State of the Yacht Charter Market in 2020

Generally, there is a misconception outside of the industry that yacht charter is a premium luxury product and that companies in this business are very profitable, however in the standard sailboat charter, there is a lot of competition, barriers to entry for new players are relatively low and therefore the margins are very slim. Some might say that it is hard to believe because someone needs to buy the boat, which is sometimes valued half a million Euro or more, but with leasing or renting a boat from an existing owner who uses his boat for only a few weeks in a year makes it surprisingly easy. Government subsidies for new boats in Greece last year further made it easier for non-professionals to get in the market.

To make things harder for fleets, the process of selling a charter week in majority cases involves a charter broker (agent) booking the boat for the final guest. This is putting further pressure on the price as agencies compete between themselves for the same client. In recent years, the rise of well funded online agency startups actually made the price pressure issue even harder although with a great benefit of making even the smallest "one-man show” charter company visible to every potential client out there.

In these conditions, something that seems so stable from the outside is in reality very easy to disrupt, and the pandemic of 2020 provided such a challenge.

So how did different fleets react and how did the pandemic affect the industry per destination market?

Reaction to the pandemic and results so far

The team at Booking Manager tried to contribute in our little way by organizing webinars and directly communicating information with fleets and agencies. This added some sense of security and cooperation to the market but it couldn't help fully. There is no silver bullet for the situation we are facing, every charter fleet is different, they range from exclusively management fleets to owner fleets, from companies with recent boat purchases and with heavy loan burden to vintage fleets with less financial exposure. Also, local governments differed in their responses as well as creditor banks which helped out because have no interest in becoming fleet owners anytime soon.

So naturally, responses and ways how companies adjusted varied widely. Some reduced their fleets by cancelling contracts with owners, some management fleets with guaranteed income for owners stopped honouring the yacht management agreement citing special circumstances, some did nothing and it worked well for them, while few went bankrupt doing nothing.

Initial panic in mid-March proved itself healthy because most fleets prepared themselves for the season without any bookings, so being at 45% occupancy of the standard season in first 7 months is actually not so catastrophic since we were all expecting much worse. Booking Manager System is in a unique position to directly be able to monitor global charter activity in real-time, and from this information, we are able to extrapolate with great precision the overall state of the charter market at this moment.

So to compare the total results in 2019 to 2020 here is the difference in the number of charter weeks sold

The profitability of individual bookings in this year so far is surprisingly bigger on average because of lower overall discounting. This is most probably due to the closure of operations in the preseason as everybody skipped the usual ritual of price dumping for last-minute bookings in this period so the average discount of 17% given in 2019 has been reduced to 13% in 2020.

In this situation, it is very challenging for owner fleets that face the full weight of the cost of the new boats, compared to management fleets which if correctly set-up essentially work on a commission for managing the boat, or pure profit. First of the owner fleet victims are companies such as Nautic Charter from Norway that went bankrupt without getting the significant support from the government or their creditors.

Consolidation of charter agencies puts even higher pressure on the price as they dominate more and more of the market. This trend has probably slowed down a little in the second part of 2020 due to the less aggressive investment in online advertising but it is still there and it will continue in the future. An ever-smaller number of very strong agencies, that mostly grow in their source marketplaces such as Spain, France, Germany, Czech Republic all slowly replacing traditional agencies that base their work on personal relationships and intimate knowledge of the product, with the volume of information and offers, automated online booking capabilities which are hard to match.

While there is still no clear global leader, prices will continue to be under more and more pressure as online booking market grows.

Future is not clear but also not catastrophic

With the probable release of the vaccine in 2021, the fear will shift from health concern to financial safety. Even without the vaccine, we will probably be fully accustomed to the “new normal” and more confidently choose our holidays. However, guests will probably experience more situations of providers not appearing at the dock or boats being impounded just before the booking because the owner was overdue on their leasing payments. Financial strain gained in 2020 will make winter harder to survive for some more exposed fleets, and while income in the summer of '21 will be higher, the cost of mooring fees and winter servicing will come sooner than that.

For others, especially solid ambitious, organized fleets, this is a chance to stand out and come out even better in the end. Service that yacht charter offers is hard to beat in these times: Arriving in the personal vehicle, jumping on board and sailing away is extremely comfortable and the safest way to fully enjoy your summer holidays. So people will continue to enjoy yacht charter as the ultimate social distancing activity.