ET Insider – April 26, 2006

Elite Traveler Insider – New Research on Spending, Segmentation of Travel Predicted….

April 26, 2006

By Douglas D. Gollan, President and Editor-in-Chief, Elite Traveler Magazine

Welcome to the latest issue of Elite Traveler Insider, the bi-weekly newsletter designed to update our top partners on trends in the elite luxury market. This information is provided to offer a better understanding of how to target the Elite Affluent market, its impact on your business and other trends that affect you. Remember, that private jet travelers are paying up to $10,000 per hour to fly by private jet, so these uber wealthy consumers could be and should be your best customer. We talk about them and how you can get more of them and more from them.

CONTENTS:

1. Banyan Tree Chairman Sees Segmentation of Air Travel…

• Saving Is Top Priority For Mass Affluent…
• New Research Shows Elite Affluent Spend Big…
• The Wealth Divide Gets Even Bigger…
• Putting Numbers in Perspective – $150,000 per day….

Famous elite travelers recently spotted reading Elite Traveler in private jet airports: Gwyneth Paltrow, Jessica Simpson, Katie Holmes, Paris Hilton, Dave Matthews, Jennifer Lopez, Heather Locklear, Kid Rock, Jewel, Nicole Richie, Beyonce Knowles, Shakira, Salma Hayek, Arnold Schwarzenegger, Goldie Hawn, Jay Leno, Bill Clinton, Jerry Seinfeld, and Elton John.

“I love to see our client’s reaction, they go crazy for the magazine. It inspires us here to make it rich some day.”

– Jennifer Masse – Sun Western Flyers Bullhead City , AZ

1. Banyan Tree Chairman Sees Segmentation of Air Travel….

Ho Kwon Ping, the executive chairman of resort and spa operator Banyan Tree speaking at this week’s PATA Conference in Pattaya, Thailand made a few very interesting comments.  He noted segmentation is becoming more and more important.  In the air transport sector, the Banyan Tree chief noted that while mega-jets would transport 600 to 800 people at one time, all business class operators would begin to cater to the mass affluent while private jet travel would be the mode of transport for the Super Rich, with continued growth in fractional ownership and jet taxis and private jet charters.  He said more and more, companies would need to create distinct marketing strategies at each of these segments as they are each looking for different experiences and have different amounts of money to spend.  The upcoming Prince & Associates “The New Jet Set” study will reveal that in 2005, private jet travelers averaged over $200,000 for hotels, resorts and spas for personal travel, another $100,000+ on cruises and over $90,000 on experiential travel.  That’s in addition to over $200,000 spent at hotels and resorts for meetings and functions!

“Fascinating, they always want to buy something they see. The products offered and destinations are just what my customers are looking for!”

-Mary Bullock Bagosy – Galaxy Aviation, Orlando, FL

• Saving Is Top Priority For Mass Affluent…

A recent poll by Fortune Magazine of the Mass Affluent – people with a household income of less than $200,000 – asked what they would do if they had an extra $500 to spend. Number one on the list by a long, long way was “Save it” with 66%. Thirteen percent said they would spend the $500 on clothes, 11% on electronics, 9% on household items and 2% on concert tickets. There were a total of 1,783 individuals surveyed, and the poll noted that fears of increased gas prices and a softening housing market are pushing Mass Affluent consumers to become more stingy when it comes to spending.

“They love the magazine. We have people show up at the first of every month just to get the next issue and they even take a few back to their friends and family!

-Stephanie Nieves, Sebring Airport Authority

• New Research Shows Elite Affluent Spend Big…

A Florida-based group led by former cruise line executive Ron Kurtz continues to turn out interesting research focused on the wealthiest 10% of U.S. households. The Spring 2006 survey by The American Affluence Research Center underlines that even among the top 10% there are enormous differences in ownership of luxury items and planned spending on them.

The latest survey was conducted among 474 participants in March 2006 and the group claims that the top 10% earn 40% of the total income of all Americans, 65% of the personal assets and 85% of all publicly traded stock and stock mutual funds, so for any luxury marketer, this group is the perfect starting point for any marketing focus.

One benefit of a 14 hour flight from Los Angeles to Hong Kong this past weekend was that it gave me plenty of time to read through over 250 pages of cross-tabbed tables, weakening my poor eyesight even further.

