Think of your favourite restaurant. They might serve fast casual burritos or pricier Omakase, but rarely both.
It seems obvious; after all, how could a Chipotle-style joint serve good sushi? The required ingredients and expertise are vastly different, to say nothing of the contrast between their respective suppliers and target customers; the latter discrepancy creates conflicts regarding physical locations and restaurant atmosphere, for example.
Albeit simple, this example illustrates the difficulty in accumulating “all necessary strategic assets” when trying to diversify operations – theory explored by Constantinos Markides, a distinguished professor of strategic management.
Factors like industry knowledge and access to suppliers are critical, yet it’s difficult to imagine our burrito restaurant building out a profitable supply chain for raw fish and successfully catering to a more affluent demographic.
Now consider this: Blackcomb Helicopters – an operator based out of BC – offers flightseeing tours, power line support, heli logging capabilities, fire suppression, and aerial filming in support of BC’s $4 billion film industry. And that’s not even the full list. The equivalent would be our restaurant offering burritos, sushi, late-night shawarma, and brunch.
More incredible is the fact that Blackcomb isn’t alone – virtually every helicopter operator in western Canada features a similarly dizzying array of services.
This article will:
- Outline this competitive landscape
- Dig into reasons for such impressive diversification
- Examine the challenges of 2020
- See how survival depends on diversification
Photo by Blackcomb Helicopters
From a financial standpoint, the Canadian helicopter industry might seem unimpressive; it contributes less than 0.1% of GDP, directly employs fewer than 10,000 people, and makes up approximately 5% of the country’s commercial aircraft fleet.
Good thing life isn’t just about finances. Helicopters impact us far beyond the services they provide directly; missions like aerial fire suppression are critical, whilst activities like heli skiing help unlock Canada’s natural beauty for those fortunate enough to experience it.
These aircraft typically serve 3 sectors, each encompassing several unignorably disjoint fields:
- Natural resources: Oil & Gas, forestry
- Utilities: Wildfire suppression, powerline support, aerial cinematography
- Leisure: Flightseeing, heli skiing, heli (insert outdoor activity here)
Another key characteristic of the industry is the high degree of fragmentation. Close to 60% of operators have fewer than 5 aircraft, while the CR4 by aircraft - market share of the 4 largest companies - is just 13%.
Data from the Civil Aircraft Register Database
There has been some consolidation over the years, but the market is still much more diverse than the airline industry; Air Canada and WestJet collectively command over 80% of their market, for example.
Most helicopter activities are either too volatile or insufficiently lucrative for specialisation, forcing operators to diversify in search of reliable revenue.
We’ll dive into each sector to better understand their disjoint natures, unique financial situations, and implications for operators.
- Natural resources
- What this means (for diversification)
Both the industries of Oil & Gas and forestry are heavily reliant on helicopters, largely stemming from the need to ferry crew and equipment to isolated locations.
Photo by Cougar Helicopters
Offshore rigs are most easily accessible by air, making helicopters the natural choice for regular crew moves and transporting large cargo like seismic drills. Pipeline surveillance also fits aerial operations well, especially when significant portions run through swaths of inhospitable land.
Logging poses many logistic and technical challenges, many of which are also well-served by helicopters. Fallers and other workers must be transported to and from remote camps, whilst operations like heli logging and tree trimming have been revolutionised by flight; the former involves using 200ft cables to pull logs from inaccessible terrain, the latter slinging 10 2ft aerial saws on the end of an 80ft boom to effectively form a flying chainsaw.
As you’d expect, operators are very particular about who flies these missions. Bob Hawthorne, chief pilot of Canadian Air-Crane, describes it as follows:
“Anyone flying for us has to hold an airline transport rating and have at least 5,000 hours, the [majority of which] with external load operations. We need this experience… because of the challenges of heli-logging. It is vertical reference flying so our pilots have to have good situational awareness and good peripheral and visual clues." - Bob Hawthorne, chief pilot of Canadian Air-Crane
Vancouver-based Helifor - now a subsidiary of Columbia Helicopters - requires less upfront flight time, but will fly newcomers as co-pilots for 2,500 to 3,000 hours before entrusting them as a logging pilot.
Bringing things back to the topic of diversification:
|Oil & Gas
|High - fuel prices and demand can swing
|Medium (at least pre-covid) - not much fixed infrastructure to maintain in down times
|High - specific expertise and additional certification required
Such characteristics preclude operators from specialising in these fields, despite the unique skills evidently required for activities like heli logging.
