Businessman Ali Al Jafla knows the next 12 months will be a testing time for his industry.
After years of growth in an expanding market, the managing director of leading yacht manufacturer Sunseeker Middle East believes the sector is facing a 50 per cent drop this year.
Purse strings are tightening around the world, and even high net-worth individuals are, largely, choosing 2009 as the year not to buy a yacht.
Al Jafla said: "In 2008, we delivered nine boats between 40ft and 100ft. This year will be very hard. Luckily, we've been able to take two orders this quarter and I think if we could do another boat it will help us survive this year."
Al Jafla is far from alone in facing a year of hard decisions. Speaking at the 17th Dubai International Boat Show, he estimated the industry en bloc would have to cut expenditure by 20 per cent – hoping for an equal drop in production costs.
"The strategy is different this year. We have to try coping with the world crisis," he told Emirates Business. "Since things are moving very slowly, we will cut expenses, delay orders and closely monitor the market. We will pull out of a few boat shows and cut our advertising spend."
Sunseeker Middle East has seven boats on display at the boat show at Dubai International Marine Club (DIMC), which concludes on Saturday.
Al Jafla said the company was unlikely to participate in some future shows elsewhere in the world, as displaying its full range of seven boats was costly.
"The cost of participation in any show is very high and since we are market leaders, we can't afford to downsize our participation," he said, adding that no final decision had been made on which shows would suffer.
Interest in yachts this year has fallen, despite companies inviting their entire database of potential clients to the boat show.
"Let me be honest and say the interest this year has been very little," Al Jafla said. "We've done our job of contacting everyone, but the response has been slow."
A weakening pound has seen demand shift from 40ft yachts to 60ft yachts, Al Jafla added. "The funny thing is people with the money are now looking at 60-footers, while last year they made enquiries for 40-footers," he said.
"The pound has lost 30 per cent in the past six months, so while £500,000 (Dh2.6 million) to £800,000 would buy a 40-footer last year, it fetches a 60-footer this year," he said.
Al Jafla advised other players to exercise caution and run a lean business this year. "They will have to reschedule production and cut expenses," he said.
Marina projects, put on hold due to the current financial crisis has further hit the industry, Al Jafla said. "If these projects had continued as planned, it would have kept interest alive. Right now, we just have to tide the course."
Leonardo Ferramago, Chairman of yacht major Nautor's Holding, told Emirates Business that the industry was hoping the crisis would find its floor this year.
"I hope that during the course of 2009, we should have touched the bottom of this crisis, so we can start rebuilding positively," he said.
"It will take a while until we return to last year's levels, but I would expect it to take a maximum of three years."
The company launched its Middle East operation yesterday in Dubai and hopes to sell five of its flagship product – the Club Swan 42 – this year.
"We want to establish a fleet in the Middle East because it is an important market for us. It will help us get connected and enable us to run a number of activities in racing and cruising. Apart from the Club Swan 42, we hope to sell at least one of the big yachts in the 90-foot range," he said.
Having sold 50 units of the Club Swan 42, each for approximately 400,000 euros, since its launch in 2005, Nautor Swan has prepared itself for a drop in sales this year, he added.
"We don't know and can't predict how much it will fall, but we will not compromise on any of the key elements that have made us successful," he said.
Ferramago said the company was looking to reduce costs to become more cost effective.
"This will include some reduction of staff in order to put the company in a safer position for the future," he said. "But we will be aggressive on the commercial side. Our order book is in great shape for 2009 and we have a solid financial situation. We will focus on optimisation and efficiency this year," he said, adding the company would launch two new models this year – at 40ft and 60ft.
Marine industry expert Mike Derett said: "With industry cycles historically lagging 12 months behind the global economy the upturn for the industry in my opinion will be in 2011 or 2012.
"In the past two months, business confidence has fallen in line with a collapse of crude oil prices, especially in Dubai, which in recent years has seen explosive growth in real estate.
"The result has been a considerable slowdown in leisure boat sales, which is also apparent in other Gulf countries – a recent visit to Kuwait has revealed that boat sales have virtually come to a halt.
"There are more than 100 marina developments under construction or planned in the Gulf, making it the most concentrated area of marina development in the world.
"The viability of some of these projects will be affected in the short term, although it is difficult to predict the long term effects or the duration of the current Gulf downturn."
The 17th Dubai International Boat Show has more than 400 boats on display and a 45 per cent growth in its superyacht exhibition.
Spanning 85,000 square metres of exhibition space, it is hosting 721 international companies from 50 countries of which 20 per cent are new exhibiting companies and brands.
Greenline wins Accolade
UAE-based Greenline Yacht Interiors has been awarded the Mega Yacht Interior Design and Manufacturing Team of the Year Award 2009.
The company beat nominations from Europe, the UK and the US to win the accolade from European CEO magazine.
Greenline Chairman and CEO Samir Badro said: "We consistently endeavour to redefine the idea of luxury for the mega yacht sector. Within this exclusive and highly competitive business landscape, we continue to provide turnkey solutions and memorable results.
"To have our efforts endorsed and recognised is truly wonderful."
Greenline Yacht Interiors was established 11 years ago and is a unit of Greenline Group, with the parent company being Greenline Interiors, founded by Badro in 1976.
A Greenline spokesman said: "This award recognises Greenline Yacht Interiors as one of the market leaders in offering services within the yacht interiors industry.
"The selection panel used a wide range of criteria such as innovation and originality, market leadership and project management ability to inform its decision over its 2009 Corporate Lifestyle Awards." (Staff)