SIC 4522
AIR TRANSPORTATION, NONSCHEDULED



This category includes establishments primarily engaged in furnishing nonscheduled air transportation. Also included in this industry are establishments primarily engaged in furnishing airplane sightseeing services, air taxi services, and helicopter passenger transportation services to, from, or between local airports, whether or not they are scheduled.

NAICS Code(s)

621910 (Ambulance Services)

481212 (Nonscheduled Chartered Freight Air Transportation)

481211 (Nonscheduled Chartered Passenger Air Transportation)

487990 (Scenic and Sightseeing Transportation, Other)

Industry Snapshot

The nonscheduled segment of the air transportation industry includes all companies that provide charter service, airlines carrying passengers and/or cargo, and helicopter services. One major characteristic of the nonscheduled industry is that companies operate on the basis of full-plane sales. Using this procedure, the total aircraft capacity is sold to an organization, such as a ticket wholesaler. In general, these wholesalers are tour operators, military and governmental agencies, specialty charter customers, and sponsors of incentive travel packages. Most charter carriers, either passenger or cargo, are small operations working within a niche market.

Like the scheduled sector of the air transportation industry, the nonscheduled sector faced a major decline in ticket sales after the September 11, 2001, terrorist attacks in the United States. According to the Air Transport Association, charter revenues fell from $4.91 billion in 2000 to $4.45 billion in 2001. To encourage consumers to resume flying, many companies began reducing their ticket prices, which eroded profitability for many charter service providers.

Organization and Structure

According to The Air Charter Journal, there were 20,000 aircraft, from jets to turboprops, as well as 3,000 operators available for charter throughout the world at the turn of the twenty-first century. The nonscheduled airline industry included charter passenger airlines and air taxi services. Charter passenger airlines provided service to vacation or leisure destinations and marketed their services through the use of tour operators, travel agencies, or destination resort operators, which included cruise ship operators. With medium- to large-size planes in their fleet, charter carriers also provided service to the U.S. military and other groups. Air taxi services companies provided short-haul, on-demand transportation—in which case they were called "Part 135" operators—and helicopter service. Part 135 operators fly planes with fewer than 30 seats and have relied largely on corporate-oriented clientele. Most carriers also utilized their fleets for sightseeing trips, commutes between airports, emergency medical transportation, and the delivery of workers and equipment to offshore oil well sites. Helicopter services provided similar on-demand corporate transportation.

Scheduled Traffic and Capacity. Charter carriers typically board between 1 and 1.5 million passengers annually and log more than 18 billion revenue passenger miles (RPMs), a measurement based on one fare-paying passenger transported one mile. Charter airlines logged 9.1 billion of their RPMs in domestic service and 8.7 billion RPMs in international service. In comparison, annual enplanements for the scheduled airline sector average 554.2 million per 12-month period, producing 547 billion RPMs. While charter airlines fly fewer people, they tend to fill more seats on their planes. Nonscheduled carriers average 70 to 75 percent load factors (a measure of seats filled), while scheduled airlines typically realize much lower load factors.

Load factors for specific charter airlines usually have been higher than the overall industry average, running anywhere from 80 to 100 percent. Load factor directly affects fare structure. With fares based on a load factor of 80 percent or more, each seat can be sold at a deeper discount. However, unlike scheduled carriers, if a charter cannot meet these numbers, the flight is canceled. Therefore, charter operators work in high-demand markets and will pull out of the market when demand falls.

Nonscheduled airlines, like charter services, can access approximately 5,000 different airports in the United States. In comparison, scheduled airlines can use only 500 airports around the country. Charter airlines rarely engage in direct competition with scheduled airlines. Instead, charters usually work in markets not directly served by the scheduled carriers. For example, Passport Travel, a Kansas City-based planner of Las Vegas trips, could not secure transportation through a scheduled carrier once the major hub in their market closed. As a result, PTI Tours, the wholesale division of Passport Travel, chartered a 166-seat plane for the summer and was responsible for filling those seats. On the other hand, some charter airlines work directly with cruise lines and operators of other vacation sites, bringing vacationers directly to specific islands from a main hub, say, in Miami.

