Will investors finally see through the illusion of online broking in 2019?

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Frustrated by continuing claims for market disruption dominance and a supposed end to traditional brokerage emanating from some parts of the market, Air Charter Service group marketing director James Leach takes issue with those promoting their own Sisyphean enterprise at the expense of a balanced marketplace.

Ever since Virgin Charter made a big entrance in 2006, described as one of CNN Money’s 15 companies that will change the world shortly before they went bust, the general perception in the private aviation industry seems to be that there are two types of charter brokers – online and traditional. The problem is the criteria for being labelled as an online broker seems less to do with technology and more to do with how a brokerage describes itself. If you look closely, the majority describing themselves as online don’t appear to have any more technology than many established traditional brokers. So, inevitably, people have started to ask why, after 13 years of failures, investors keep buying the same old stories?

The truth is, in a world of low interest rates where companies like Amazon and Uber have experienced stratospheric growth, there has been huge interest from investors in any business claiming to have market-disrupting technology, in an industry perceived as being reluctant to ditch its fax machines. With exciting sounding pitches about the goldmine of empty legs, improving poor asset utilisation, or simply another claim to be building the ‘Uber for private jets’, our market suddenly became interesting. Typical comments from established brokers fuelled interest further, with many stating that online brokers would never take off as customers always want to speak to a person. They argued that a computer could never do the job of a good broker.

For tech investors, these sorts of responses were exactly what they would expect to hear from a market full of Luddites. And with the lack of significant market data available, they decided it was ripe for disruption.

As a result, a plethora of start-ups appeared, ready to soak up the inevitable flood of investment. These companies were given millions of dollars with which to hire huge teams of people, to spend on marketing and even to charter aircraft at a loss to win market share. Most tried to figure out some basic tech that would seem a lot more useful than it actually was, while others seemed to do little more than build a website with a basic estimate pricing engine.

They were offering customers the same aircraft, with only an industry standard of around 10 per cent margin to play with in terms of price, against established brokers with near identical tools at their disposal to source aircraft. As with any broker investing a large sum in marketing, they inevitably won new customers. Some spun this as proof of concept to help with their next round of investment, and investors did not realise that they were actually showing terrible returns on marketing investment and sales per employee, which highlighted gross inefficiencies compared with the rest of the market.

Some will say I’m just an old-fashioned charter broker who fears change. The truth is I love new technology. I see it as an opportunity, not a threat. What I do feel threatened by is the damage these companies could do to the reputation of the industry as a good investment. I am also concerned that the ‘online vs traditional’ myth may actually slow down the pace of investment in technology as a result of existing brokers attributing the failure of online brokers to the failure of technology. The truth is that there is no such thing as an online broker, just as there is no such thing as an online airline. We are all online and use technology for different parts of our businesses already, whether that’s websites, apps, CRM systems or aircraft sourcing tools.

The industry is simply not ripe for tech disruption. I believe 2019 will be a year of reckoning for some of these brokers. Uncertainty in financial markets, and stories of tech unicorns such as discredited US health technology company Theranos and UK-based Powa, that collapsed after spending $200m of investor money – exposing the ‘fake it til you make it’ culture of tech entrepreneurs – may make further investment harder to come by. Some may have enough cash left to survive as regular brokers, some may cut staff to spin a story of improved efficiency to new investors and some may manage a trade sale. But for many, I suspect, their illusion will end.