Though there have been general talks of a recession, the aviation industry is, so far, holding its own.
It’s becoming more apparent that people have labeled post-pandemic travel as non-discretionary. In commercial aviation, passengers are willing to pay a premium for airfare. And in business and general aviation, people are still willing to pay top dollar for their airplanes. In recent updates, both WingX and the International Aircraft Dealers Association (IADA) confirm that the demand for business travel from the first half of the year to now has remained strong.
WingX said in a market update Thursday that even though some travel shifted back to airline travel from business travel, there were 2.7 million business aviation flights during the first six months of 2022. By comparison, scheduled airline travel ended the first half of the year still almost 30 percent behind the same period in 2019. Even global cargo operations this year have fallen off the pace of 2021, as people are spending less on goods. Aircraft sales are also strong.
At its third annual Jefferies Business Aviation Summit in June, the financial group said, “demand for business jets remains stable.” Moreover, it predicts that OEM backlogs will endure through 2025 as customers are still placing orders amid a tight used-aircraft market. Toby Smith, vice president at JBA Aviation, told the National Business Aviation Association (NBAA) that projections for fourth-quarter aircraft sales remain strong despite talks of a recession. Smith attributes this partly to the winding down of the bonus depreciation tax incentive that many people still want to take advantage of. Additionally, Smith said it was apparent the airlines had proven to be unreliable in meeting the travel demands of the public, before sharing anecdotes of charter customers opting to shell out extra 10s of thousands of dollars to access an aircraft.
What About Small Business Owners?
Yet, what about the small business sector of the industry? Are operators beginning to feel the pinch? Ryan Waguespack, an outgoing senior vice president at the National Air Transportation Association (NATA), a public policy group that represents more than 2,300 aviation businesses, told FLYING, “private aviation is still moving—it hasn’t missed a beat as it relates to a lot of our smaller operators.” Waguespack says that’s because travel demand hasn’t waned.
The vibrancy of small businesses in any sector tends to be anchored to the ebb and flow of the larger industry. For instance, with the resurgence of airline travel, airport consumer goods stores are also reaping the benefits of more foot traffic. It’s a stark difference from the battened-down store fronts experienced at the height of the pandemic. In 2020, business was so bad for airport concession stores that the government provided nearly $2 billion in relief funding for rent and minimum annual guarantees to help these businesses survive.
Now, these small businesses have been caught flat-footed by the surge in commercial travel. What’s made it worse is that airports, like airlines, also face a shortage of workers to meet the demand. In the jobs report published Friday, the Bureau of Labor Statistics (BLS) said in June that the air transportation sector hired more than 8,000 people, raising the total number of employees to 557,000, with the industry grappling to replace workers who retired during the pandemic or who left altogether.
In a report this week, the Airports Council International-North America (ACI-NA), which represents more than 300 airports, highlighted more BLS data, indicating that fewer people were opting to work in the airport sector, which may help explain reported travel disruptions.
Will Higher Interest Rates Slow Business?
If there’s any indication that the business environment for small businesses might change due to increasing interest rates, Waguespack said it isn’t apparent yet. “It’s becoming harder to do business. The common theme we continue to hear is we’re either eating or being eaten.”
In June, when the ACI held its Business of Airports Conference, the council said airport concessions now also faced a challenging environment because inflation made the cost of construction materials the highest in 50 years. However, like the airlines, these businesses will be able to pass the higher costs through to their customers, who don’t seem deterred by the higher travel costs.
The organizations that might do well, Waguespack explained, are the ones with their systems in place. He said some have leaned into the challenging business environment with inflation on one side and increasing interest rates on the other.
“We’re going to have smaller organizations that are stepping up. They’re well-funded there, have systems in place, and are funded to scale. They’ll go through all the growth stages over the next couple of years, and that will be key for workforce retention and recruitment.”
This aligns with the sentiment that Margaret Martin, president of Martin Airport Law, shared with FLYING. Previously, Martin was vice president of the Metropolitan Nashville Airport Authority. In her practice, she primarily helps airport real estate clients—those looking to develop infrastructure, including hangars or other private development.
“We do a lot of real estate development in my firm, in Middle Tennessee,” Martin explained. “All around me is a buzz about a recession and a tightening of financials—not one of my airport clients has mentioned this.” In other words, Martin suggests that even for her clients’ operations, business is plugging along.
What Does That Mean for Workers?
So, with the industry plugging along, where does that leave workers? When interest rates go up and businesses have difficulty accessing capital to keep their operations funded, unemployment tends to increase as well. So far, in keeping with the BLS data, the industry is proving to be robust, dealing with actual workforce shortages, but Waguespack thinks workers will feel the squeeze in other ways, including wages.
“On the workforce side, people are saying, ‘we don’t want to go too crazy with salaries now—because we don’t know what the next couple of quarters might look like.'” While workers might be happy to retain their jobs, they might chaff at the slow wage growth. Mechanics already have said there’s no wiggle room in their salaries to cover their expenses, and airline pilots have been protesting for better contracts.