Viewpoint: The Need To Standardize Aircraft Charter Agreements
The yachting industry has successfully implemented standardized contracts. So, why haven't standardized charter agreements emerged in business aviation?
The comparison to yachting is perhaps not as precise as it may seem. Yachting is heavily regulated with high barriers to entry, causing many to compare it to a cartel. In contrast, business aviation has few barriers to entry--it is comparatively easy to launch an aircraft charter brokerage, which makes it considerably more difficult to implement standardized documentation across the industry.
Logistically, the two industries are different. Clients must travel to wherever a yacht is moored and empty legs are rare, whereas business aviation fleets often “float” around the world, creating numerous empty legs. This imbalance presents different operational and revenue liabilities between the two industries.
Barriers To Standardization
What has prevented standardization of agreements in business aviation?
Business aircraft operators are likely to point to obstacles including cancellation terms, fuel surcharges, AOG (aircraft on ground) contingencies and the inclusion of services, such as catering, Wi-Fi and other amenities.
There also are significant disparities in fleet size, service provision and aircraft ownership among operators. Furthermore, operators typically tailor services to their home market, further compounding disparities in services worldwide.
Benefits To Brokers And Clients
Standardization of terms would, in principle, address issues, such as cancellations and AOG contingencies. If such variables were clearly addressed, negotiations between operators and brokers could potentially be greatly simplified.
Charter clients are also likely to benefit from greater transparency. However, as many operators and brokers will tell you, clients seldom read the fine print in their contracts.
So, could the industry--at least--standardize cancellation terms?
Cancellation terms are often set by aircraft owners and intended to guarantee a minimum revenue stream. But different owners have different priorities. Hence, cancellation terms vary as much as human personalities. However, it would seem logical that standardized cancellation terms would benefit all involved by bringing a greater degree of transparency and consistency to the business.
Operators of owned fleets would certainly seem to have a vested interest in standardizing cancellation terms, but their motivations may be more influenced by fleet size, the likelihood of reselling a cancelled trip and other factors.
Standardization of cancellation terms may be a mixed blessing for charter brokers because it would reduce haggling, but it could also eliminate a margin.
Aircraft On Ground Situations
When an aircraft is grounded, everyone loses-- time, money or both. But that does not make standardization of terms any easier.
AOGs are difficult to standardize because reactions are functions of individual operators. For example, does an operator have enough aircraft in its fleet to manage its own recovery? Or will it be necessary to sub-charter an aircraft from a third party? The financial implications of each scenario are different.
When it comes to AOG recoveries, brokers sometime complain that liability is unfair. For example, if an aircraft is grounded, an operator can back out of a contract without penalty but if a client cancels, they are subject to a cancellation fee. The alignment of liabilities would seem another benefit of standardization, but movement in this direction has been slow.
Standardization Across Markets
Different regions, cultures and regulators apply different provisions. In the U.S., for example, catering is not usually included in the charter price but domestic Wi-Fi is included. By contrast, in Europe, catering is typically included in the charter price but Wi-Fi is billed based on usage.
To drive standardization, the world’s air charter associations, such as the National Business Aviation Association, The Aircraft Charter Association, European Business Aviation Association and others would need to work together to synergize these service provisions. Worldwide standardization of charter agreements would seem to benefit to all concerned.
Will Technology Provoke Change?
Greater standardization across national and regulatory boundaries will facilitate the automation of flight bookings using the latest technologies. As more operators and brokers embrace technology, including automated business operations systems, customer-facing portals and platforms such as Avinode and VOO, the requirement to standardize contracts may increase over time.
Ultimately, technological advancement will benefit the individual client/passenger who will enjoy unprecedented transparency and the ability to book flights with ease.
Despite numerous compelling reasons, it has been difficult to standardize aircraft charter agreements largely because the business aviation market is so fragmented. Aircraft operators have different requirements and different liabilities, which result in widely disparate agreement terms.
Furthermore, contracts are often a product of hindsight. For example, operators and brokers tend to add contractual clauses in response to coverage shortcomings. Denying operators and brokers the ability to protect themselves with evolving contractual terms would be difficult. Perhaps synergizing key contractual areas would be more acceptable to the industry.
To truly be impactful, the standardization of agreement terms must be based on a coordinated international effort--representing all stakeholders--and will require significant compromise on all sides.
Author's Note: This column was inspired by a panel moderated by Cat Buchanan at EBACE 2023.
Catherine ‘Cat’ Buchanan is director of business development at STACK.aero, a developer of business operations systems for aviation.