ET Insider – December 19, 2006

Elite Traveler Insider –

December 19, 2006

Elite Traveler Insider

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

CONTENTS:

1. Report from The International Herald Tribune Annual Luxury Conference…

2. Private Jets – 2006 – The Year in Review…

3. On a Jet and a Hedge-fund, New Heights in Spending…

4. How do Conde Nast Traveler readers travel?…

5. Best wishes for a Happy Holiday and Fantastic New Year…

Acacia Williams, Million Air Monterey:“Customers always want more than one!”

1. Report from The International Herald Tribune Annual Luxury Conference

Istanbul is where East meets West. While there were multiple themes for what has become the crème de la crème of luxury gatherings, the two opening day key note speakers surprised both the audience and even the IHT’s iconic Fashion Editor Suzy Menkes by setting what one delegate referred to as “a new agenda for luxury.”

In fact, a close aide to Francois-Henri Pinault, the head of PPR (the holding company that owns the Gucci Group and all its brands) said that indeed this was the first time the agenda was spoken in public, perhaps a tip of the hat to the importance of the IHT’s annual gathering.

Gone is the “democratization” of luxury, according to Pinault; the new keyword is “exclusivity.” In a stirring opening address, the PPR chief threw out the notion that luxury brands had to cater to the masses to grow their business, and instead told the audience the path to growth led into more aggressively courting the Super Rich, a segment he described as having a net worth of at least $30 million and a group whose wealth is projected to climb from $33 trillion to $44 trillion in the next three years (see Item 3 for a related story). Pinault’s contention is that by gaining share with this top echelon of wealth through exclusive collections, he will increase the desirability of his brands at opening price points.

It was a point backed by the second speaker, Cartier worldwide chief Bernard Fornas, who threw the audience into a buzz when he noted that for Cartier, $250,000 is considered the starting point — yes starting point — for its high jewelry collection. The $20,000 to $250,000 range for him is mid-market.

In fact, he described an American couple in Cartier’s Paris boutique that were looking at a number of $1 million + pieces, and after a while the wife, selected five to take a closer look. Finally, the husband worried about their dinner reservation and encouraged his wife to make her final choices, to which she said, “I’ll take this, and this, and this.” The husband then told her it had been an expensive trip and to choose just two. Total sale: About $3 million.

It is a world Menkes, Pinault and Fornas described as one filled with private jets and lavish hotel suites where today is Paris, tomorrow Palm Beach and next week Tokyo, Los Angeles or Dubai. Of course, it’s what we at Elite Traveler describe as “the private jet lifestyle!”

“Love it, not very patient waiting for the next issue.”

Deanna Girrens, Cessna Aircraft Comp.

2. Private Jets – 2006 – The Year in Review…

There is an old adage in the airline business: “A customer only has a complaint when he is standing in front of you.” In other words, the standard answer, “we don’t do that” or the infamous pass along, “you need to check at the lounge, gate, etc.” solves the problem. Back in the 80’s, British Airways had a wonderful program called “Putting People First” which empowered their front line staff to solve problems and engender loyalty. Most of the top non-US airlines take this approach — I’m speaking of Cathay Pacific, Singapore Airlines, Qantas, Japan Air Lines, Lufthansa and the like.

Of course, their U.S. cousins with the help of T.S.A. have taken customer service to new lows. The result is something like this: Super Rich Travelers + Bad Airline Service + Bad Airport Security Procedures = Exponential Growth for Private Jet Travel. In fact, on any given day, 30% of domestic flights are delayed and lost baggage has increased 50% since this time last year. And to demonstrate the effect, consider that there are about 1,500 private jet movements daily in the New York area — more as a total than any single commercial airline. This clearly demonstrates that private jet travel has expanded beyond the realm of Donald Trump and the CEOs of Fortune 500 Companies.

Financially, most private jet travelers are well off — private jet charter and jet card companies generally target individuals with a Net Worth of at least $10 million; with more and more of the rich becoming Super Rich, this is a growing segment.

With that in mind, as we count the days towards 2007, I thought it would be interesting to conduct a brief survey of private jet companies to see how 2006 treated them and any trends of interest.

Netjets is probably the best know private jet company, operating a fleet of over 650 private jets that are sold in a timeshare fashion. One fact that surprises most people about the private jet market is how fragmented it is. So while Netjets is the clear leader, it still operates only about 2 percent of the private jets in service around-the-world. The fragmentation is something I know quite well — Elite Traveler’s BPA-audited distribution of some 130,000+ copies of each issue is accomplished by over 4,000 separate distribution agreements with operators and service providers (terminals and caterers) of private jets in over 90 countries.

According to Netjets, they will fly in 2006 over 360,000 flights (about 1,000 per day!) to 155 countries. The number of flights grew 20% with a 10.71% increase in countries compared to 2005 figures of 300,000 flights and 140 countries. The additional countries that Netjets flew to is year include Malaysia, Mongolia, Vietnam, Congo, Namibia, Rwanda, and Zambia.

Of course MarquisJet, a separate company that has an exclusive agreement to sell hours on the NetJets fleet in 25 hour “jet card” increments, often has customers who epitomize the private jet lifestyle. One of their customers recently bought six cards (each worth over $150,000) for his wife and children so they won’t have to fly commercially. He, of course, has his own jet; however, it might not be a great time at the weekend house in Aspen if he got there and his family was delayed in the unfriendly skies of the U.S. airlines. At any rate, I would say there should be some smiles when his family looks under the tree on Christmas morning!

