Luxury travel: yes, ‘the rich are different from you and me’

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F. Scott Fitzgerald couldn’t have put it better, argues Sally White, as she considers the emerging luxury segment

Good news for travel could be found on two fronts in financial markets last month - while the airfares war looks set to continue at the lower end of the market, at the top luxury is ready to boom. The latter backs up the recent forecast of super top-end growth from Allied Market Research (AMR). It sees the luxury segment reaching $1,154 billion by 2022, growing at a CAGR of 6.4% during 2016-2022. ‘Absolutely luxury,’ the market segment, which takes three or four top-end holidays a year will, says AMR, grow slightly faster.  

A Financial Times headline - ‘Green light for robust luxury sector recovery’ – seems to reiterate the point. Headwinds from the slowdown in Chinese spending (combined with the country’s anti-corruption campaign) and the impact of European terrorism dampened down the hot growth rate of luxury travel last year. While some Chinese may be finding it more prudent to ‘reshore’ rather than be seen dashing off to Paris and Milan, the worst seems to be over - for now.

...while the airfares war looks set to continue at the lower end of the market, at the top luxury is ready to boom

That story was based on record sales and profits from the likes of LVMH, Richemont and Burberry. LVMH reported that last year’s sales were the highest ever. Richemont said Chinese and South Korean spending was giving it record profits, and at Burberry profits are improving too. For half of Asia's luxury travellers at least, shopping is what it is all about, according to Singapore consultants Agility Research & Strategy. Only trying out new cuisine comes higher on their list. As evidence of the vital ‘feel-good’ factor in China, it pointed to the 25% rise in house prices in top-tier Chinese cities.

Online warnings  

In the market at large, by contrast, although airline passenger numbers may be rising, the main story was competition continuing to force down fares. Wizz Air’s profit warning in January testified to this. This came after larger low-cost rivals EasyJet and Ryanair have put more seats on to the market to take advantage of previously low oil prices and to try to capture market share. Not for nothing did Warren Buffett once refer to the airline industry as a ‘death trap’ for investors.

While most travellers are searching the internet for a good deal - this over-capacity looming across air travel and the boosts to accommodation space from Airbnb and peers should guarantee plenty in 2017 - the rich have other concerns. According to reports from the International Luxury Travel Market conference a few weeks ago, simplicity and wellness loom large. And, not brilliant for online travel, digital detoxing is a major factor in the wellness experience sought! 

One conundrum about luxury travellers, raised in several reports from the conference, is their attitude to online searches. As summarised by Journey Mexico CEO, Zachary Rabinor, while they want a retail agent to recommend where to go and what to book, they also want direct contact with local hotels and operators. So, as he commented, careful handling is needed if agents are to “protect the value they give”.

110% - the increase in wealthy consumers planning to use retail agents in 2017 rather than OTAs!

An American Express report released at the conference showed a 110% increase in wealthy consumers planning to use retail agents in 2017 rather than OTAs! Last year, it said, the numbers doing so rose by 79%. Another pro-retail agent report, from the American Society of Travel Agents, said they saved customers $452 a trip.

Agents are especially competing to give a ‘concierge service’ on luxury stays. Simplicity appeal in holidays is seen in everything from small boutique hotels, smaller destinations, local food, and mixing with the locals. 

Another approach to answering the demand for stress-free and high-end travel being taken by luxury hotel groups is to position properties as second homes - this route is being taken by hotel group Park Hyatt. And Luxury Retreats is offering luxury home sharing.

On traveller sources, Asia Pacific’s travel market continues to soar with the rise in its number of middle-income groups - India is forecast to register CAGR of over 12% last year. When it comes to what to do on holiday, ‘Adventure and Safari’, AMR says, still tops the lists.

However, an emerging trend among affluent Asian and US travellers is health consciousness - a rise of 29% in Hong Kong and Singapore in 2016, according to Singapore consultancy Affluential’s ‘Affluent Insights Luxury Study 2017’. What hasn’t changed is the demand for luxury goods, it adds, noting with nice understatement that ‘demand for luxury goods can be predicted to stay”. Vis the record profits from LVMH!

And where do the rich want to go? As to where luxury travellers want to go, AMR sees Germany and Italy as still the most popular European destinations. Brazil continues to top the ranks in terms of LAMEA potential. Amex research sees big increases in Mongolia, Iceland, Goa and several parts of Canada. Paris is apparently back. More shopping!

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