George Kerevan: Private jets and floating gin palaces a sign of recovery

Published on Tuesday 6 July 2010 14:22

WHAT is the best indicator that the recession is behind us? A rising stock market? Falling bond yields? Increased M&A activity?

The answer is: an upturn in luxury good sales. And I don't mean trinkets. As Gordon Gekko put it in the movie Wall Street: "I'm talking about liquid. Rich enough to have your own jet."

This year has seen the first signs of a revival in conspicuous consumption by the world's super-rich since 2008. So far, the upturn is modest and even billionaires are demanding value for cash, but spending is definitely on its way back. Jealousy aside, that may be good for the rest of us.

Start with the private jet market, which is always a leading indicator of overall economic activity because sales are bank-financed rather than done out of pocket. An early sign of the recession came in December 2007 - nearly a year before the collapse of Lehman Brothers - when speculators holding options in the queue for new private jet deliveries started to liquidate their positions.

Come the recession, the private and corporate jet market all but disappeared. Bankers judged it politically prudent to travel by commercial airlines like the rest of us. US courts even ordered ailing Chapter 11 companies to sell their jets.

Now there are indications of a turnaround, led by the Asian market. Cash-rich Chinese entrepreneurs have started to buy or rent private jets to travel to Europe, Africa and Australia (where they are snapping up property). Two years ago, the private jet market in China was virtually non-existent. This year it will grow by 30 per cent.

There are also signs of a revival in the private jet business in Europe and North America, though activity is softer than in Asia. Banks are chartering private jets again, with the return of financial road shows and initial public offering trips.

This is good news for US manufacturers, who hold more than 70 per cent of the global private jet market - compared to only 53 per cent in PCs. Sadly, Britain no longer makes private jets. And much of our jet charter market has decamped to the Gulf states. However, BA, our battered national airline, has seen a gap in the US market and this year launched its own exclusive private jet hire service for its passengers flying within North America and the Caribbean.

The same promising outlook is found in the super-yacht market, another good indicator because sales are bank financed. This sector is for boats over 24 metres, which usually means floating hotels with a helipad or even a garage for your Ferrari. Last year was the nadir for sales as no bank was prepared to lend money.

But 28 super-yachts, worth around 275m, were sold in the first two months of this year, as against just seven for the same period in 2009. However, there remains a surfeit of second-hand boats on the market that is depressing prices for new craft.

So now is a good time to purchase a new toy.

Canny billionaires (or poor millionaires) are forming syndicates to snap up super-yacht bargains. March saw the launch of Ocean Pearl, the second super-yacht designed by the architect Norman Foster, who built the Gherkin in the City of London. You can have an eighth share of Ocean Pearl for about 1.7m. Sadly, there is no helipad.

The revival is apparent in other sectors. Luxury car sales are up despite Toyota's problems with the Lexus. Sales of Rollers in China were up 300 per cent in the first quarter. Another big seller in China is the stretch version of the US army's Hummer, with a logo picked out in diamonds. For a mere 260,000 you get massaging seats and a safe for your cash. The Hummer is said to be a favourite of Chinese coal mine owners.

The LVMH group, which makes up-market watches and jewellery as well as Glenmorangie whisky, saw its first-quarter sales jump 13 per cent to 4 billion. The group's brands - including TAG Heuer, Zenith, Chaumet, Hublot and De Beers - are performing strongly now that retailers have ended the de-stocking that blighted 2009.

Champagne sales in the UK for the year to March were 334m, up 11 per cent on bleak 2009, and suggesting a recession-quenching thirst. The same pattern is seen in America where champagne imports in February surged 95 per cent year-over-year, after a dramatic fall in 2008. Is this the end of the recession or a case of drowning one's sorrows? Time will tell. z