ET Insider – September 25, 2007

Elite Traveler Insider –

September 25, 2007

Elite Traveler Insider

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 private jet lifestyle. This information is provided to offer a better understanding of how to target these globetrotting elite travelers, their impact on your business and other trends that affect you. Remember, private jet travelers are paying up to $10,000 per hour to fly by private jet, so these super rich 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. Mortgage Mess and Consumer Confidence Plunge Spotlight Super Rich

2. NBAA PREVIEW – Asia Gets Ready for Private Jet Boom

3. NBAA PREVIEW – Sentient Flies High With Service and Marketing

4. NBAA PREVIEW – Flight Options Charts a New Flight Plan for Clear Skies

5. New Magazine Household Income and Readership Data Release

Does Elite Traveler work? Ulysse Nardin sold “at least” two $86,000 Sonnerie en Passant watches from its ad in Elite Traveler’s January/February issue

1. Mortgage Mess and Consumer Confidence Plunge Spotlight Super Rich

“I don’t think the worst is behind us,” Jean-Claude Juncker, chair of a meeting between European Finance Ministers and Central Bankers, told The International Herald Tribune a week ago Friday. A picture of shaken consumers lined up 1930s depression style to withdraw their savings from Britain’s Northern Rock bank was splashed across the top five columns of the weekend edition.

On the drive from Venice Airport to Vicenza for Italy’s major jewelry trade show, my Milan-based colleague Alessandra Arati told me the that same ominous pictures were being shown in Italian papers and television stations.

Some of those interviewed were not sure what they were going to do with the money they were taking out of the stricken bank, but shopping was definitely not on the list.

A few days later on my way back to the States, I picked up The Wall Street Journal Europe in Geneva Airport and quickly noticed the second headline: “World Economy is in Flex as Americans Spend Less.”

A two page in-depth article led off “Americans Rein In Spending.” So even while our target is the Teflon-like Super Rich, it made me happy that since our launch we have made a significant investment to ensure that Elite Traveler is placed aboard private jets in over 90 countries worldwide. The cost of our non-North American circulation (about a third of our total) is significantly higher than the cost of our North American circulation (two-thirds), so it has always been a bet that we were providing a great value to advertisers by ensuring we reach not only Super Rich Americans as they travel the globe. but also Super Rich Russians, Europeans, Middle Easterners, Latin Americans, Asians, Africans and so forth as they fly aboard their ever growing fleet of private jets.

Back to the WSJ article: Harvard University Economist Kenneth Rogoff noted, “The typical individual will see this as part of a broader inflation cutting into wage gains and standard of living.” His projection is that market turmoil will effectively reduce Americans’ income by 3%, a huge drop that will wreak havoc on discretionary spending.

“The forces that had been supportive to excess consumption for a decade are now headed the other way, and the U.S. consumer just can’t keep (spending as they had),” said Stephen Roach, chairman of Morgan Stanley Asia.

A research study by Prince & Associates, commissioned by Elite Traveler and conducted Sept. 5-7, showed that The Wall Street Journal piece was definitely directionally correct.

Prince is a specialist in working with high net worth individuals and founder Russ Prince has written over 35 books on financial issues impacting the rich. For this survey, Prince broke the sample of 866 consumers into five wealth categories ranging from a Net Worth of $500,000 – $1,000,000 up to $25 million +.

Spending on luxury items, cutting back, trading down, and specific categories such as watches, jewelry, fashion, electronics, leisure travel, etc. were each covered.

For luxury marketers, it is clear that the sweet spot is individuals with a Net Worth of $25 million or more, and that consumers with a Net Worth of $10 million to $25 million will still provide fertile ground, albeit with some anxiety.

Consumers with Net Worth of less than $10 million, according to the research, have already started to cut back and are actively “Trading Down.” You might remember the book “Trading Up.” Well, one might say it Newton’s Law of Physics that what goes up must come down.

“Trading Down,” Prince told Elite Traveler Insider, “is what happens when you are out of credit, your mortgage payments went up 20 percent, the roof is leaking on your cul de sac mini-mansion, tuition at private school went up by five grand and you need a new transmission for your BMW.”