In the 1990s, depending on aircraft type, country, and personnel, the hourly and overnight waiting charges varied widely. Rates in the United States were around $50 to $100 per hour for standby, and $75 to $300 for overnight. Rates in Europe for hourly waiting charges were between 3 and 7 percent of hourly flight charges, as reported in The Air Charter Guide. Taxes can often be charged as a percentage of the entire cost of the trip. In the United States, an 8 percent levy was typical for aircraft over 6,000 pounds. Prices per hour to charter a plane were generally higher in the Southeast than in the North Central region of the country. The number of planes also varied from four in the Northwest and South Central regions to 27 in the Northeast and Southwest.

Generally, a charter airline will enter into a contract with a tour operator four to six months in advance of the service to be provided. At the time the contract is executed, tour operators are required to pay the charter a deposit. The balance must be paid to the charter carrier at least two weeks prior to the flight date. If the tour operator fails to make the necessary payment, the carrier must either cancel the flight within 10 days prior to the flight date, or, pursuant to the U.S. Department of Transportation (DOT) regulations, perform under the contract in spite of the breach by the operator.

All charter carriers are subject to the jurisdiction of and regulation by the DOT and the Federal Aviation Administration (FAA) under the Federal Aviation Act. The DOT is responsible for regulating economic issues affecting air service, including air carrier certification and fitness, insurance, leasing arrangements, allocation of route rights, authorization of proposed charter operations, and consumer protection. In 1993 the DOT enacted a major overhaul of charter airline regulations, simplifying the arrangement and sales of charter services while providing adequate consumer protection.

Background and Development

Charter Airlines. Charter airlines have existed in the United States since the onset of commercial aviation, offering supplemental service to that provided by scheduled operators. Charter airline companies, generally small operations flying a few older aircraft, have never been well known among air travel consumers. The deregulation of the airline industry in the early 1980s offered severe challenges to charter airlines, primarily because it encouraged commercial airlines to offer low fares and plentiful flights to leisure travelers. Many charter carriers, seeking to protect their traditional business, could not compete with the larger commercial carriers and left the business.

While deregulation hampered the charter airline industry in one area, it helped in another. Due to the creation of the hub-and-spoke system, also a product of deregulation, many smaller cities have lacked direct or nonstop service, especially to leisure destinations. Successful charter operations have found niche markets in these cities and have avoided direct conflict with scheduled carriers.

Charter airlines have struggled to improve their image with the flying public. When the largest charter carrier, American Trans Air (ATA), began operations in 1973, the industry had a reputation for "rusty planes, lousy in-flight service and long delays," said George Mikelsons, chairman of Amtran, the parent company of ATA, in Travel Weekly. "It has been a very slow process to get people comfortable with the fact that you can buy a charter flight that is at least the equal of coach class on a good scheduled carrier."

Charters usually cost 20 percent less than a scheduled carrier's ticket prices. However, if the major scheduled carriers are undergoing a price war among themselves, the price differential between the scheduled airlines and charters can sometimes significantly narrow. The charter business has succeeded because it is efficient; maintaining that efficiency through finding and effectively serving niche markets will be critical to the industry's success into the early 2000s. ATA officials believe that the consolidation of the scheduled industry actually will help the charter market. Their reasoning has been that as markets become more consolidated, airlines will be less willing to price seats for tour packages. Also, as the scheduled carriers bring their tour operations in-house, they will be less willing to deal with operators outside their airlines. In turn, independent tour operators will have to depend on charters.

Industry analysts reported an 8.3 percent price rise in 1998 for the charter services sector of the nonscheduled air transportation industry. The overall industry rose at a somewhat lesser pace for 1998. The robust economy was identified as the key market influence, but the 1998 Northwest pilot strike also contributed greatly to the enhanced charter airline market.

In 1999, however, the new airplanes ordered in anticipation of a continued growth market were being delivered, and a glut of available seat space began to cut into profits. By August 1999, there were 500 domestic planes still sitting, available for purchase or lease—about 100 more than in August 1998. To balance this glut, 268 aging aircraft were removed from the fleet in 1998, followed by 241 in 1999, and 286 in 2000.

