The wealthy are cautiously opening their wallets again.
“People are fed up, and they want to have a good time,” said Rina Anoussi, a New York City travel agent who handles high-end clients. “They don’t want Italy 101. They want more exotic destinations like Kenya and Tanzania.”
But Anoussi, who operates her own company under the Tzell Travel Group, said her customers are still wary about overspending. They “argue like carpet dealers in Istanbul looking for the best deals,” she said. “They want to know, ‘What can I get if I book through you?’ “
Business is also creeping back for hotels, yacht rental companies, jet brokers and jewellery stores — purveyors of the luxury goods that once seemed immune to a downturn but then took a megahit with the economy.
Some experts contend that much of the high-end spending before the recession was fuelled by money borrowed by people who were trying to live beyond their means. Today there is a trend to reducing risk by cutting debt. But even people who came out of the financial crisis relatively unscathed are pulling back. The possibility of losing their wealth has become more real.
“Today if they buy, they are not willing to be embarrassed by overpaying,” said Jane Bayard, executive vice president at Warburg Realty Partnership, a New York City real estate company. Though the Manhattan residential market has held up reasonably well, “there were times in 2007, for example, when there were multiple offers and people paid millions over the asking price,” Bayard said. “Today, nobody wants to be the last monkey in the tree.”
In an economy that remains weak, no one expects a rapid recovery. “Let’s be honest,” said Stephen Hahn, area vice president for sales and marketing of Ritz-Carlton Hotels, Caribbean and Mexico. “We are thrilled to see the numbers coming back, but are they springing back to the level they were? No they are not.”
At Sabre Yachts in South Casco, Maine, a good year once meant building and selling about 180 luxury sailboats and powerboats priced from $400,000 to $1.5 million. Last year, sales sank to well below 100, said Daniel Zilkha, who has owned the company for 15 years.
“This was by far the worst downtown since the luxury tax nearly wiped out the boat builders in the very early 1990s,” Zilkha said. “Business is picking up relatively slowly, but it feels as if the recovery has substance.” This year, the company expects to build as many as 120 boats.
The yacht charter business was similarly hard hit last year and is also starting to show signs of life for the coming summer, when wealthy customers want boats to cruise in the Mediterranean. Still, Shannon Webster, who runs a charter business in Flagler Beach, Florida, described the current climate as a “Mexican standoff because smart buyers know they can wait a bit and boat owners are evaluating what they may have to give up to get customers.”
“Everybody has cut back somewhat,” Webster said. “Even people who rented a 225-foot boat are saying, ‘Can I get something that is 50 feet shorter?’ “
The more conservative sailboat charter business is showing signs of a rebound, too. Tina Hinckley, whose family sold its sailboat manufacturing business to a private equity firm in 1997, now arranges charters for high-end clients through her Hinckley Crewed Charters in Southwest Harbor, Maine. She has booked 20 trips, twice as many as she had on her schedule at this time last year. “Last year, I sent out quite a few contracts that never came back,” she said. “This year, they are actually coming back and signing up.”
If boats are getting smaller, jewellery is getting bigger. A spokesman for Tiffany, Mark Aaron, said the jeweller’s sales of pieces that cost more than $50,000 rebounded for the 12 months that ended Jan. 31. The comeback was “meaningful,” he said, although he would not quantify it.
The jet business may well have been the hardest hit by the economic collapse. In normal times, 12 percent of the worldwide private jet fleet is for sale. In July 2009, that figure soared to 18 percent. But sales have risen every month for the past seven months, said Brian Foley, a private aviation consultant. “The recovery has stalled a bit,” Foley said. “Still, there is more business and people are willing to spend more, so they are loosening up.”
To Richard Aboulafia, a consultant at Teal Group, which provides aerospace and defence industry market analysis, there is still cause for concern about the private jet market. “The good news is that people have stopped dumping jets,” he said. “The bad news is that there is still a lot of inventory and prices are flat.”
Blair LaCorte, chief executive at XOJet, which owns 23 jets and leases them for charter, said that his business was picking up. But he concurred that prices remained flat.
“The problem is that it is often hard to distinguish whether companies or individuals are opening their wallets,” LaCorte said. “Some small company owners buy planes in the corporate name for personal use, and corporate jets are often used for personal agendas, including golf trips and vacations. We tend to use a criterion of whether there are children or pets on board, or how much wine was drunk,” he said. “I believe that business is growing faster than personal use, but personal use went down less in the downturn.”
The luxury hotel business is posting a slow recovery. The drop-off in business was far more devastating than the decline when the Internet bubble burst, which “was a blip compared to the meltdown,” said Hahn of Ritz-Carlton Hotels. He said that more recently “things have stabilized.”
Like Anoussi, Hahn said that people are far more cautious about where they will spend their money and are looking for the best deals. “They are not taking suites as much,” he said. “They are opting for club lounges where they pay a premium to use a club where they can eat, drink and be merry.”
At The Breakers, the grande dame of Palm Beach, Florida, hotels, revenue fell 20 percent in the year that ended in August. It is up 5 percent this year, and “we are estimating a 10 percent increase by year-end,” said Paul N. Leone, president of The Breakers Palm Beach.
But even there, guests remain cautious. “Often we see an individual traveller will go into the Burberry shop at the hotel,” he said. “They may spend the same amount as they once did. But if they do, they will get several items, rather than one thing.”