Both the $10 million to $25 million and $25 million + segments, Prince said, are proving resistant to the current turmoil, but he noted, “Now is the time luxury marketers should be double checking their media plans to make sure they are targeted to the Super Rich, not the merely Rich or Mass Affluent.”

A piece by Wall Street Journal Wealth Reporter Robert Frank (I recommend that you read his excellent book on the Super Rich Richistan) noted that there are approximately100,000 households in the U.S. with a Net Worth of $25 million +.

In a phone interview last week, Prince told me that the good news is for the high end of luxury brands – Maserati, Aston Martin, DiGrisogono, F.P. Journe and the like that make limited production. The pool of Super Rich is large enough to support those companies if they ensure their marketing is squarely pointed at this valuable segment. He noted even more mass luxury brands such as Mercedes, Cartier and Louis Vuitton should do well with the Super Rich as they have been increasingly introducing higher end products as part of their mix in the past several years and can use those customer relationships to sell their more mass products to the Super Rich.”

In a typical scenario of how it might work, Prince noted, “The person worth $100 million may have last week bought a $250,000 necklace for his wife’s 40th birthday. This week he may buy a watch for his 20-year old son’s girlfriend and spend $5,000. For that gentleman, the easiest thing is probably to just call the salesperson who sold him the necklace the week before and order the gift. The second purchase probably took about 10 seconds to think out and his secretary probably even made the call and issued the check or arranged the credit card payment.”

With many automotive dealers having franchises from Uber Luxury to Mass Luxury, Prince said the purchasing scenario works the same way. “There is a relationship with the salesperson who sold him his Maybach. After hearing his daughter banged up the Rover at the house in Aspen when she was out there last week with her friends, he calls the Maybach salesperson (who might be a principal at the dealership) and tells him he just saw an ad for a Mercedes SUV and thought it looked nice. He orders two – one for himself, and one for his daughter, so he won’t have the hassle of her next fender bender. The salesperson at Maybach calls across the street to the sister Mercedes dealership and has the purchase completed and delivered to the ski house which could be thousands of miles away.”

I highly recommend you check out the Elite Traveler/Prince & Associates Market Volatility Impact Study.

For a copy of the research, http://pr-dbetmg-elite-traveler.pantheonsite.io/marketvolatilitimpactstudy.pdf

Does Elite Traveler work? Felix S. Sabates, Chairman of Trinity Yachts recently bought six Girard-Perregaux watches that he had seen in Elite Traveler.

 

2. NBAA PREVIEW – Asia Gets Ready for Private Jet Boom

As you read this, the world’s largest private jet conference is taking place in Atlanta. The Georgia World Convention Center will be full with companies trying to sell luxury interiors to private jet owners that can easily cost $10 million. There will be suppliers peddling new technology to the owners’ pilots and precision ovens to the flight attendants so they can prepare a better filet mignon. Private jet terminals – FBOs – will be wooing elite travelers and their flight crews alike with enhanced terminal facilities. Manufacturers such as Gulfstream, Dassault, Bombardier and the like will be announcing orders for aircraft costing as much as $50 million before being furnished as well as trying to nail down deals. While frequent travelers to Atlanta are familiar with Hartsfield International Airport, the hoards who pass through the mega-hub will probably have no idea that there will be a considerable list of centa-millionaires and billionaires in town checking out the latest private jets. That’s because all of the activity on the tarmac with aircraft displays will be taking place at DeKalb Airport – an airport dedicated to just private jets.

With that in mind, I thought it is once again interesting to see that the private jet lifestyle is in fact more global than ever (in the U.S. private jets are the chariots of the Super Rich, or at least the Super Rich who favor luxury products and services)

“Here in Hong Kong, five years ago there were a thousand private planes coming in and going out. Now it’s 3,000.” Bombardier Asia Sales Chief Robert Dixon noted in a recent report. “The business is growing and the airport infrastructure is here.”

