms which provide aviation services at airports]. We would also like to see further investment in facilities for private jets at international gateways like Shenzhen, where more of our passengers can fly in and out of China.
Isn’t flight congestion a problem?
Flohr: Congestion is a challenge for China’s aviation industry in general and it can make things less straight forward for us, especially at the busiest airports.
We acknowledge that airways sometimes get crowded and that local practices in air traffic control may mean operational differences in how we fly. When our aircraft take off from cities like Moscow or London they climb much more quickly to 40,000 feet, for instance, which soon takes them away from commercial traffic and above the weather. It can take longer to reach the higher altitudes in China.
Air traffic controllers in Asia are also taking time to get accustomed to the greater frequency of changes in flight scheduling for business jets, compared to the fixed regularity of commercial flights.
But the situation is already much better than a few years ago and we think it will improve further in future. As I said, the background noise is that the authorities are supportive of business aviation, because they understand its contribution to the wider economy.
Can you talk about your customers from China? How are they different to clients from other countries?
Leona Qi: Sales to Chinese clients made up about 17% of new business last year and revenues have increased again this year. In the medium term we think we will be getting at least a fifth of our business from the Chinese market.
The ages of our Chinese clients vary from early twenties to late fifties. They work in a variety of industries, although obviously they need the financial means to become customers. In general, customers who sign up under our ‘Program’ contracts [subscription-based accounts which make up nearly two-thirds of the company’s revenues] have a net worth of $200 million and above, and many are billionaires. Charter prices vary depending on the contract commitments, but journeys typically cost between $12,000 and $17,000 per flight hour.
The cities our customers visit most frequently inside China are Shanghai, Beijing, Shenzhen, Guangzhou and Tianjin. For aircraft arriving in China from overseas, the most common points of departure are Los Angeles, Kuala Lumpur, Singapore and Seoul.
It’s a generalisation but our Chinese clients are a little more likely to ask for the largest aircraft, which are the Global 5000 or 6000 series. In part that’s because these aircraft are the flagships in the fleet. In the past there may have been a perception that the bigger aircraft are the safest as well, although that doesn’t feature as frequently now.
In terms of sales, we have to respond to market trends in China, like the spread of social media. Our customers can already book flights through WeChat, for instance. Another key characteristic of the market in China is that there is more of a focus on establishing relationships with the end customer. In countries like the United States we are more likely to be dealing with purchasing departments or corporate boards, but in China we often talk directly to founders and co-founders. They want to spend more time building relationships with our executives, but on the other hand, the sales process is more streamlined when two or three people are the decision-makers. The word-of-mouth marketing is very powerful once they start flying with us as well. In fact, that’s not just the case in China – about half of our new clients come via personal recommendations.
In terms of our product, another of VistaJet’s competitive strengths is that we guarantee a consistent standard of service worldwide. Of course, we can tailor our inflight product in food and beverage, but the high expectations of our client base often turn out to be pretty similar, especially for ‘millennial’ customers. Young tech entrepreneurs from Silicon Valley don’t seem radically different to those from Shanghai or Shenzhen, for instance. And an obvious example of the common ground is the rise of the ‘sharing economy’, a trend that is very supportive of our business model. Millennial customers are more focused on getting a great experience when they travel and they don’t feel the need to own the aircraft themselves. I’m very bullish about demand from the millennial market: I think we are well positioned to benefit from it.
How about older clients? Don’t they want to buy their own jets?
Qi: Maybe that was the case for the first generation of customers for private jets in China, who wanted aircraft of their own when private aviation was starting out there in 2005. These guys were a little older, in their late 40s and 50s. Often they were entrepreneurs who had made their fortunes quickly in sectors like resources or real estate. But China isn’t very different from our other major markets in witnessing a shift away from ownership. After an initial period, owners get a better understanding of the costs and hassle of operating their own aircraft. Many turn back to VistaJet for a better service at a lower cost. It’s what happened in Europe and North America, and we are seeing the same thing from the first generation of jet owners in China as well.
What about your competitors in China?
Flohr: There isn’t anyone offering the global coverage or the same quality of service as VistaJet. With due respect to the other participants, their customers don’t have the same certainty about what they are going to get. What kind of jet will you be flying on? Is the aircraft five years old or fifteen? What kind of inflight product are you buying?
The fundamental point is that most of these aircraft are being managed on behalf of the people that have purchased them. Everything is tailored to the owner, not to the customers for the charter flights.
That’s why we tell our clients to do their due diligence when they choose a charter provider. How many people are happy about spending $10,000 on a top-end suite in a hotel if they don’t have complete confidence that they are getting a top-level product? Yet many of the same customers are spending that kind of money on a flight without any guarantees on the quality of the experience. VistaJet offers that guarantee in a way that others cannot.
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