Wildfires are a natural element of various life cycles, but some degree of fire suppression is necessary during the summer months; this is in addition to the emergency rescue implications of forest fires. Helicopters are therefore vital; water drops and aerial search-and-rescue capabilities fill key gaps in a fire response. These activities naturally require specific certifications surrounding external loads and flying conditions.
Provinces in Canada typically maintain their own personnel and equipment, but will retain private contractors on short-term agreements to provide additional support.
This exposes operators to a high degree of volatility; wildfire contracts only generate revenues in the summer, and year to year renewal can’t be relied on either. We’ll see later how a historically slow wildfire season is only amplifying difficulties stemming from the pandemic.
Power line support
A significant portion of western Canada’s power distribution systems span mountainous terrain with limited ground access; helicopters are therefore relied upon for construction and maintenance of such systems.
The payout seems modest; BC Hydro spends over $30 million a year on helicopter services - a large portion for private contractors - but there are over 100 operators in BC. Assuming that 30% of them provide power line services (likely an underestimate) and that the entire $30m is spent on contractors (an overestimate), that’s $1m per operator. It’d be remarkably risky to solely rely on this revenue stream.
The complexity of the work also demands specific expertise and - you guessed it - even more certification. Live line work is perhaps the riskiest; helicopters hoist aerial linemen down to high-voltage power lines whilst hovering at treacherous height-airspeed combinations - a phenomenon captured by the dead man’s curve.
How else do you make 9 Fast and Furious movies? Aerial shots are ubiquitous within the entertainment industry, and British Columbia is a large contributor to that. The province saw $4.1 billion in direct film/tv spending in 2019, placing it ahead of locations like Georgia ($3.3b CAD) and around halfway to New York ($8.1b CAD) - not a bad spot.
Western Canada’s natural and urban geography create incredibly diverse landscapes for filming, and helicopters have long been the natural choice to exploit such versatility. Their ruggedness allows for high-speed chases, IMAX camera mounts, and the ability to tackle adverse weather much more readily than drones.
It’s arguably not difficult to get into aerial cinematography, at least from a regulatory perspective. A commercial registration and camera will get you started, unlike the additional certifications required for heli logging or fire suppression, although you probably won’t have many clients using your iPhone 12.
In another way, experience and reputation matter even more. With rates running between $10-$25,000 a day for a helicopter and crew, productions are going to want the best. Not only do operators need to invest in equipment like gyro-stabilised camera systems, but true expertise must be brought in.
The finances aren’t that attractive either. Disclaimer - some very rough math: assuming an operator shoots 5 films a year (an aggressive estimate) and spends a full 10 days on each, that means 50 days of revenue. Taking the upper bound of our daily rate, that’s 50 x $25,000 = $1.25 million. One AS350 Eurocopter costs north of $300,000 per year to operate, and a player like Blackcomb has 21 helicopters. Relying solely on this revenue stream is unrealistic, so cinematography takes its place amongst the other services offered.
Wrapping up utilities
|High - extremely seasonal, and contracts are short-term
|High - dangerous work, additional certification required
|Power line support
|Low - but payout is modest
|High - dangerous work, additional certification required
|Medium - demand is often high but not constant year-round
|Medium - no certification, but skill and expertise are evident
I’ve never gone flightseeing, but a lot of people are willing to pay $1500 for half an hour above downtown Vancouver. There are also groups who would gladly pay $6000 to go heli skiing, $2400 for heli hiking, and $1200 for heli golf?
never thought of heli yoga but I guess Blackcomb knows their customers
Most operators have discovered that you can put the word “heli” in front of any outdoor activity and charge people for it. Some regulatory details have to be worked out for passenger operations, but flight conditions for these missions are often less demanding than the activities mentioned in the Utilities section. Pilots who fly heli logging missions, for example, will have few issues taking 4 tourists around Vancouver. This renders leisure activities a potentially lucrative way for operators to further utilise their aircraft.
But there’s a catch, and it’s also the main reason why leisure can’t be the sole source of revenue for operators. Think about who actually goes on these tours, and how often they do it. The market for such expensive activities can’t be large, and they’re probably not a regular occurrence either.
Throw in the vagaries of the tourism industry and a pure leisure player will be disproportionately vulnerable. Many operators have slowly grown their leisure practices, especially with the increasing popularity of wilderness tourism, but it’s still far from becoming an operator’s single revenue source.