The private jet lifestyle comes at a cost. The Bombardier Global Express he recently had sold to a Hong Kong businessman (who has homes in Los Angeles and London as well) carries a price tag of $53 million.

Still, aside from rich individuals, a key growth market in Asia is with corporations, whose busy chief executives see the saving in time as far more precious than the cost of the plane itself.

Once a plane is bought, it has to be maintained. The report noted that some owners will charter out their planes when not in use and in Hong Kong a company called Metrojet provides this service. It also happens to be owned by Sir Michael Kadoorie, who also owns The Peninsula Hotels.

On a recent day at Hong Kong’s busy airport, there were some 25 private jets on the tarmac.

In South Korea, private jet travel is also taking off. The former main airport Kimpo was renamed Gimpo when the modern new airport serving Seoul opened at Incheon.

According to the Korea Airports Corporation, arrival and departure of private airplanes in Gimpo Airport jumped by 250 (nearly 150 percent) in just a year, from 179 to 429 per month in 2006. Through September, private jet movements have increased a further 64 percent, with many executives flying commercially to Asia and then using private jets to hop around the continent, particularly to secondary cities in China and beach resorts. Getting in on the action, Korean Air now offers a private jet charter service, enabling customers to combine its trans-Pacific and Europe flights with direct connections to wherever they want to go.

3. NBAA PREVIEW – Sentient Flies High With Service and Marketing

The announcement two weeks ago that the parent company of JetDirect Aviation, LLC (one of the country’s largest full-service private jet operations) and Sentient Jet, Inc. (a leading provider of private jet membership and one of the country’s fastest-growing private jet companies) will operate as Sentient Flight Group with Sentient chief Steve Hankin named CEO crowned one of my favorite success stories in the private jet industry; the headline could read, “Nice Guys Finish First.”

Created by the April merger of the two companies, Hankin and his long-time sidekick Chief Marketing Officer Kevin Vaughan, who have worked together at McKinsey and Starwood Hotels & Resorts previously, are always extremely insightful; over the years they have given me some great insights that we have been able to apply to Elite Traveler.

I always try to pin Kevin down for lunch every six months or so because his comments always get me thinking.

Recently I was reminded of the speech when Greg Furman, the Founder and CEO of The Luxury Marketing Council, talked about the depth of pocket of the Super Rich. In other words, the woman who buys a $20,000 handbag at Ralph Lauren is probably the same woman who buys the $20,000 handbag at Fendi.

Vaughan describes his customers as choosing their jet travel solutions the way you or I might reach into our wallet and choose one of our various credit cards. “One of our top customers who flies with us multiple times a week owns his own plane,” Vaughan notes.

The point is that the Super Rich are very rich, and many times they are using more than one jet to create a private jet lifestyle.

Vaughan sites an Investment Bank as an example of how multiple jet solutions might work. For example, the bank my have its own jet or a fractional share for corporate use. When they are doing road shows where the jet and crew could be tied up 24/7 for a week or more, they might charter a jet. When there is a board meeting, they might use a Jet Card provider such as Sentient for an extra lift to bring various board members in from different cities or for additional executive flights when the primary aircraft is being utilized. The Chairman may have his own jet outfitted by, say, Donatella Versace who cleverly now designs private jet interiors.

Vaughan also sees growth from people who have dipped their toes into the private jet lifestyle through charter and are now making a bigger commitment to fly privately on more or all of their travel. Additional growth is found with members that Sentient is gaining from other private jet companies. Their current count is over 3,000 active members who prepay between $100,000 and $500,000 for access to the program.

While Sentient doesn’t disclose many numbers, Vaughan says the company is solidly profitable and is setting records for both new members and retentions of current members. He attributes this success to the hospitality industry background he, Hankin and top management have brought to the company. “Every trip is unique. Every trip is important. Every trip is uniquely important,” Hankin says.

Because members can get their unusued pre-paid flight money back at any time, he says the Sentient staff take a “one flight at a time” approach; if they know a client is headed off to an ultra important meeting and is flying from an airport that is prone to early morning fog, at Sentient’s expense the company will position a plane at that airport the night before. Sentient’s operations department will also be mapping various alternatives if the fog prevents the pre-positioned aircraft from taking off.