As I looked for interesting tidbits to pull out and share with you, it became evident that looking at the bottom and top of the survey sample provided the most interesting comparisons, and among the top 10% there is little equality.

Two weeks ago at The World Tourism Summit hosted by the World Travel and Tourism Council in Washington D.C., member Peter Yesawich who is chairman of YPBR, the Orlando based marketing company, noted there is a huge correlation between spending on travel and household income. In other words, the more you earn, the more you spend.

As I waded through the American Affluence survey between watching movies and sipping Krug (by the way, Cathay Pacific remains my top recommendation for travel to Asia), I focused on those in the survey who made less than $200,000. For this group, their household income was $135,000 which I thought matched nicely with Mass Affluent publications such as Conde Nast Traveler, Gourmet, Travel + Leisure, Food + Wine, Town & Country, etc. This group made up the bottom 42% of the survey group but still top 10% in the U.S. The highest group I could pull out of the research was a segment with at least $6 million Net Worth. This represents the top 10% of the survey, the top 10% of the top 10%, or another way, the top 1% of American households. This group had a Median Household Income of $692,000, which while below Elite Traveler’s Median Household Income of $1,724,000 provided the best comparison of how our readers might be reacting (and spending) compared to the Mass Affluent readers (readers with a Household Income under $200,000) offered up by Conde Nast Publishing, American Express and Hearst.

To start to paint a picture of mindset, the first question I looked at asked about “Primary Investment Objectives.” While only 8% of the Super Rich (Household Income $692,000) said their primary investment objective was income to pay for ongoing expenses, 23% of the Mass Affluent (Household Income under $200,000) said this was the case. In other words, to keep up spending they needed to make money from investments. On the other hand, the Super Rich were more focused on Capital Appreciation and Preservation of Capital, meaning they have plenty of cash to throw around on luxury purchases.

The below chart outlines Planned Major Purchases in the Next 12 Months:

Action Mass Affluent Super Rich Purchase/Lease a New Vehicle

24.0%

38.0%

Take a Cruise

11.0

24.0

Purchase a Vacation Residence

0.8

4.7

Build a Vacation Residence

1.2

4.7

Build a Primary Residence

0.4

4.7

Purchase a New Powerboat/Sailboat

1.7

7.0

One interesting point of context to the above is 68% of the Mass Affluent (Household Income under $200,000) believe they will have less after-tax income 12 months from now than today. What this means is that the already budget-pressured mass affluent are going to be even more focused on cutting back spending. For the Super Rich, this is not a worry as they have plenty of funds to throw around.

The next chart below shows Current Ownership of Upscale Electronics and Specialty Appliances:

Currently Own

Mass Affluent

Super Rich

Wine Closet/Room

16.0%

43.0%

Cook Top

70.0%

91.0%

Espresso/Cappuccino Maker

29.0%

38.0%

Built-in Outdoor Gas Grill

23.0%

46.0%

Digital Video Camera

52.0%

67.0%

Home Theatre with Special Seating

2.0%

16.0%

Flat Panel TV – 13” to 26”

15.0%

37.0%

Flat Panel TV – 27” to 35”

6.0%

26.0%

Flat Panel TV – 26” to 42”

6.0%

33.0%

Flat Panel TV – Over 42”

10.0%

25.0%

Laptop for Personal Use

53.0%

75.0%

PDA/Handheld for Personal Use

25.0%

36.0%

Clearly, the Super Rich continue to lead the way in ownership – and what’s not covered in this report that Prince and Associates does a terrific job looking at is what I call the “multiplier effect.” For example, while 25% of the Super Rich may own 42 inch + Flat Screen TVs, unlike the 10% of the Mass Affluent who own – the Super Rich probably own anywhere from five to 25 Flat Screen TVs for various rooms in their various houses, yachts and jets, always buying top-of-the-line, feature-rich whereas the Mass Affluent are more likely to have bought one item at the cheapest possible prices.

Greg Furman, the founder of The Luxury Marketing Council always focuses on customer value and what he refers to as getting more “share of wallet” from the very rich. When you go back and look at the above numbers and then put them in that context, I think it again underlines that every luxury goods marketer should be putting a separate and distinct marketing plan together to purely ensure they are targeting the Super Rich to their maximum ability.