Jet Aviation is an interesting company in that it owns jets it charters, it manages jets for owners who gain additional revenue from charter, it operates private jet terminals (FBOs) and offers both jet repair services and well as decoration of jet interiors. In fact, it has partnered with Versace, offering the ability to have the famous fashion house design your jet interior (and exterior).

The company also offers a jet card — basically a prepaid card that offers flight hours on its fleet of aircraft. Bob Seidel, the Senior Vice President for Jet Aviation, reports to us 50 percent growth in our Privileged TRAVEL jet card. Additionally, Jet Aviation has added seven new aircraft in the last two quarters. In terms of growth, as a comparison, the five largest airlines in the U.S. had a fleet reduction of more than 25 aircraft in the same period.

One of the continued trends I have seen across many private jet companies (as indicated by the story from MarquisJet) is an increase in family travel. Seidel reports more clients bringing children as well as younger (rich) clients in general. Of course, being part of the family often includes the dog, and speaking of lucky dogs, Seidel reports a pet-only flight to Europe. Jet Aviation, like others, seems to have noticed that private jet travel is no longer a way from point A to B but has become the private jet lifestyle. To that end, the company introduced the Red Dress Privileged TRAVEL card that donates a portion of each card sale to WomenHeart: the National Coalition for Women with Heart Disease.

Along with strong growth, the private jet market continues to see innovation and differentiation. Flight Options, the private jet provider owned by Raytheon, launched JetPASS Ultimate Travel in May 2006 and claims sales “exceeded all expectations.” JetPASS Ultimate Travel’s concept is variable pricing based on aircraft and time/day of the week flown.

Growth is the mantra in the private jet segment. Avantair’s fleet has increased to 29 aircraft, including five aircraft added to the fleet since September and recently announced an order for 20 Phenom 100 executive jets from Embraer.

And to footnote that growth in private jets is worldwide, on Saturday I was in Hong Kong at the Hong Kong Business Aviation Center where I had a chance to celebrate the facility’s record month in November which saw over 300 movements.

“They comment about the extraordinary places and items advertised. Some are looking forward to vacationing in these locals.” Andrea Pruitt, FlightOne

3. On a Jet and a Hedge-fund, New Heights in Spending…

Make a hop over to Westchester Airport in White Plains and you see them being dropped off in their Rolls or pulling up in their Rovers or Mercedes. Of course you have to be at one of the airport’s six — yes six — private jet terminals if you want to catch them as they enter the security guarded parking lots. Jumping aboard the Gulfstreams, Challengers and even Boeing Business Jets, welcome to “A Day in the Life of a Hedge-Fund Manager.”

If this information interests you, you can see the same procession in Hong Kong, London, Sydney and other world capitals as these fellows with billions and billions of dollars in their suitcase head off to see what companies they want to buy, and in between, hopscotch between vacation homes and lavish resorts. Qantas, the Australian flag carrier, was in the news last week when it was bought by a series of funds in an $11 billion deal.

Hedge fund managers define living large and new money. A recent article notes that these funds (which invest money for the Super Rich) take a two percent management fee, meaning that a relatively small $3 billion fund would earn $60 million before bonuses. A fund then typically takes 20% or more of profit, and according to The Wall Street Journal, last year the typical fund averaged a return of just under 10%. So using our $3 billion fund example, there would be a $300 million dollar profit, with an extra $60 million for the fund managers in compensation.

There are about 8,000 hedge-funds worldwide and since most funds have a limited number of managing partners — about four or five — the approximately 40,000 hedge-fund managers make a very nice chunk of Elite Traveler’s 430,000 readers.

On Saturday, The Journal had an article with statistics from a Fortune Magazine survey of Hedge Fund managers that looked at how much they spent on various items. The numbers reminded me of The New Jet Set, the white paper by Prince and Associates that interviewed 661 private jet owners. So here is what the average hedge fund manager spends per year:

Fine Art: $3,988,600 Yacht Charters: $429,700 Jewelry: $376,400 Hotels and Resorts: $304,900 Watches: $271,300 Fashion: $204,200 Spa Services: $124,000 Electronics: $99,300 Entertaining Friends: $76,300 Wines and Spirits for the Home: $48,900

Of course, wherever in the world these Fund Managers and their families are traveling, Elite Traveler brings our advertisers with them through our worldwide circulation in private jets in over 90 countries…

“They love it on board our planes.” Keri Cameron, Aviation Mang. Group

4. How do Conde Nast Traveler readers travel?…

I guess the simple answer would be: not on private jets! But with a Median Household Income below $150,000, clearly Conde Nast is targeting the Mass Affluent ($75,000 to $250,000) which is where most of their circulation falls.

So from Conde Nast’s Reader Poll on travel: a. 77% of Conde Nast readers consider airline ticket price “very important” when choosing an airline, up from 55% in 1999. b. 67% of Conde Nast readers consider price “very important” in choosing a hotel, whereas dining (32%), design (30%), fitness facilities (23%), spas (10%) and Bars/Lounges (7%) all ranked far behind. c. Over 50% of readers say that their only access to premium cabins is through mileage upgrades d. 86% of readers did not even make a single private jet trip in the past year – not even as a guest.

“They look for a copy when they walk through the lobby and like reading it on the plane. “Rosemary Forbes, JC Penny Aviation

5. Best wishes for a Happy Holiday and Fantastic New Year…

2006 marked the 5th Anniversary of Elite Traveler. As we head to this holiday season, from our family to yours, please accept our wishes for a wonderful holiday and a fantastic new year.

As a reminder, you have until January 10 to win 5 hours of free private jet travel for you and up to 5 friends. It takes less than 10 minutes and can be done online at www.elitetraveler.com/contest.