While 2020, the year of the Rat according to the Chinese calendar, approaches the half-way point, industries around the world are going through one of the toughest times in the modern era. The onset of the COVID-19 pandemic that reportedly originated in Wuhan (China) has put a massive uncertain halt on the growth of world economy. Travel, hospitality, and logistics sector are among the broad spectrum of industries that have been majorly affected by the COVID-19 outbreak, and as per the current trends, the situation continues to look bleak particularly in 2020.
The yacht charter sector is one of the hardest hit by the COVID-19 pandemic as the number of enquires for yacht charters and second-hand yacht sales have declined drastically in the first half of 2020. The trend is likely to continue over the upcoming months in 2020 and the first half of 2021 until the situation stabilizes. Mounting travel and safety-related uncertainties among the customers are expected to deeply impact businesses within the yacht charter market. Current operators within the yacht charter market are increasingly focusing on building strategies to promote yacht charter as one of the safest holiday alternatives wherein exposure to public areas is minimal.
At present, while operations within the current market landscape have more or less come to a halt, market participants are expected to comply with the guidelines and regulations laid down by the World Health Organization (WHO) and the International Maritime Health Association. Travel restrictions in most parts of the world coupled with the exponential growth of the number of COVID-19 cases are likely to hinder the prospects of the yacht charter industry for the foreseeable future particularly in nations including Italy, Spain, the U.S., and more. While 2020 is certainly expected to be a rollercoaster ride for the yacht charter industry, companies are increasingly focusing on the potential regions that are likely to resume yacht operations to ensure the inflow of revenue.
Mediterranean Season at the Corner – Companies Are Expecting a Little Movement
Over the past decade, yacht chartering has evolved at a gradual pace and continues to become mainstream in certain regions of the world. Since 2018, the number of first-time customers continued to witness a considerable surge until the COVID-19 outbreak. While crewed yacht charters were steadily gaining considerable popularity around the globe, the timing of the COVID-19 pandemic is expected to hamper the prospects of the yacht charter market particularly in 2020.
Multiple tier-1 and tier-2 yacht charter companies including Ocean Independence, Fraser, Northrop & Johnson have reported consistent growth in the number of charter bookings since 2017 – a trend that was likely to continue before the novel COVID-19 outbreak which has left several yacht charter companies on the back foot.
Over the past few years, the threat of hurricanes and reported destruction caused by several hurricanes in the Caribbean region have played an imperative role in generating large-scale interest in yacht charters across the Mediterranean belt. Yacht chartering is increasingly gaining popularity outside the conventional yachting circles and this trend is projected to influence the growth of the yacht charter market in the COVID-19-free era. While other regions continue to emerge as potential destinations, traditional hotspots for yacht chartering such as the Mediterranean are staring at uncertain times particularly due to the alarming number of cases across Italy, Spain, and other regions along the Mediterranean belt.
The recent news about the Japanese cruise ship, the Diamond Princess, on which hundreds of COVID-19 patients were on board and led to a new chain of infections has severely dented the growth prospects of the yacht charter industry worldwide. As governments across the world scramble to avoid similar incidences, the yachting industry is likely to enter a gloomy period in the upcoming months.
Although the Mediterranean season is around the corner, market participants do not expect any activity in 2020. Although several companies were compelled to cancel or postpone the existing bookings due to the developing COVID-19 situation, revenue generation is expected to remain grim during the window. Travel restrictions imposed by governments are likely to affect operations within the yacht chartering sector across the Mediterranean belt. Bookings and movement across the first phase of the Mediterranean season are expected to remain pale due to which, the yacht charter market is expected to experience huge losses and possibly a downward growth. Yacht owners and companies are expected to closely track and monitor the developments being made during the COVID-19 pandemic.
Government Authorities across EU Continue to Impose Stringent Guidelines
Government restrictions coupled with regulatory requirements on marine vessels entering different national waters are expected to bring the yacht chartering business to a standstill during the COVID-19 pandemic. The surge in the number of yacht chartering requests from multi-billionaires and millionaires in the wake of self-isolation guidelines particularly in the European region is likely to generate business for medium to high-end yacht owners. Authorities in different nations require different documentation and declaration from yacht chartering owners and companies. For instance, the government in Monaco and Italy require yachts chartering companies and owners to submit a maritime health declaration prior to the arrivals in March 2020. In addition, as a preventive measure, authorities in Spain imposed bans on commercial and recreational chartered yachts and marine vessels from entering the ports across the Balearic Islands.