In a final piece of the research, we take a look at jewelry, fashion and travel and again see the same segmentation that the Super Rich are where the major action is in the top 10% sector.

Acquired/Used Past 12 Months

Mass Affluent (Household Income Under $200,000) Super Rich (Household Income Over $500,000) Cosmetic Surgery

4.0%

12.0%

Spent over $5,000 on Fine Jewelry and/or Watch

8.0%

37.0%

Purchase/Lease Automobile $40,000 +

23.0%

46.0%

Spent Over $1,000 on Ladies Fashion

6.0%

35.0%

Paid First Class for Commercial Air

11.0%

49.0%

The strength of Elite Traveler continues to be delivering more readers in the Super Rich category than any other publication. Each issue of Elite Traveler delivers to its advertisers over 400,000 readers who make at least $400,000 per year Household Income. In other words, if the top 1% who make up the Super Rich are a market you want to target, the above research shows more reasons why Elite Traveler is a necessity on your media plan.

“Other publications fail in comparison when compared to Elite Traveler magazine.”

-Samuel Huskin– Flower Aviation, Colorado Springs, CO

• The Wealth Divide Gets Even Bigger…

Back in 1960, the Top Three executives at major publicly traded companies made 27 times more than the average employee. In 1970, that number had actually shrunk to 25 times the average worker and by 1980 it had risen to the point where top executives were making 33 times the average worker, according to a recent front page article in The New York Times Sunday Business Section.

In 1990 after the decade of the corporate raider and hostile takeover, the number jumped to where top executives were making 55 times more than the average worker the number is now 104. This is the median, which means half of top executives make at least 104 times more than the average worker. The average take for top executives is a staggering 350 times more than the top executives.

Not surprisingly we know over 80% of Fortune 500 companies have their own fleets of private jets with the remainder using fractional and charter jets to shuttle top executives, or in some cases reimbursing top executives who use their personal private jets for business travel. It is why Elite Traveler has been so successful in enabling marketers to reach this small sliver of Americans who have so much influence and spending power.

A sidebar article noted the average pay for Chief Executives in 2005 rose 27 percent to $11.3 million on average. The Median – or midpoint, the point at which half the group are above the number and half below – was a strong $8.4 million, up 10.3%. This underlines that while even the average is lifted by some extraordinary pay packages, most CEOs are still doing pretty well.

In the next month Elite Traveler with Prince & Associates is launching a new white paper called “The New Jet Set” focused on spending and segmentation of private jet travelers. As you will see, the amount of money spent is quite incredible and something to which every luxury marketer needs to pay close attention.

On that note, Elite Traveler also offers access to our worldwide database of private jet owners to significant advertisers. Please let us know if you are interested…

“I’ve had to increase my copies because the magazine goes so fast. I try to keep one for myself when I can. The pictures inside are so breath-taking.”

-Donna Reed – YYJ-FBO Services, Canada

• Putting Numbers in Perspective – $150,000 per day….

Lee Raymond recently retired as the extremely successful Chairman and CEO of Mobile Exxon. Under his tenure Mr. Raymond created tens of billions of dollars in shareholder wealth, and for himself, did well too. His reign as top executive yielded nearly $700 million in compensation, and over the course of his stay in the top suite he earned over $150,000 per day.

We therefore thought it would be interesting to take a look at Mr. Raymond’s pay on a daily basis vs. that of the average reader of Mass Affluent magazines on the same per day basis:

Person/Average Magazine Reader Daily Household Income Lee Raymond, Former Mobile Exxon Chairman

$150,000

Conde Nast Traveler reader

391

Departures reader

515

Robb Report

504

Town and Country

372

Forbes

389

Vanity Fair

372

Travel + Leisure

369

Gourmet

361

Sources: MMR 2005/The New York Times

In the luxury fashion, and particularly jewelry business, I continue to hear about how one big sale can make a month, quarter or even year. Clearly, the key is getting to the consumers who have the money to make that one big purchase.

My note to the above is that Elite Traveler is stocked aboard the corporate private jets of Mobile Exxon!