What this means (for diversification)
From a revenue standpoint, these sectors are either too volatile or have inadequate upside. The decision to diversify therefore isn’t much of a decision at all, despite the vast differences in skills and certifications between missions.
Terry Eissfeldt, CEO of West Coast Helicopters, puts it as follows:
“I think diversity is the key to being successful and healthy. If you end up just in the oil patch or mining and it goes down — which it always will, as we see now — so does your revenue.” - Terry Eissfeldt, CEO of West Coast Helicopters
This attitude prevails throughout the industry, and we’ll explore next how diversification has held up in the face of the industry’s many challenges.
The challenges of 2020
“It’s been a perfect storm between the pandemic, exploration contracts cancelled or postponed, a very wet fire season, skyrocketing insurance rates and a slumping oil-and-gas sector.” - Fred Jones, president of the Helicopter Association of Canada (HAC)
2020 was tough for everyone, and doubly so for helicopter operators in Canada. A VerticalMag survey from November 2020 found that a third of Canadian operators have lost more than half of their business. 68% have laid off employees, higher than the 51% in the US and a 25% rate internationally.
Between wild fluctuations in natural resource demand and the effective elimination of any tourism industry, the concept of diversification has truly been tested.
The pandemic has decimated the critical sector of leisure, with lockdowns and border closures shutting down a budding tourism industry overnight. This doesn’t bode well for operators who have grown increasingly reliant on what seemed like a flourishing tourism sector; West Coast Helicopters brought in 40% of their revenue this way in 2019, for example.
Despite calls for the government to “stop imposing lockdowns [and] border closings”, leisure travel in Canada may be severely hampered for another year - at best.
Helicopter article or GMC ad?
Fortunately, Canada’s film industry has remained resilient. Perhaps understanding the critical nature of Hollywood’s dollars, the government largely permitted film and TV production to proceed under strict guidelines. Activity in the summer of 2020 even exceeded pre-pandemic levels, extending a lifeline to helicopter operators working in aerial cinematography.
Slow wildfire season
Compare this: 1.8 million vs 230,000.
The former is the amount of Canadian hectares burnt during 2019; the latter is the amount burnt in 2020. Last year was easily the slowest fire season of the prior decade, compounding issues for operators who expanded their fleets following several busy years.
Data from the Canadian Interagency Forest Fire Centre
This drastic decrease reduces the need for agencies like BC Wildfire Service to retain private operators, in turn slashing revenue and utilisation for operators dependent on these short-term contracts.
Slumping oil and gas
Just over a year ago, oil prices turned negative for the first time in history. Slumping economic activity had drastically reduced energy demand, to say nothing of the Saudi-Russian oil price war initiated just a month prior.
Oil producers in Canada cut production by over 1 million barrels a day, laid off workers, and pretty much threw the industry into stasis. O&G-related demand for helicopter operations fell off accordingly, turning a once lucrative revenue stream into a liability.
Why survival depends on diversification
“The ones that seem to be doing best are the ones that have either longer term essential services contracts — police, pipeline, powerline, etc. — but also companies that have cultivated niche opportunities for specialized work such as aerial photography and infrared scanning. We’ve even seen some who have diversified into UAV services.” - Fred Jones, president of the Helicopter Association of Canada (HAC)
Diversification reduces risk; it’s why financial advisors tell you to buy ETFs, even if you’re adamant about Tesla.
It’s difficult to paint a conclusive financial image, but take it from one of the more diversified players in the space. Yellowhead Helicopters, an BC-based operator, flies 36 helicopters across the 3 sectors of natural resources, utilities, and leisure. CEO Jacob Forman proudly claims: “If it’s done with a helicopter, we’re involved.”
Forman speculates that those who rely heavily on leisure, wildfire management, and O&G could have seen fleet utilisation decrease by over 50% during 2020. Yellowhead’s own fleet activity was down by around 30%, yet their diversification has helped keep them afloat.
However, simply offering a wide breadth of services isn’t enough to prevent business catastrophe; despite offering services across O&G, utilities, and leisure, Highland Helicopters went under earlier this year after 62 years in service.
It’s evident that the proportional reliance on certain streams is critical, as is accumulating the necessary strategic assets for each function. Markides also cautions against overextending; strengths like pilot expertise or maintenance quality can’t always be split easily across functions and locations, adding to the difficulties of diversification.
With another uncertain summer on the horizon, the industry’s ingenuity will be tested - yet again.