Mike Stones

Cheers to the Credit Suisse wealth report

Picture the scene: a smoky bar in 1920s Paris. Icons of American literature (and alcohol consumption) F Scott Fitzgerald and Ernest Hemingway are enjoying yet another drink. Fitzgerald tells Hemingway: “You know, the rich are different from you and me.” Hemingway sips his absinthe and replies: “Yes. They’ve got more money.” True or not, last year many more people accumulated much more money. (And this could be good news for the private jet market).

We know this thanks to the Credit Suisse Research Institute’s 12th Global Wealth Report published recently. It reveals wealth creation last year proved “largely immune” to global challenges thanks to the actions taken by governments and central banks to mitigate the economic impact of the Covid-19 pandemic. Total global wealth grew by 7.4%.

More than 5m people worldwide became millionaires last year – despite the economic carnage caused by Covid-19. While many poor people became even poorer, the number of millionaires increased by 5.2m to 56.1m globally, according to the Credit Suisse research. Last year, more than 1% of adults worldwide became millionaires – buoyed by recovering stock markets and soaring house prices.

More importantly for the private jet market, the number of ultra-high net worth individuals (UHNWI), defined as those with investable assets of more than $30m, grew by nearly a quarter (24%) in 2020. That’s the fastest increase since 2003.

In North America, the world’s biggest private jet market, total wealth rose by $12.4trn. In Europe, total wealth climbed by $9.2trn. The two regions together accounted for most of the wealth gains last year. China added another $4.2trn and the Asia-Pacific region (excluding China and India) a further $4.7trn. Both India and Latin America recorded losses in 2020.

Taking a longer perspective, since the start of the 21st century, the number of people with wealth between $10,000 and $100,000 had more than tripled from 507m in 2000 to 1.7bn in mid-2020. One of the motors behind this phenomenal growth was identified as the growing prosperity of emerging economies, particularly China, and the expansion of the middle class in developing countries.

The report’s author, economist Anthony Shorrocks acknowledged the pandemic’s acute short-term impact on global markets but noted this was largely reversed by the end of June 2020. “Indeed, wealth creation in 2020 appears to have been completely detached from the economic woes resulting from Covid-19,” he said. Read more about the Global Wealth Report 2021 report here.

At first sight, accumulating wealth sounds encouraging for the global private jet market. But other factors are a play. Richard Koe, MD and co-founder of business aviation intelligence provider WingX, tells Corporate Jet Investor: “HNWI growth was very strong between 2011-19 but business aviation growth was anaemic. Ditto corporate profits. Behavioural change could be critical.”

So, will people be prepared permanently to pay more for personalised transport to avoid the crowds, inconvenience and risks of commercial airline travel? That is when they can find airline flights that fit their schedule. Regional routes are looking particularly vulnerable. Koe believes: “Airline connectivity may never fully recover, which will substantially promote value of on-demand schedules.”

But business aviation has long found it tough to increase penetration of the potential market for its services. Perhaps post Covid-19 the rising tide of investment in the sector will help lower barriers to the industry. Koe thinks so. “Technical change has already empowered innovative lift providers, such as hybrid shuttle services. Plus, there are lots of remaining inefficiencies in the private jet business, which may be fixed with the investment now coming in – including digitalisation, consolidation and homogenisation. Wider product choice is proliferating, lowering the entry level.”

Ultimately, the private jet sector growth relies on strong economies, trade and investment. Many commentators, including Koe, have serious doubts about the longevity of all three. “I suspect the massive Covid response has stored up a big financial crisis in next five years,” Koe tells us.

Let’s keep that vexed question for another day. So, for now, here’s to a relaxing and safe weekend. Now, I’ll drink (responsibly) to that.

The green fairy (absinthe) was a favourite tipple of Ernest Hemmingway – along with many, many other drinks.

 

 

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