 High-end consumers are increasingly splashing their cash on experiences such as expensive holidays and private jet hire. By BOYD FARROW
It is fitting that Discovery World Cruises’ 62-night “Grand Voyage” – which began mid-March and costs from €11,960 per person – should take in the Galapagos Islands, the cradle of Charles Darwin’s theories. According to New York-based specialist research firm the Luxury Institute, the giant-turtle-videoing passengers embody the luxury market’s evolution from the solid to the intangible. While the high-end goods industry is still growing globally (see page 40), the wealthy are increasingly spending more on doing things than they are on owning things. For example, 12 million people took luxury cruises in 2006, and the industry anticipates double-digit growth this year. In the US – the world’s largest luxury market, accounting for 36% of global spend – experiential luxury was the only category of spending to rise in the jittery, Iraq-fixated second quarter of 2006, according to Unity Marketing. The specialist firm, which tracks the spending habits of the top 10% of US earners, says the market for luxury goods specifically bought for the home dipped 5.7% to €36.9bn during this period. The “personal luxury” market, which includes fashion and jewellery, fell 8.7% to €22.8bn, while sales of luxury cars were down 0.9% to €46.5bn. In contrast, travel, dining, entertainment and spa and beauty services grew a huge 10.7% to €63.3bn. Significantly, the top 10% of US earners spent an average of €19,851 on luxury travel in 2005. That was up 41% over the average amount of €14,121 spent by the same group in 2004. Unity estimates that spending on luxury travel by this earning elite touched €23,000 in 2006. With so many wealthy people jetting around the globe, the demand for high-end accommodation is heading off the chart. In the US, luxury hotels are now selling at more than €780,000 a room for the first time; €1.5m a room was reportedly paid for the recently opened Town House Galleria in Milan. The relatively recent boom in spas and private beaches has been accompanied by a rise in limos, helipads and private butlers to woo business and leisure travellers. “The lodging industry is very healthy at the moment. The luxury hotel portfolios are driving a great deal of that success worldwide,” says Scott D Berman of PricewaterhouseCoopers’ hospitality and leisure division. In the US alone, hotel industry profits are expected to rise to €22.7bn this year – up from an estimated €19.2bn in 2006, according to PricewaterhouseCoopers. New hotel construction is up too, largely to meet increased demand. In 2006 there were approximately 127,708 new rooms becoming available, compared to 77,549 in 2005. Underscoring just how glamorous the hospitality industry has become, several luxury Italian fashion houses have entered the arena. Bulgari has opened a boutique hotel in Milan in partnership with Ritz-Carlton, a division of Marriott International, followed by a 59-villa resort in Bali. Versace opened its first hotel on the Australian Gold Coast with the Sunland Group in 2000, and is currently building another in Dubai. Giorgio Armani has licensed his name to a chain of 14 hotels underwritten by Dubai’s Emaar Properties, and Salvatore Ferragamo, which already owns low-key hotels in its home city of Florence, is building a branded resort near the Tuscan hilltop town of Montalcino. But it’s not just the pillows that are being plumped up in the experiential luxury realm. The last 18 months have seen unprecedented numbers of private jets taking off, business-class airlines launching, and private members’ clubs and membership-based schemes breaking new ground to offer premium experiences. So-called “fractional ownership” schemes – a dizzying array of variations on the “timeshare” holiday home schemes that were so huge in Florida and Europe’s sunspots in the 1970s – now routinely take in ski chalets, villas, helicopters and even racehorses. In 2006, four US start-ups launched in the luxury car fractional ownership category alone – including the Classic Car Club, which started in London. One enterprising company, Bag, Borrow or Steal, enables people to buy shares in a wardrobe of pricey handbags and couture clothes. Milton Pedraza, chief executive of the Luxury Institute, says: “We predicted this luxury access revolution a few years ago, and it really is accelerating at every price point on the luxury spending spectrum. People want as many experiences as possible. They’d like to drive a Lamborghini, but they don’t necessarily want to own one. Basically, people want more things without the hassles of ownership.” A PricewaterhouseCoopers study into luxury fractional ownership at the tail end of last year found that 41% of affluent Americans are familiar with the concept. Furthermore, the study found that potential buyers are more than twice as likely to purchase fractional ownership at a resort managed by a luxury hotel company (68%) than at an independent or