China, Socialism & Consumer Behavior: private aviation market in boom
China’s private aviation market is on the verge of experiencing a sonic boom. Since 2008, the number of jets registered on the mainland has tripled to 137, and experts expect that digit to soar past 1,000 by the end of the decade.
According to the 2010 Hurun Rich List, one sixth of China’s 2,000 RMB billionaires plan to buy their own plane. But there’s some turbulence standing between the mega-wealthy and their personal mile-high clubs. Until recently China’s entire airspace was under military control, so the immature market suffers from lack of infrastructure and streamlined systems.
“The main challenges in China are restrictions on when and where jets can land, as well as other regulatory issues such as over-flight approvals, access to airports, restricted routings and limitations on parking permits,” said Candy Chung, managing director of Global Aviation Asia, a Hong Kong-based private jet consultant, in Jet Asia-Pacific.
But Chung already sees the clouds starting to part. “China’s central government has named global aviation as one of the country’s pillars of economic development in its five-year plan.”
To promote the market, the Civil Aviation Administration of China CAAC recently launched the China Business Jet Alliance including companies like Bombardier and Boeing. Objectives include opening up restricted upper airspace and reducing taxes like the current 17 percent VAT. Local experts expect a more convenient market to be in place by 2015, while Chung is “confident it will happen sooner.”
Despite the current setbacks, Chung sells plenty of planes. While she won’t divulge numbers, her bestsellers are Bombardier XRS and Gulfstream G550, both 14- to 16-seat jets with costs hovering around the US$51 million mark.
Besides the eye-popping price, most of her high-flying clients also “don’t mind” inconveniences like requesting permission two days in advance to fly. “It’s not a huge problem. No one can change the facts right now, but if you want an aircraft, you should know everything upfront.” As even more restrictions are gradually loosened, the market will reach astounding heights.
Jet brands are making grand gestures to capture the attentions of China’s upper, upper crust. Recently Embraer signed Jackie Chan as its China brand ambassador. His deal came with a customized red and yellow 14-seat jet, which Embraer insists Chan bought. But insiders suggest he got it heavily discounted from its original US$30 million price tag.
Zhai Jiahua, chairman of Beijing company China Stem Cell, claims to have been the first person in China to buy a private business jet, in 2010. The medical mogul now owns three Bombardiers – worth over RMB300 million a pop – and plans to purchase two more this year. “It’s only worthwhile when you can fly 300 to 400 hours per year, and we certainly do.”
So why must a 160-person company possess a fleet of five aircrafts? “First of all, we need them.” Not only is jet speed necessary to transfer stem cells, “our treatments target very high-level people.” Zhai’s planes transport VIP patients, including a former Japanese Prime Minister, who was flown to Beijing for treatment. “We not only cured him but highly impressed him. We won his respect. I’m proud of that.”
The last-but-not-least reason is prestige. “Private jets make the company look more powerful.” Zhai says that power is still palpable even amongst clients who don’t take a spin. “As long as people know you own private jets, it doesn’t matter whether you fly them or not.”
The private aviation market is also soaring in second-tier cities. In Guangdong Province, private aircraft dealer Zhuhai BAC has sold 17 planes since opening in March. What’s flying off the tarmac? Cirrus SR22, a four-seat, single-engine plane with a relatively low price tag (RMB3-5 million), fuel efficiency (12 liters/100 km) and high safety rating (it has its own parachute).
Business manager Li Yanwu says his typical customers are 40-year-old men who work in real estate, coal or mining industries. One third come from Guangdong Province. “There aren’t many clients in big cities like Shanghai or Beijing because the airspace is way too busy.” The rest are from northeast China and Shanxi Province.
Li has mastered his sales pitch: “If a Rolls-Royce costs more than RMB10 million, then why not just buy a private plane? It will instantly change your identity. Imagine how much face you’ll have during your next business meeting!”
Business for Zhuhai BAC has boomed since China’s air traffic authorities relaxed their tight control over low-altitude airspace below 1,000 meters. “In the past you had to apply for the permit two weeks, ten days or at least one week in advance,” Cirrus SR22 owner Chen Yilong told CCTV in a recent interview. Today getting up in the air requires less hassle. “As long there is no major political or military activity, you can get the permit for a flight tomorrow.”
Of course, China’s mega-rich aren’t only flying to business meetings; jet-setting glitterati are taking to international skies. Affinity China is an exclusive concierge service catering to China’s inconceivably wealthy, specializing in tailoring ritzy trips to lavish locales. Shanghai-based VP business director Lili Feng recently got a fashion-crazed taitai a coveted front-row seat at Chanel’s catwalk show in Paris. There’s virtually no request Feng can’t grant.
While few of Feng’s clients fly privately overseas, nearly one third prefer private jets for domestic legs, like hopping to chateaus across France for private wine tastings. “For them money is not an issue… Jets are more about convenience.”
Expediency aside, private aircrafts are delightfully conspicuous, and some jet brands drop more jaws than others. “Chinese high net worth individuals prefer specific brands for certain categories. For jets they love Gulfstream, just like for wine they only drink Bordeaux, even if other wines may be just as good or better.” Recently her client and his entourage flew a Gulfstream to Augusta, Georgia for a guys-only golf trip on The Masters course.
Feng doesn’t usually get bogged down with a budget when she’s asked to plan something fabulous. “While they may not care about the exact price, they’re very savvy about the value of the trip. The young generation didn’t get rich just from their fathers.”
Many of Feng’s clients own their own jets, but when traveling with their friends overseas, they prefer not to use them because “they don’t want to show off.” But isn’t showing off the whole point? “Actually you’d be very surprised. The really, really rich people are very low key.”
For now stem cell billionaire Zhai falls into that category. He “never ever” uses his planes for pleasure. “To me it’s such a luxury. Perhaps I’ll do that after my retirement, but not now.”