My column in the FT on Thursday is about luxury and premium good in the downturn:

The harder they come, the harder they fall, one and all. The decade of decadence, of affordable luxury and premium everything, from expensive spirits to fashion label clothes and first-class air travel, is over.

It was, of course, an illusion to imagine that the business cycle had gone away in historically cyclical industries such as airlines and luxury goods. But the years of expansion carried on long enough, with only a brief interruption in 2001, that a lot of people came to think so.

They have changed their minds. Virgin Atlantic expects to lose money in this financial year. Giancarlo di Risio, chief executive of Versace, is to step down after falling out with the family amid a 13 per cent fall in revenues in the first quarter.

Double-digit falls in demand for luxury and premium goods and services are common in recessions but this hangover is especially sharp. Big airlines suffered a 35 to 40 per cent fall in revenues from international first- and business-class passengers in the year to March.

So what should such industries do when faced with a slump in consumer demand? The textbook answer is to cut costs, curb output and do everything possible to adjust – apart from slashing prices.

“You must accept that you will sell less but the biggest mistake is to cut prices across the board and ruin your brands. People are not refusing to buy because prices are too high, but because they are frightened and are hoarding money,” says Hermann Simon, chairman of Simon-Kucher, a pricing consultancy.

There is logic to what Mr Simon says. Even for non-premium industries it takes three to five years to get consumers to pay the full price again once you have started discounting. As for luxury goods, price-cutting rips apart the industry’s artfully constructed image.

Discounting can exact a terrible price, as the imminent bankruptcy of General Motors shows. The company was the king of cheap finance and price-discounting even in the good times; it was left with thin to non-existent margins, having put its brands through the crusher.

But the reality for many companies (happily for consumers) is that they have no choice. Luxury and premium brands have grown so much – and reached so far into the mass market – that their owners cannot choose from a menu of cutting costs, output or prices. All are required.

You can read the rest here and comment below.

Well, I realise this is old hat for some but it is new to me.

I am writing this 35,000 feet up in the air on an American Airlines flight from San Francisco to New York, thanks to the inflight internet connection (which costs $12.95). Compared to the $10 the cabin crew are charging for a sandwich, I do not think that is bad.

It does mark the intrusion of the outside world into one of the last places on earth where one is more or less uncontactable, but there we are. It is not as bad as mobile phone access.

These are very tough times for the business jet industry. The now infamous trip by the heads of the Detroit big three to Washington on board corporate jets to plead for cash from the US government has caused a backlash against private travel.

Here comes a fightback: two groups involved in US business aviation have now launched a campaign to improve the industry’s image. The campaign is called “No plane. No gain” and even has its own web site.

As it happens, I have some sympathy for the industry. There is actually some point to executives of big companies with plants or facilities spread across the US, and indeed around the world, flying point-to-point by corporate jet to visit them.

As a shareholder, I would prefer senior executives to save time in this way rather than having to queue at airports to get through security check points.

There has no doubt been excess in recent years, with executives using “security” as an excuse to travel everywhere by private jet. Executives being allowed to use the company jet to go on holiday also strikes me as dubious practice.

But I do not grasp what benefit it brings to investors (even when the government has a stake) to insist on all corporate jets being sold off.

Even an irrepressible optimist sometimes get repressed. I feel a bit sad at the departure of Vern Raburn as chief executive of Eclipse, the very light jet maker that has not yet fulfilled his hopes of transforming air travel.

Mr Raburn has paid the price for the fact that it has proved much harder than he promised to built a cheap, snap-together small jet that would be used for air taxi services and bought as an alternative to small turbo-prop aircraft.

Mr Raburn is a entertaining talker and he went out in style, noting that “debt-holders don’t have much of a sense of humour” about missing financial targets. “It cost more money and took more time than we had promised and there’s a price to be paid for that,” he told the Wall Street Journal.

Whatever his flaws, he brought Silicon Valley insouciance and self-confidence to a deeply traditional industry. There will presumably be a lot of people who are pleased that his showmanship did not quite work out, but I am not among them.

As trailed, I have written my FT column this week on the F-22 fighter and whether it is worth the money. I conclude that the current US position - to buy a limited number and refuse to sell others to its allies - is militarily questionable and financially crazy. You can read it here and comment below.

Thanks, by the way, to commenters on my earlier post who made some very informed remarks on the subject.

Overheard on the Farnborough to London train:

A group of American defence contractors talking about a contract that was delayed by a glitch. One executive, regretfully, as if it would be the last resort: “We may have to tell the Brits about it.”

Heaven forbid!

Well, that was a first for me. I don’t think I have attended a media briefing on an aircraft before, and certainly not a US Air Force one.

The aircraft in question was a C-130J Super Hercules – one of those big transport aircraft that you see often in war zones, or involved in relief efforts. This one had just returned from a tour in Iraq and has previously operated in Afghanistan.

The beast was on the ground at the Farnborough Air Show but that did not detract from the oddity of sitting on one of the red canvas seats lined along the sides of the aircraft to hear about the aircraft and its deployment.

The rear cargo door was open so, although we were in fact at zero altitude, it felt curiously as if we were about to be tipped out of the back in parachutes.

Continue reading "A brief encounter with a Super Hercules"

Well, the star of the show was certainly the star of the show. In time-honoured tradition, I have just been standing on a balcony at the Farnborough air show, with plugs in my ears,  watching fighter aircraft doing manoevres.

This year’s Farnborough highlight was the F-22, the world’s best - and most expensive - fighter aircraft. It is a stealth fighter made by Lockheed Martin and Boeing, with Pratt and Whitney supplying the engines and the only air force that has them is the US one. Foreign governments are not allowed to buy them.

It does feel odd to be watching the beauty and balletic elegance of fighter jets at air shows, given that their mission in life is to destroy things. In the F-22’s case, it does not do much bombing of ground targets but could beat any other aircraft in a fight.

However, the F-22 is unquestionably stunning to watch. Its most surprising trait, for an aircraft that can travel at Mach 2 and launch missiles at supersonic speed, is that it can come to a virtual halt in the sky.

Continue reading "The world’s best fighter aircraft goes slow"