boutique resort (32%). At the St Regis Hotel on Fifth Avenue, where a two-bedroom hotel suite may cost more than €1,900 a night, Starwood Hotels & Resorts has sold about half of its 22 four-week parcels for as much as €570,000 each. Owners pay around €13,500 a year for maintenance, fees and taxes and have access to a butler service and chauffeured Bentley. Hilton Hotels is selling shares of 78 units at its flagship hotel near the Rockefeller Center for as much as €53,000 for seven days a year. Hilton is also building a 161-unit property on West 57th Street that is to open in 2009. It will be the first building in New York constructed specifically for time sharing, rather than a conversion, and will have no regular hotel rooms. Hyatt is considering adding time shares to a hotel it’s planning in a former office building at Fifth Avenue and 42nd Street. In January, Mike Balfour, the founder of global health club chain Fitness First, unveiled the Hideaways Club, which offers members the privilege of joining what he claims is Europe’s “first private residence owners club”. Those with €309,000 to spare are offered a share in the club and use of its luxury villas. At its launch at London’s Knightsbridge Mandarin Oriental – part of a chain that is upgrading its properties to shift its focus from business customers to higher-spending leisure travellers – Balfour said the target was 100 properties and 600 members by 2012.  Balfour is also chairman of London and Milan-based YachtPlus, one of several companies that offer people with a spare €200,000 the chance to “own” a superyacht for five weeks a year over eight years. A fellow shareholder is Rob Hersov, vice-chairman of NetJets Europe, part of Warren Buffett’s Berkshire Hathaway group. NetJets Europe is in high demand for its fractional ownership schemes, which offer around 1,400 clients access to private jets. Mark Booth, NetJets’ chairman and chief executive, has witnessed “big growth” across the company’s corporate and individual segments, driven in part by a strong global economy and generous bonuses and salaries for business leaders. Airport security hassles and commercial flight delays have also shifted perceptions in private aviation’s favour, he says. Last year NetJets operated 65,000 flights in Europe, up 40% on 2005. Controversially, it arranged 50 flights to and from the recent World Economic Forum in Davos, where business and political leaders debated ways to react to climate change. Booth reasons: “The question is, do you want CEOs sitting around in airports trying to connect to aircraft? Shareholders are saying ‘no’. That is the change.”
Another factor is increased access to private jets. In February, Avion Private Jet Club dispensed with membership and offered New York to Los Angeles per-seat pricing on Gulfstream IV jets to whisk the glitterati to Los Angeles for the Oscars weekend. The “country club in the sky” offered a complimentary door-to-door private car service, cuisine by (fellow member) Wolfgang Puck and top-flight amenities such as “Italian black cashmere blankets”. By “sharing” the jet with other Avion members, the cost of a round-trip flight can be kept down to a mere €10,000; still not cheap by any standards, but considerably less than the €45,000 charged for a charter and more cost-effective than fractional ownership. The choice for luxury travellers has never been so daunting, with a squadron of business-class-only carriers taking to the skies in the space of little more than a year. The first was Eos Airlines, which flies just 48 people, instead of the standard 220, on its Boeing 757-200s between London and New York. Eos was soon followed by MAXjet, which offers spacious seats at near-economy prices. Then in January, French startup L’Avion kicked off a premium service from Paris to New York. The latest entrant, Silverjet, which is considering 30 routes, currently offers “private jet experiences from London to New York at premium economy prices”. Managing director Peter Evans says: “Travel is polarising – the low-cost carriers who sprang up a decade ago and who say that frills add nothing to the journey have taken many business travellers across with them. On the other hand, there has been an upswing from business class to fractional ownership. We’ve moved that barrier further down so economy travellers can step up to real luxury. We’re talking about small to medium-sized business travellers who have been looking enviously through the curtain.” As Silverjet founder and CEO Lawrence Hunt puts it: “If you reduce a business class fare to under $2,000, you’ll convince a lot of passengers to upgrade.” All this activity has resulted in the majors splurging on improvements to their service. Last year, Virgin Atlantic Airways rolled out an €18m revamp of its premium economy class aimed at the same cost-conscious business passengers the upstarts are trying to lure. BA, meanwhile, is spending around €150m on upgrades to its business and first class services. Nascent US airline Icon, which intends