The Economics of Yachting – A Story of Razor Fin Margins

From the outside, the yachting industry is characterized by opulent luxury and astronomical sales prices, as well as an economic structure that is insane, with exorbitant orders. While some of these statements are accurate, we believe that the economy of yachting is often under-analyzed. Read more now on yacht sales mallorca

We must first state that buying a yacht isn’t a rational choice. The decision-making process is influenced by a variety of factors, from intangibles like taste and status to quantifiable ones such as ego. In the post-subprime crisis, yachts are not considered an investment because maintenance costs can be as high as 10% of the original purchase price. Chartering has grown substantially in the past five years, largely due to owners who have sold their yachts in order to reduce annual costs, and to the recovery of global markets. However, it is still seen as an opportunity to recover costs, rather than to make a profit. The yacht appears to be a lifestyle, recreational purchase that is highly dependent on market conditions. It is therefore essential for companies to appear as powerful, strong brands when trying to sell their products to high-net worth clients.

It would appear that this industry has high profit margins because of the bespoke system, and lack of inventory. The numbers from shipyards around the world seem to tell a completely different story. The high costs of each project mean that turnarounds are generally large, but profits are still scarce. Princess Yachts in the UK posted a profit of 11 million pound and a turnaround of 239.6 millions pounds for 2014. The yacht builder recovered in 2015 with 1.7million pounds of profit on a 239.7million pounds turnaround.

Princess has done well in this sector, as many yacht builders in Italy were forced to close or were bought by outside groups of investors. Mondo Marine acquired Cantieri di Pisa which was formerly part of the Baglietto Group. Baglietto was saved only in 2012 by Beniamino Gavo after the group suffered losses of 25 millions euros in 2008 and then 105 millions euros in 2009. Shipyards in other countries have also experienced similar outcomes. It was announced in 2014 that Dutch-based Oceanco would buy the Turkish shipyard Proteksan Turquoise, whose rise had been cut short by 2012’s infamous sinking 60m Yogi.

A new trend in yachting may have emerged as a result of a renewed focus on margin control, operational execution and operational excellence. Palmer Johnson, a legendary US yacht builder has announced that it will close its Sturgeon Bay factory to move production to Northern Europe, stating that European markets are stronger for their yachts. Northern Europe is the gold mine for the yachting industry. Shipyards there have performed well over the past five years. Amels, a daughter company of the Damen Group has sold 28 Limited Edition models, with eight more in the pipeline. The yard employs 1,000 people. Lurssen is responsible for the launch and development of yachting giants such as Azzam or Eclipse. Feadship is a joint venture between Royal Van Lent and De Vries Shipyards, as well as engineering company De Voogt. They launched their flagship, the 101m Symphony, earlier this year.

However, yacht construction is not the only major activity on the market. The service sector that has grown around yachting, is significant and responsible for marketing the industry and attracting new customers. According to Research and Markets, the global yachting market was worth 35 billion dollars in 2014. This is expected to increase to 51 billion dollars by 2020. The revenue of brokerage and charter agencies is impressive when you consider that the typical commission on a sale is between 10 and 15 percent. This is similar to how quickly shipyards turn over their products. Camper & Nicholsons International, one of top yacht brokerage/charter agencies, was sold to Colosseum Investments for 1 million Euros after the liquidation by its parent company Rodriguez Group. Y.CO – another major yacht broker – had posted profits of 14,650 pound for 2011 before delisting in 2012. Merle Wood is the head of Merlewood & Associates in the US, which is one of the most successful and discreet brokerage agencies. He owns a 150 foot yacht.

These numbers in the yachting industry show that margin control is the main focus of the business. The asking price may seem high, but manufacturing costs prove that it is justified. In fact, based on the data that is available, it can be seen that yachts are a good deal for the value you receive and that both the construction and service markets are efficient. This is exactly what you’d expect from an industry which caters to wealthy people who are aware of the costs and do not want to pay too much. This explains why smaller yards, unable to find buyers, often go into debt in order to gamble on the sale of the yacht. In conclusion, it appears that the only protection yachting companies can have is their scale. This makes them less reliant on individual buyers and allows for them to plan more long-term.

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