In addition to retiring older planes, another key development in the latter 1990s was the rise in "fractional ownership" contracts. Under such plans, companies may purchase, for example, 50 flight hours annually on a standard business jet by purchasing one-sixteenth ownership interest for approximately $500,000 to $600,000. In comparison, the company would spend $6.6 million to purchase the plane outright, in addition to another $1.2 million annually for maintenance and crew.

Part 135 Operations. Some carriers have begun to operate under the umbrella of a larger charter, such as AMR Combs. Others have ventured into additional markets, such as providing contingency service. United Parcel Service (UPS) developed a contingency program whereby, if a UPS shipment will miss the primary package sort at the hub, the company will call on Part 135 on-demand charter companies to deliver the stranded packages. Some operators have kept their planes at UPS's Louisville, Kentucky, hub to increase their availability.

Executive Jet Aviation, Inc. has created a "timeshare" program called NetJet. Instead of owning an entire jet, NetJet allows executives to charter planes within the continental United States within a four-hour framework, making availability utmost. Corporations purchasing shares in the program are guaranteed that NetJets arrive prepared to fly, and they eliminate maintenance needs, leasing fees for hangars, and a pilot's salary.

Helicopter Service. Helicopter companies supporting the oil industry, police and public service operations, and the medical profession were all expected to see continued growth through the end of the 1990s. Those companies offering diversified service have been best equipped to produce consistent earnings. For example, Petroleum Helicopters has worked primarily with the oil and gas industry in the Gulf of Mexico but also has become involved in the emergency medical service (EMS) business. Keystone Helicopters, a subsidiary of Keystone Flight Services, has split its contracts between EMS (approximately 80 percent) and on-demand charter and corporate management flying (20 percent). Predictions estimate that the public sector will be the fastest growing market in the helicopter industry.

Another successful approach for helicopter service has been "to fully develop and dominate a niche market," reported Aviation Week & Space Technology. For example, Portland-based Columbia Helicopters has been one of the few commercial operators of heavy-lift aircraft worldwide. The company has specialized in heli-logging, which does less damage to the land than conventional logging methods.

Current Conditions

The September 11 terrorist attacks in the United States had a profound impact on the nonscheduled sector of the air transportation industry. According to the Air Transport Association, charter revenues decreased to $4.45 billion in 2001, compared to $4.91 billion in 2000. Over the same time, international charter revenue ton miles (a revenue ton mile equals one ton of revenue traffic transported one mile) fell from 2.7 billion to 2.2 billion, while domestic charter revenue ton miles decreased from 5.9 billion to 5 billion.

A weakened global economy also undermined sales, while increased insurance costs and security measures, both the result of the terrorist attacks, undermined profitability. To bolster sales, many companies began reducing their ticket prices, which further eroded profits for many charter service providers. As a result, industry leaders like American Trans Air and World Airways posted losses in 2001. Many analysts predict that the air transportation industry as a whole, including the nonscheduled sector, will not return to profitability until 2004.

Industry Leaders

American Trans Air is the largest U.S. charter airline, holding more than 40 percent of the charter market. In 2001 revenues were estimated at $1.27 billion, although the firm posted a loss of $76.3 million. A privately held subsidiary of Indianapolis-based ATA Holdings Corp., the airline has 26 medium- to long-range aircraft in its fleet. ATA employs approximately 7,000 people.

The leisure travel market has comprised the largest part of ATA's business, accounting for nearly 62 percent of total revenues and nearly 71 percent of available seat miles (ASMs) in 1992. The airline also has flown military charters, with a peak year in 1991 transporting U.S. troops to the Persian Gulf conflict. ATA operates other travel-related subsidiaries, including a travel agency; a training school for pilots, mechanics, and flight attendants; an executive air charter service; and a freight forwarder.