Connecting with its Super Rich clientele is a challenge, Vaughan notes, stating the obvious: “what do you buy the person who has everything?”

Using their knowledge of high-end customers from their days overseeing Starwood’s Luxury Collection and St. Regis divisions, Sentient has focused on special touches. For example, if they know that grandparents will be traveling with the grandchildren, Sentient will spend “a couple hundred dollars” and stock toys on the flight. For a member who is a wine connoisseur and is flying out of Napa, they will surprise him with some exclusive bottles of a favorite wine or perhaps a wine they think he would like.

While Vaughan has worked to fine tune the marketing, Hankin has transformed the company by creating a hybrid model beyond traditional jet cards with aircraft management that through mergers and acquisitions provides access to over 120 of its own aircraft in what Hankin describes as “approaching fractional type capability.”

Its an exercise Hankin correlates to “strategically putting together pieces of the puzzle” which combine “super quality service and safety level.”

From a company that when Hankin and Vaughan arrived on the scene about three years ago was little more than a call center that would shop for airplanes to charter based on customer request, Sentient is finally at cruising altitudes with two of the nicest pilots in the business.

4. NBAA PREVIEW – Flight Options Charts a New Flight Plan for Clear Skies

“Even the Super Rich like to save a few bucks” might be the theme for the recent success of Flight Options, a company once known for a complex fleet of aircraft that ranged from new to a geriatric 20 years old.

Ironically, the pilot taking Flight Options into the clear is like many of his customers, familiar with the hassles and horrors of flying commercially in the U.S. CEO S. Michael Scheeringa spent 18 years at US Airways, even overseeing its regional jet division before going private in 2004.

Getting the house in order was Scheeringa’s first priority; in some 36 months he has taken a fleet with 12 different aircraft types and 23 cockpits to four aircraft with four cockpits all under six years old.

Aside from dramatic savings from a streamlined fleet (there are currently 130 aircraft which will rise to 138 by year’s end), the new approach has simplified crew scheduling and maintenance, dramatically improving reliability and customer satisfaction.

With a solid operation and better cost structure, Scheeringa is now rewriting the marketing approach. “The traditional one-size-fits-all approach doesn’t fit,” Scheeringa told Elite Traveler Insider recently.

The new flight plan: “Multiple new products at varying price points,” according to the boss who simply says, “We rewrote the fractional program which was always based on a fixed five years / fixed hours and was banking on spoilage.”

Scheeringa’s claim is that the complicated math involved with fractional ownership means that fractional owner’s “all in” costs were substantially higher than they appeared, and in fact, the average fractional owner gets 84 actual flight hours for 100 paid hours.

Its Fractional First program is described as bringing “transparency and increased value to fractional ownership” via features such as “more air-time out of your share” that enables owners to fly from 80 to 120 percent of their share hours purchased each year and pay management fees only on the hours flown.

Additionally, the traditional 20 percent of an hour charge for taxi time is no longer deducted from share owners, while owners get a 20 percent discount on their hourly rate for flight times beyond two hours in light-cabin aircraft and two-and-a-half hours in larger cabin-size aircraft. What’s more, Flight Options now offers what it calls a “Transparent Fuel Cost” which is based on the actual price the fuel per gallon that the company pays.

On the jet card side, Flight Options now offers a program called JetPASS Ultimate Travel, where with a single account, customers can access light, midsize and large-cabin aircraft.

Private jets have a notoriously low utilization rate, flying some 1-2 hours per day according to industry statistics, a sharp contrast from the 10-12 hours commercial airliners typically fly.

With price breaks on longer flights encouraging customers to use private jets for longer trips (over commercial airlines), Scheeringa is intent to “get rid of the spoilage.”

Introduction of Peak/Off-Peak pricing has been an instant hit the CEO says. Research he commissioned showed 70 percent of its wealthy clients would change travel 50% of the time for better value, or in other words, “35% of all travel was moveable.”

