A Commercial Crossroads for Charter Brokers

Sep 19, 2007 11:38 AM, Frederick Gevalt

Everybody professes to dislike them. So how come they keep on growing?

Though cultures in the far east, the mid east and Europe have long fostered roles for handlers, facilitators, and a variety of agents, brokers and middlemen, much of the American charter market continues to be suspicious of brokers, principally because as a country we have an historical fondness for “doing it ourselves.” In balance, neither are the Europeans correct for accepting the role of the intermediary too quickly, nor are the Americans for their premature dismissal. What needs to be measured is the “value proposition,” or in other words, what is the broker “bringing to the table.”

In 1986 there were probably three dozen significant brokers in the world. Their stock in trade was information. Their value to the transportation world was knowing who needed business, who had too much, the location of the right aircraft for the job, and, of course, where the customers were. Without adequate information, passengers and providers alike tended to return to the broker naturally. The emergence of the corporate jet forced the expansion of marketing beyond a previous propeller aircraft provider’s sub regional venue, and the Yellow Pages lost their grip on what had become a more sophisticated niche market. Today the Internet has accelerated this even further, changing the role of the broker, who is no longer safe as an information purveyor alone. Knowing where to get an airplane is now only part of the process.”

The larger US brokers, like CSI in Albuquerque have driven their specialized businesses on the charter of large aircraft, with the complexities of contracts, escrowed funds of money. They’ve developed contingency planning for failure, and keep track of movements of equipment which are used only infrequently by their market. This, in part insulates them from competing with their own clients on the informational front, which is fast becoming a problem for brokers of corporate jets. The smaller “boutique” brokers, Like Air Royale, Corporate America Aviation, and Exclusive Air, provide ultra managed customer service, for a market unsatisfied with anything but “concierge” level handling. By going beyond the level of planning and chronic reassurance that a business jet provider might not be inclined to provide, they have defined their niche. Charterauction.com, has made a niche of improving price for a variety of charter choices, by squeezing the margins on both sides of supply and demand with Internet auctions – a clever way to ply the brokerage trade on short-term information. Companies like Sentient have discovered a demand market below the fractional share market, whose desire to “nail down” their “provider,” their credit status, and a solution to their frequent and geographically diverse travel needs is strong enough to warrant commitment of considerable sums in advance. These “debit card” programs work for the broker, by committing an otherwise fickle consumer so that the broker’s focus can turn to the provider, his quality, and his price. English brokers like Hunt and Palmer, Chapman Freeborn, and Air Partner have successfully cultivated the niche of “more worldly” interfaces between various US and non-indigenous markets who prefer an agent when they discover themselves out of their geographic “comfort zone.” The list of companies and niches goes on. There are some very useful brokerage firms out there. But then there are the rest.

By contrast, today there are probably at least five hundred business entities trying to grab a commission one way or another from a charter operator or consumer for a contribution on their part which just plain isn’t worth much. The most flagrant may actually contribute negative value to a trip, by just not knowing what they’re doing. One of the aforementioned “good guys” regaled me with a story about a particularly pernicious brokerage business from New York modeled after the “Amway” scheme. “This guy was looking for a corporate jet with a certain capacity, so I told him I had access to a Gulfstream Seven with an upper passenger observation deck. He bought it, hook, line, and sinker!”

In the US, the visibility of brokers on the Internet, has stimulated unwanted attention from the Department of Transportation, who historically have tried to influence this group by intimidating their providers. Senior people in the department have expressed to me their desire to establish “privity of contract.” In other words, they’re uncomfortable with the confusion by brokers posturing not as the sole agent of the consumer, nor agent for the air carrier, but rather as a go between who claims to serve both. “Right now we consider brokers illegal providers of indirect air carriage,” was the simple statement of one of my contacts at DOT. But the broker group that has stimulated the scrutiny is prone to claims like “Our world class fleet of 1500 Wyvern approved aircraft, are second only to our flight crews of Flight Safety trained pilots.” Shameless name-dropping, and unsubstantiated claims, have prodded the DOT into investigating everything charter related, when frequently they don’t even understand the practices and approvals of their own FAA.

The fact remains that many brokers exist simply because the retail market doesn’t know any better, the brokers lie, and the government won’t set any standards. There is usually no love lost of brokers by operators and/or the aviation associations because of the resentment in profits captured. Yet it is also incontrovertible that if no operators flew for them, the brokers would go out of business overnight. And since many do, then as the song used to say, “The beat goes on.” Right this moment, the equipment availability is so tight, that there is arguably a strong benefit to be provided by brokers who are on top of things – simply finding an airplane. In many cases any airplane at all.

Certain of the more established brokers have been trying for the past several years to establish an association that elevates a few brokers above the rest of the fray. Not a new idea (CSI, Flighttime and The Air Charter Guide took a stab at this in 1988.) It nevertheless remains one of the few standard ways of providing some hope at qualifying a trade without government intervention. While the standards for such an association are being drafted up yet again, the basic ingredients are intuitive. They have to be democratic and fair. They must recognize the value of the various “value added” niches I have outlined, and they need to be clear and verifiable. The industry needs good air charter brokers, and can’t afford the negative effect of people without ethics, experience, or the financial stability to fulfill their promises and pay their bills.

In short, we need less government attention on the operations side, and perhaps (though it kills me to suggest it) a little more in the area of charter brokerage. – FCG -

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