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Schubach Aviation’s nine-passenger Hawker 800 SP. Banner image above: Luxury Yacht Group’s
Christina O anchored off Villefranche, France
Luxury Leisure — Still Flying High
Epic fuel prices are becoming an easy icebreaker at mixers, working better than "How’s this lampshade look?" or even the popular, "How low will real estate go?" (Limbo, anyone?)
Rupert Connor, president of Luxury Yacht Group LLC, headquartered in France and Fort Lauderdale, says the latest party conversation kick-off he’s heard is: "Can you believe it cost $150,000 to fill up my yacht last weekend?" So much for that tired old joke about taking a second mortgage to top off the tank.
As consumers tighten their purse strings — kicking SUVs to the curb while struggling to make Kias look cool — it makes one wonder how the market for gas-guzzling luxury toys is fairing. The answer is surprisingly mixed, though the takeaway message is clear: it’s better to be "very rich," rather than just "merely rich."
"If you look at the high net worth individuals who maybe have $1 million to $4 million in liquid assets, I’m seeing them react to the luxury markets differently...they’re more cautious, they’re paying closer attention to what things cost," says Courtney Liddy, vice president and senior financial advisor of Merrill Lynch Global Wealth Management.
Contrast that to the individuals with a net worth of between $25 million and $35 million? "They are more conscious of what they’re doing with their dollars," says Liddy, "but it’s impacting them at a different level. It’s perhaps impacting them from the standpoint of they may not be flying that jet as often."
Connor, who regularly deals in yachts with $30 million price tags, caters to the latter half, and as a result is enjoying a bit of a boom. "Often in a recession, the rich tend to get richer," he says, "the order books are full, my sales broker team has a real problem placing new business...we’re still looking for more and more shipyards to satiate the demand. American yards have a real advantage right now with the cost of the weak dollar."
That said, Connor reports that brokerage firms specializing in smaller vessels are finding their commissions shaved rather heavily. "They’re having to negotiate down to pay their brokers what maybe they would have paid them two, three years ago. People in a smaller luxury market, the 80 to 100-foot market, are struggling right now."
The private aviation sector, another privilege of the privileged, is currently enjoying a boom, despite the cost of jet fuel that has nearly tripled in the last few years. Henry Schubach, president of Schubach Aviation, a San Diego-based charter company, is only experiencing a little turbulence.
"We’re off a little bit as expected," he says, "our fuel prices have changed like everybody else’s...but, given the scope of everything that’s going on, I’m pretty comfortable with how this is holding up. It could be a lot better, but it could be a whole lot worse."
Schubach attributes their resilience partially to the deteriorating product that their chief competitor, the mainstream airlines, offers: increased baggage charges, invasive security lines, and not even a bag of peanuts waiting as a reward.
"From an economy standpoint, one of our aircraft with a good load factor is really not enough more money where it’s deterring people."
Most of the luxury car market, however, is taking a drubbing. The Wall Street Journal reports that drool-worthy rides like Bentley, Rolls-Royce, and Maybach fell 39 percent last year. Even their envious next-door neighbors, like the Mercedes E-Class and the BMW 7 series, dropped 24 percent.
"The guy that’s into a Ferrari that’s worth hypothetically $75,000 to maybe $100,000, is the typical guy that needs to discuss it with his wife," says Gary Bobileff, founder of San Diego’s Bobileff Motorcar Company. "They’re most impacted because he either drives the car every day or it’s an occasional car and it’s the first thing to go when all of the sudden things get tight. That market is the hardest hit."
Meanwhile on the high end of the market, sales seem to be accelerating.
"The market approaching $1 million on up is actually very good," says Bobileff, "the value of the cars is increasing in price; people are taking money out of either real estate or the stock market and investing it into cars as they go up in value."
This jives with what Liddy is hearing from her clients. "You’re seeing the people that have more liquidity and have been more conservative in this downturn say ‘gosh, there is opportunity out there...perhaps I can go buy that Aston Martin because the inventories are so high.’"
When one’s shopping for yachts, planes, or Ferraris, does the cost of fuel factor into it?
"I think it’s noise when it comes to filling up their car, but I don’t think they’re unaware of it," says Liddy. "People that have made that kind of money have worked very hard, so they’re certainly aware of what’s going on in the world."
Connor agrees. "Whilst we do have the extreme examples like the one I gave you before, most of our clients are very practical with their money; they haven’t made the very many millions they have by being foolish with it." — Paul Stuart
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