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Elite Traveler – ET Insider – March 2, 2006

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ET Insider – March 2, 2006

Elite Traveler Insider –

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March 2, 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. Where to Reach CEO or Celebrity…look up 40,000 feet….

2. Home Buyers and Refinancers – Your Choices Aren’t Pretty

3. Comptroller of the Currency Raises the Red Flag for Mass Affluent…

4. Climbing Homes Inventory To Crimp Mass Affluent Spending

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.

In this issue of Elite Traveler Insider we take a closer look in how the real estate market and the “Candy Loan” will impact the Mass Affluent. The obvious connotation of “Candy Loan” is that it was sweet when you signed it, but quite painful when you wake up with the toothache! At the same time, the only complaints from the Elite Affluent Market (Net Worth $10 million +) is it costing them more these days to fill up their private jets. Ahhh, the problems of being rich! Below we look at some recent coverage for Kiplingers, The New York Times and Wall Street Journal. However, the first item covers the private jet market….

“All of our people, including Shaquille O’Neal, Bo Derek, Maria Shriver and Reba McIntire love the book. We put them on all of the private jets. Great book!”

Tammye Johnson – FBO AvCenter, Louisville, KY

1. Where to Reach CEO or Celebrity…look up 40,000 feet….

A recent piece in The New York Times noted that former and current CEOs of Morgan Stanley must notbe spending too much time in their home or office. According to the report, the two combined in one year – six months for each – to spend over $1 million in private jet travel aboard Morgan Stanley jets for personal use. This is addition to their business use of the private jets.

According to the Times, the totals underestimate the actual cost of travel because they do not include any portion of the fixed costs of owning and maintaining the planes. In other words, the CEOs are just being charged for fuel and catering, which if you estimate is about $2,000 per hour of flight time, means that each spent on average 40 hours per month flying on personal use. Separately, a recent item about the costs of making a movie noted that Bruce Willis is allocated over $500,000 per movie for chartering private jets. After that, it’s time to renegotiate! But don’t expect to see him flying commercially.

Again, we say that is why Elite Traveler is the best way to reach the elite market – aboard their private jet where they have time to read! And browse through our pages buying expensive luxury items!

“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

2. Home Buyers and Refinancers – Your Choices Aren’t Pretty

From Kiplinger’s: Home buyers and refinancers, take note: Your choices aren’t pretty. Rates on popular adjustable-rate mortgages (ARMs) have spiked, and fixed rates are creeping up. Plus, “exotic” mortgages that let you pay interest only or choose the size of your payment are going the way of oversized SUVs. All these forces will crimp how much house you can afford if you’re in the market this year. They will also impact how much Mass Affluent consumers (who make between $100,000 and $250,000) can spend on other discretionary purchases!

ARMs accounted for about one-third of mortgages last year — a big jump. But the vast majority were interest-only loans or ones that let you pay even less than the nominal rate — called option ARMs — reports data provider Loan Performance. These nontraditional mortgages were creations of the torrid housing markets, as buyers stretched to afford higher-priced homes. Of course, as interest rates rise, the money left to buy other “trading up” goods and services declines for the Mass Affluent.

“I’ve seen a lot of people reading Elite Traveler, they love the magazine they can’t believe our FBO gives it away for free”

Carol Hammonds – Hammonds Air Service, Houma, LA

3. Comptroller of the Currency Raises the Red Flag for Mass Affluent…

From Dow Jones: Comptroller of the Currency John Dugan said Thursday he has grown increasingly concerned by risks to both borrowers and lenders from relatively exotic negative-amortization and payment-option mortgages. “In the last two years … we have seen a spike in the volume of payment-option ARMs (Adjustable Rate Mortgages), which are no longer confined to well-heeled borrowers who can clearly afford them,” Mr. Dugan said in remarks prepared for delivery to the Consumer Federation of America. Negative amortization loans allow borrowers for a period of time to pay less than the normal interest and principal due — an option that increases the ultimate balance due.

