How to invest in yacht charter

How to invest in yacht charter

The super-yacht charter market grows due to increasing interest in luxury cruising from high net worth and ultra-high net worth individuals (UHNWI) worldwide. Yacht charter business has been gaining popularity since the past few years among the ultra-rich. The number of UHNWI households is the highest in the US, where almost half of the ultra-rich population reside. Britain also holds a prominent position in the list with a population of UHNWIs around 5000.

The global yacht charter market grows at a cumulative annual growth rate of 5.4% throughout the next 15 years to reach US$ 15.86 Bn by 2026. When one decides about jumping into the boat, the one has to answer two fundamental questions: Is yacht charter an excellent business to get in? Also, will investment in yacht charter be profitable?

In the yachting industry answering these questions with anything else other than “It depends..” requires us to get into more details. Your consultant needs to get into the specifics of the size segment you choose, primary geographic area and the yacht charter business model that you intend to implement.

To most people charter rates seem to be very high as an absolute per-week-value. Are they high enough when you consider the cost of the asset and its running costs? The latter can have a rather wide range as variable costs depending on how and where the vessel is managed and can make a significant difference. It the acquisition price of the ship that is crucial, but the variable and fixed costs are the ones that can determine whether the operation is profitable or not.

High season and low season charter prices may vary, depending on the vessel. However, when it comes to chartering megayachts, there is no seasonal difference in most cases. The base charter fee refers to the cost of hiring the yacht itself. It includes the cost of keeping all equipment in working order and the cost of food and wages for the crew during the charter. Additional expenses are often applicable on top.

A “plus all expenses” contract requires that the charterer pays for food, beverages, fuel and dockage as an additional expense outside of the base fee. Plan for guests, as they can accumulate an extra 25% to 50% of the base charter fee, and it depends on what they like to consume.

2.2M$ a week charter rates like those of the 349ft M/Y “TIS” owned by Alexei Fedorychev, might sound like an exorbitant price to pay. The alleged value of the yacht at $250 million.

You may take into account a rough estimate of 8-10% of the purchase value spent on running the yacht every year. Marketing-wise, think of the number of potential clients that can pay such rates for a week of the charter. With these figures in mind, the weekly price seems not as high any more. So, in July 2019 Russian billionaire Yuri Shefler and his wife Tatiana chartered the TIS.

So the answer to the question “Can investment in yacht charter be profitable?” sounds like “It can still be if you do it right!”.

Gelyana Garyaeva

Oracle Capital Group has vast experience for building customized business plans and arrangements to finance for luxury boats. If you have a yacht charter business in mind, give us a call.

Gelyana Garyaeva,
Asset Financing, Oracle Capital Group

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