As the COVID-19 situation continues to evolve across the different regions of the world, yacht owners and companies are expected to closely monitor the minor and major developments around the world on a daily basis. Yacht companies that are likely to keep operations running are expected to comply with the COVID-19 regulatory framework of each coastal region and port and adapt to the rapidly evolving scenario.
Asia Pacific – The Breeding Ground for Market Participants
Traditional yachting hubs such as the Mediterranean and the Caribbean have provided lucrative opportunities for companies operating in the yachting industry. However, over the past four to five years, South East Asia has emerged as an attractive yachting destination within the Asia Pacific region. Market players are expected to capitalize on the untapped opportunities across nations including Malaysia, Indonesia, Philippines, and Thailand are likely to gain ground and strengthen their foothold in the market. At present, although Singapore has cemented its spot as the base for luxury yachting and boating in South East Asia, due to limited cruising opportunities, other nations are quickly catching up with the yachting fad. Some of the major factors that are likely to drive the growth of the yachting industry in the region include a strong expat community, the surge in a number of yacht clubs, thriving tourism industry, and breathtaking spread of islands.
Stringent government regulations could pose a barrier for market growth in the region. However, as governments across the ASEAN countries continue to explore the benefits of yacht chartering at the economic front, the yacht chartering market in the region could witness substantial growth.
Learning from the Great Recession – Path to Recovery
At present, several yachts that were used for charter are on sale due to the high mooring costs and government restrictions. In addition, as yacht prices continue to dwindle under the current circumstances, an influx of new customers interested in purchasing yachts is a growing possibility. Over the past couple of decades, superyacht ownership, particularly across North America and Europe, has witnessed unprecedented growth. Market participants are expected to look into the rearview mirror and assess how the industry recovered from the past economic and social crisis. While the sales of superyachts continued to grow across the U.S., Spain, Italy, and other regions of the world, the 2008 financial crisis led to a collapse of the dynamic yacht charter market. The yachting sector managed to revive post the 2008 financial crisis on the back of two verticals – mega yachts and day boats.
The number of yachts that are over 100 meters in length has increased post-2008 due to which, yacht management companies have generated considerable business. The strong demand for superyachts in the forthcoming years is expected to play a key role in reviving the yacht charter market. The soaring rise in the fleet of mega yachts is expected to provide a ray of hope to the future of the yacht chartering market. The number of mega yachts that are likely to go on sale amid the COVID-19 crisis is expected to provide some breathing space for participants of the yacht chartering market.
Yacht Chartering Companies Consider Force Majeure, Assess Legal Aspects
While it is evident that yacht chartering is one of the most majorly affected industries during the COVID-19 outbreak, in response, market participants are likely to consider force majeure to minimize the financial impact. Although the pandemic status of the COVID-19 pandemic coupled with the directives of regional and national governments have created an ideal situation for a force majeure event, players operating in the current yacht chartering market are likely to assess all the legal and moral implications of the use of force majeure in context of sales agreements, charters, and repair, refit, and yacht building contracts.
While the legal side of things are likely to gain considerable attention in the upcoming months, market players are expected to closely investigate and assess the various force majeure provisions. Yacht owners and companies are expected to introspect their policies, terms and conditions and offer the best possible solution on a case-to-case basis. A host of yacht charters are cemented to the Charter Agreement published by the Mediterranean Yacht Brokers Association (MYBA).
Rise in Refundable Bookings and Super Yacht Ownerships – Key to Unlock a Better Future
The yacht charter market was witnessing an impressive growth over the past decade due to the surge in consumer awareness, increase in disposable income, and improved accessibility to the different types of yachts. However, the ongoing novel COVID-19 pandemic has applied brakes on the market growth and recovering from the negative effects of the current health crisis is expected to present an array of challenges for market participants. At present, while the activities within the yacht charter market are expected to be bare minimum, yacht owners are expected to focus on improving the hygiene and safety aspects of their yachts in the future.
The future of yacht traveling and chartering is expected to witness a paradigm shift toward implanting new measures pertaining to health and hygiene. In addition, market participants are of the opinion that operations could be up and running around October. However, the future of the yacht charter market is expected to witness some significant changes including, high demand for refundable bookings and amendments in the existing clauses in contracts. In addition, the demand for private yacht chartering is projected to move in an upward trajectory in comparison to that for cruise holidays and group charters owing to the COVID-19 pandemic.