World Airways provides worldwide, nonscheduled air transportation of passengers and cargo for commercial and government customers. World Airways has 15 McDonnell Douglas aircraft in the long-range international market. The airline's business has been seasonal, with the highest travel figures from May through July and in December. The company's largest customer has been the U.S. Air Force, which accounts for more than half of its consolidated revenues. World Airways had 947 employees in 2001. Although sales grew 20.4 percent to $317.9 million that year, the firm posted a $26 million loss.

The industry remained ripe for entrepreneurial interests through the early 2000s. Aero Jet Services of Scottsdale, Arizona, which launched operations in 1997 with less than $20,000, posted sales of $6.5 million in 2000. Employees grew from 3 in 1997 to 30 in 2000. The company manages nine planes for its air-charter business.

America and the World

Charter airline service in Europe, as opposed to that in the United States, offers significant competition to the scheduled airline industry for passenger traffic to leisure destinations. In fact, charter airlines have traditionally carried slightly more than half of all European travelers. The charter industry's success has been due in part to the fact that charter carriers have been subject to fewer regulations than the scheduled airlines. Thus the European market has been of interest to American charter companies like ATA, simply because charter services are well known and well liked throughout Europe.

In January 1993 the European version of open skies legislation was enacted, removing government restrictions on air fares and on cabotage (trade in the airspace between two points within a country) throughout the European Community member countries. This program has allowed airlines to set fares at any level. In 1997 carriers were also able to offer services on domestic routes in other member states. Such legislation is expected to have the same effect on the European charter industry that deregulation had on the U.S. charter industry. Industry leaders predict that the charter carriers will lose market share as the scheduled airlines become free of capacity and price restraints, thus reducing possibilities for American firms to expand into European markets.

Research and Technology

The charter industry's ability to compete on a price basis will be contingent on the efficiency of its aircraft operations. Therefore, some U.S. companies have begun to update their fleets. Amtran has added a sixth extended-range Boeing 757 to its fleet. Lauded for its fuel efficiency and endurance, the 757 can amass up to 300 flight hours a month and will be used by ATA for transatlantic charters and military transportation. Another aircraft that may aid in competitive pricing is the new Airbus A320 aircraft, Europe's high-tech twinjet. The A320 is significantly more fuel-efficient than the 727-200 or either the 737 or the MD-80.

The helicopter section of the unscheduled industry should also profit from technological advancements. Of particular importance will be the military tilt rotor. The aircraft can function as a helicopter on takeoffs and landings but is capable of flying at a cruising speed of 300 knots per hour at an altitude of 20,000 to 25,000 feet as a conventional fixed-wing aircraft. While it remains uncertain whether this aircraft will be ordered by the military, the helicopter may be introduced into the civilian market in the early 2000s.

Further Reading

The Air Charter Guide Web Site, 1995-2000. Available from http://www.guides.com .

Air Transport Association. "2002 Annual Report." Available from http://www.airlines.org .

Brackey, Harriet Johnson. "If They Aren't Buying Jets, Executives Lease, Buy an Interest in Them." The Miami Herald, 4 November 1999.

Federal Aviation Administration. FAA Aviation Forecasts, Fiscal Years 1991-2002. Washington, D.C.: Department of Transportation.

Flint, Perry. "A Slight Imbalance." Air Transport World, December 1999, 34.

Gonzales, Angela. "Banker Gives Big Boost to Jet Company." The Business Journal, 8 December 2000.

Graham, Philip. "E-mail response to question about charter terminology." The Air Charter Guide, 27 February 2000.

Hoovers Online. Austin, TX: Hoovers Inc. January 2003. Available from http://www.hoovers.com .

Pina, Michael. "Air Tour Group Criticizes Bill Limiting Flights Over Parks." Travel Weekly, 24 February 1997.

Thomas, William D., and Joseph Kowal. "Producer Price Highlights, 1998." Monthly Labor Review, July 1999, 3-15.

Ward's Business Directory of U.S. Public and Private Companies 2000. Farmington Hills, MI: Gale Group, 1999.

Winograd, Jeanne. "Catering to High-Flying Clients." Business Journal of Phoenix, 18 June 1999, 23.



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