Negative amortization is often a choice under payment-option ARMs. Mr. Dugan said payment-option ARMs are increasingly being marketed as “affordability products” to borrowers who appear to be counting on the fixed period of exceptionally low payments — often the first five years of the loan — to afford homes in many markets across the country. “As the loans become more popular, the prospect of using them to penetrate the subprime lending market cannot be far behind,” he said.

As an example of potential “payment shock” from payment-option ARMs, the comptroller said a homeowner who borrowed $360,000 for 30 years at 6% could face a payment increase of 50% increase even if the interest rate didn’t change. If the interest rate rose to 8%, payments could double, he said.

The impact of both of these increases means far less money will be available for purchasing fashion, watches, jewelry and autos. In other words, smart luxury marketers are refocusing on the Elite Affluent market that is unaffected by these types of mortgages and are still spending plenty of money! The media target for this market is people with a Household Income of at least $400,000, according to luxury researcher Prince Associates. The Median Household Income of Elite Traveler readers are $1.724 million and last year our average reader spent over $200,000 on watches, jewelry and accessories and over $200,000 on hotel and resort stays!

“Our clients enjoy reading the magazine cover to cover. They enjoy the high quality and look forward to the Hotel, Spa and Resort issues which are an extra perk”

Jeanette Wuisman – Landmark Aviation, Dallas, TX

4. Inventory of Homes Climbing Sharply, Watch Out Mass Affluent…

From The Wall Street Journal: With the key spring selling season about to get under way, the inventory of homes on the market is climbing sharply in a number of major cities. This will put the Mass Affluent (people with a Household Income of $100,000 to $250,000), many of whom are holding adjustable mortgages (see items 2 and 3) under enormous financial stress.

It is the latest sign that the balance of power between buyers and sellers is shifting as the once red-hot housing market continues to cool. The slowdown is affecting both existing homes and new homes. Recently Toll Brothers, a developer specializing in Mass Affluent housing, reported a 29% decline in new orders in its first quarter, which ended Jan. 31. That was below many analysts’ expectations and prompted a sharp sell off in Toll Brothers stock.

Nationwide, there were 2.8 million existing houses and condominiums on the market at year-end, according to the National Association of Realtors, up 26% from a year earlier. Adjusted for seasonal variations, inventories have climbed 38% since April, according to Goldman Sachs Chief U.S. Economist Jan Hatzius, the largest eight-month increase on record.

The changing climate is particularly noticeable in once-hot markets such as Miami, Phoenix and Washington, D.C., and in areas such as Detroit, where price increases have been modest but the job market is weak.

In Phoenix, where inventories have climbed steadily since last spring, open houses are attracting a steady stream of lookers, says Charles McLean, broker-owner of Century 21 Metro Alliance. “But people are taking their time,” he says. “They’re not just jumping and writing a contract.” Mr. McLean says that if a listing doesn’t attract enough traffic, within 30 days they will consider lowering the price.

In Detroit, sales fell nearly 10% in the fourth quarter and inventories climbed amid uncertainty about auto-industry layoffs. To stimulate demand, Real Estate One, a Detroit brokerage firm, has been running a company wide “Bonu$ Homes” promotion in which sellers agree to provide $2,000 to $10,000 toward buyer closing costs on purchases made before April 15.

The number of completed new homes currently on the market has risen nearly 40% over the past year, according to the research company Hanley Wood. The supply of unoccupied condominiums is also climbing in many areas. In New York’s Westchester County, the number of condos on the market jumped to 617 at the end of 2005 from 397 a year earlier. In the Boston area, the number of condos listed at the end of January was 5,114, up from 2,876 a year earlier.

In the Washington, D.C., metro area, new-home inventory climbed by more than 900% to 2,413 in the fourth quarter over the same period a year earlier, largely because of the completion of several condo projects, according to Hanley.

In other words, for marketers of luxury goods and services, the underlying warning is quite clear: The Federal Reserve shows one-half of one-percent of Americans control over 50% of this country’s assets. Marketers need to focus on this highly liquid, high-spending market with renewed vigor to ensure they can maintain and grow sales as Mass Affluent households tighten their belts.

“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

 

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