Savings can be substantial: the hourly charge on a Hawker drops from $5,900 Monday to $3,450 Saturday.

Reporting some 150% growth year-over-year, Scheeringa believes Flight Options’ success comes in part from recognizing “a lot of the wealth is not within the Fortune 1000” but “the vast majority is privately held.”

About half of his clients are mid-market (Sales of $100 million or more) and the other half are “just super wealthy and affluent.”

For the owners of these companies who don’t have the glare of stock analysts and Wall Street, they control their own schedules so if they can save some money by moving the times of company meetings, they will do so. In other words, traditional weekdays and weekends are somewhat irrelevant to them as they can work when they want and play when they want as well.

Speaking of playing, Scheeringa recently released the 10 most popular North American leisure destinations past summer. Topping the list was Las Vegas, followed by Aspen; Jackson, Wyoming; Hailey, Idaho; Eagle (Vail), Colorado; Scottsdale, AZ; Napa, CA; Nantucket, MA; Carlsbad, CA, and East Hampton, NY.

Number One last winter for the first time was Los Cabos, which overtook St. Marteen (for St. Barts) and the Bahamas. Scheeringa reports that the Pacific resort’s success wasn’t just due to West Coasters. “There was an enormous amount of flights from New England and the New York region.”

Back to Sin City, which Scheeringa notes has become a year-round hotspot for elite travelers. Las Vegas, on an annual basis, is the third most used airport for Flight Options behind Teterboro (for New York), West Palm Beach and just ahead of White Plains (north of New York City and the airport of choice for those who live in Westchester County or Fairfield, Connecticut).

Scheeringa notes that part of the Vegas boom is due to the city’s success with the meetings market. “Today A-List speakers require private jet travel as part of their speaking requirements, and the bigger conferences tend to have two or three A-List speakers.

Another segment of customers that is helping Flight Options’ business surge is “commuters” who have multiple principal residences. In the winter, Palm Beach – New York is a hot route as is Aspen to the San Francisco Bay Area.

Underscoring his customer friendly approach, Scheeringa said that Flight Options is launching a Community Room so clients can commute together if they wish. “They were running into each other at the airport so it makes sense if they want to (jet) pool together to help facilitate it.”

One thing you won’t see Flight Options doing is announcing a lot of luxury partnerships. From the CEO’s perspective they are time-consuming and dilute management focus and attention “for the 1, 2 or 3 percent who actually want them or use them.”

5. New Magazine Household Income and Readership Data Release

Each August, MMR (Monroe Mendelsohn) releases research covering readership of Mass Affluent publications.

I personally like the MMR report because every salesperson from every Mass Affluent magazine I have ever heard pitching a potential luxury clients always talks about how “wealthy” and “rich” their readers are. I try not to cringe and generally refrain from blurting out that a $150,000 a year household income is no longer rich!

The research gives marketers an excellent opportunity to really see the contrast in the readership we have been able to deliver at Elite Traveler by using a controlled circulation model that puts our magazine into the hands of the world’s highest spending and wealthiest consumers in over 90 countries aboard their private jets, mega-yachts and other high-end venues.

So here is the list of Mass Affluent publications as measured by MMR with Elite Traveler’s numbers which are reported by Prince & Associates so you can compare:

Median Household Income:

Elite Traveler – $2,280,960 Departures – $190,000 Robb Report – $183,000 Conde Nast Traveler – $152,000 Architectural Digest – $146,000 W – $146,000 Fortune – $145,000 Forbes – $144,000 Vanity Fair – $140,000 Travel + Leisure – $135,000 Town & Country – $134,000

Readers With a $1,000,000 + Household Income

1.Elite Traveler – 318,478 2. Travel + Leisure – 86,000 3. Architectural Digest – 69,000 4. Conde Nast Traveler – 57,000 5. Forbes – 54,000 Town & Country – 47,000 Vanity Fair – 44,000 Fortune – 43,000 Vogue – 36,000 Departures – 34,000 TIE – Robb Report/W – 30,000