Luxury goods pay a high price for falling dollar

After all, every 10 cent rise in the euro rate against the dollar translates into €1bn in extra competitive costs for Airbus. Civil aircraft, like crude oil, are billed in dollars and Airbus has only one competitor, Boeing, which happens to be American. So it is no surprise that Mr Gallois and other European aerospace executives are worried by the continuing strength of the euro.

Until recently, dollar weakness did not seem to bother luxury goods manufacturers too much. Unlike Airbus, they have no Boeing to compete against. And for them, price does not appear to have been a problem. They have relied on those happy few consumers who do not seem all that bothered about price and cyclical downturns in the economy. As a result, luxury goods companies have managed to offset the impact of a weakening dollar, or Japanese yen, by raising the price of their products in these markets.

Yet at his company's annual meeting earlier this year, Bernard Arnault, the head of France's LVMH luxury conglomerate, started sounding like Mr Gallois. He complained that the euro had reached "incomprehensible" levels against the dollar and the yen. He also warned that price rises in important markets could no longer be automatic. In so doing, he openly acknowledged there were indeed limits to how much consumers were prepared to pay for luxury goods. His French rival Hermès, for example, has seen its Japanese revenues fall this year after raising its prices there in January to protect its margins from the weakening yen.

In a note published yesterday on the impact of dollar and yen weakness on PPR, the main French rival of LVMH, Sanford Bernstein analyst Luca Solca warns of the currency headwinds facing the industry. In the specific case of PPR, the analyst is reducing this year's sales growth estimates for the group's luxury division (which includes such brands as Gucci and Bottega Veneta) from 12 per cent to 9.4 per cent. He is also forecasting that the global luxury market will grow by 5.8 per cent next year - down from 6.9 per cent this year - largely because of the considerable uncertainty over economic growth, particularly in the US.

He also believes there is no evidence of the old idea of the happy few propping up the industry even during difficult times. If anything, consumers are becoming much more price conscious. Sure, some high-end consumers will continue to buy. But luxury companies are now relying far more on the so-called "aspirational" segment of the market made up of new, less affluent consumers that are far more sensitive to price.

Of course, luxury goods manufacturers could learn a trick or two from the aerospace industry. Not only in sharpening their lobbying of governments and central bankers, but perhaps by shifting more production to countries such as China and India and learning to live with slightly more modest margins.