to begin a premium “Signature” service for business travellers between New York and London and Paris and Miami this spring, has even tied up with Bluefish Concierge, a one-stop shop favoured by corporate executives, celebrities and professional athletes. Meanwhile, the US’s Delta Air Lines, which not so long ago filed for bankruptcy, recently launched an upgrade of its international business class, with 12 new routes across the Atlantic and three more planned this autumn. Its new BusinessElite class features leather seats and digital entertainment systems that offer more than 20 on-demand movies and allow you to customize your own playlist of 1,600 songs. American Airlines has installed new seats in its business cabins, with hard shells so passengers won’t be disturbed by people behind them and seats that recline 171 degrees – nearly flat. United Airlines is spending €125m to refurbish its international first and business class cabins. Lufthansa has opened a new terminal in Frankfurt for business travellers, with shorter security lines; passengers are ferried to their planes in Porsche Cayenne SUVs or Mercedes sedans. The concierge market is another booming sector, with credit card companies and private banks falling over themselves to offer “cash-rich, time-poor” clients ways of making their lives run more smoothly. Cardholders who spend up to $20,000 (€15,000) annually on Merrill+ credit and debit cards receive perks such as a 24-hour concierge service.  Quintessentially was launched in the UK six years ago as a 24-hour service with well-connected staff who can secure tickets, bookings, services and goods. Now it has more than 20 offices worldwide and 7,000 members who pay €35,000 a year. Quintessentially managing director Frank Rejwan says: “The super-rich aren’t interested in conventional ways of displaying their wealth any more. They’re no longer looking to emulate their parents’ opulent way of living; they are incredibly competitive with each other and don’t want to do anything that they think has been done before.” Instead, Rejwan explains, they are looking for ways to spend their money that demonstrate how savvy, quirky and imaginative they are.
UK concierge service Ten generated more than €15m in 2006 – a fivefold increase in two years – providing table and theatre ticket booking services in eight languages, mainly to City bankers. Other firms specialise in finding wealthy individuals the best medical care, financial services and art. Natasha Pearl quit Sotheby’s to form Aston Pearl, a small consulting company whose services include finding the perfect objets to enhance private art collections. Pearl says: “Coming out of Sotheby’s, I was seeing a lot of sophisticated, wealthy art collectors who wanted objective expertise.” The company says it has between 15 and 20 clients at any one time. Los Angeles-based “wardrobe acquisition” firm Raven Kauffman & Associates claims to have yearly revenues of between €7.5m and €11.5m, serving only five or six clients a year. Pedraza can foresee no end to the boom in experiential luxury, but he thinks the dynamics will change. “It is already happening to a degree: entrepreneurs drove the first phase of innovation, but, as happens historically, the bigger, better-capitalised, established brands – the Marriotts, the Disneys – are legitimising these access models,” he explains. “Timeshares were once a dirty word, remember. I suspect we will see soon many of the entrepreneurial providers of these membership schemes merge, consolidate or disappear, due to lack of resources, flawed business models and the like. I think there will be a period of stormy weather in the next couple of years.” Last month Walt Disney World Resort announced that it is teaming with Four Seasons Hotels and Resorts to build a 900-acre luxury resort and golf course on the western side of its Orlando-area attraction. The projects enable the resort – already Florida’s biggest tourism draw – to expand its vacation offerings, partly via 4,500 fractional ownership homes. Construction will start later this year, and the whole shebang will open in 2010. Now in the US, which has seen the day spa market evolve from almost nothing a decade ago to an industry worth more than €8bn today, the ultimate luxury experience has arrived. In January, Yelo, a salon on Manhattan’s Upper West Side that sells New Yorkers the promise of a power nap, opened for business. Yelo consists of seven private chambers that can be rented for 20- to 40-minute snoozes. Each hexagonal pod has a beige leather recliner, dimmed lighting, a soporific soundtrack and a blanket of Nepalese cashmere. Clients may also book reflexology treatments for their hands or feet, designed to lull the body to sleep, starting at €50. “It’s a corporate wellness center,” says Nicolas Ronco, the entrepreneur who opened Yelo told the International Herald Tribune. “For people who are overstressed and overworked, for lawyers or brokers who abuse themselves, a power nap is a way to recharge naturally.” |