Leading hospitality, timeshare and fractional leaders all across the country express concerns over business during these hard times. However, they believe some sectors will stay afloat and find opportunities in deep recession.
The sentiment that banks don’t trust other banks and the rates are still high was expressed in the discussion . Greater pressure on underwriting, in times of uncertainty make them stay focused on customers. There is also greater worries particularly where housing dropped dramatically like in Florida and Arizona where timeshare is widespread business.
“Amid the financial situation, our industry thrives in the context of consolidation; but with what is going on, with very little money coming, people are focused on making their operations work and that acquisitions don’t vaporize. Running operations are difficult because there is little money,” said Steve Weisz, president, Marriott Vacation Club International.
Ronald Goldberg, president, Wellington Financial, said on the lending front, long-term investment relationships have been impacted; the US and the worldwide consumer will have to ride this storm out longer.
Other countries are holding up. Steve Rushmore, president HVS International said situations in debt financing in the US are dire, but countries like Brazil never had the financing structures anyway – they’ve traditionally drawn from their own resources. They get from local funds and provide all the capital to get the job done. “They are doing okay. In times like these, there are a lot of opportunities like bad debts – in that one has to be creative with financial searches. Pension funds in the US, a lot of insurance companies with good balance sheets may be ready to step in. It’s just a matter of looking at different markets. There is migration to international sources of capital – sovereign wealth funds such as the Middle East.” Rushmore added they will see more public companies go private.
Sources are drying up fast due to nervousness in the marketplace. Rushmore said there is real illiquidity in the market that increases tension in some potential global marketplace.
Timeshare is adapting well. Craig Nash, president and CEO, Interval Leisure Group, said when a developer comes to an exchange company, the market has to adjust. “And historically, we have been able to get through the tough times in the country. On the international front, in places like Dubai (where developers don’t have to deal with this) and Mexico (where developers have their own cash reserves), the timeshare business is still ongoing. Brands pay attention today to where properties are located and the demographics of the market,” he said. The West Coast market customer is most impacted by the softening in the market. In contrast, independent and branded property developers are doing much better on the East Coast and Mexico.
Nash said creative developers are packing new reservations; developers are building in new markets and outsourcing some jobs. Weisz said it’s tough to develop hotel component at this point in time. “To take over, renovate and upgrade may be easier. When lenders have dropped out, others come in and take over. There are plenty of opportunities for development, right now,” Nash said.
There will be continued growth in timeshare. “It’s very different because other times of recessionary environment were business-led. This recession one is consumer-led. Only time will tell how long it will take for this to turn in the other direction. Having a timeshare component is the best complement any property can have in weathering any storm in a typical business cycle,” said the Textron Financial head.
Though today banks don’t trust providing each other banks to lend money, customers will still buy. The way timeshare is sold is different, in comparison with other businesses during a time of wild downturn, added Nash.
Hawaii is doing well in timeshare, though severely impacted by the drop in inbound seats coupled with the economic situation. Weisz said there’s 88 percent occupancy for Hawaii’s timeshare. People who bought timeshare are still going to vacation in “paradise.” They may have to revisit sometime, because their decisions were made when the economy was great and inbound business was great.
In difficult times, in the cruise industry, the biggest obstacle is not putting the ship out to sea, but costs, said Peter Yesawich, CEO of Ypartnership. Cruise vacations, which were before sold for $999 now sell at $149. Operations will have a tough time to cope. A crisis strategy has a very positive impact response in this period.
Rushmore feels the outlook towards the lodging industry remains robust until 2015. “The worst downturn we felt was in the ‘90s. The demand decline may go on for maybe one to two years. But the beauty of what we’re going through right now gives an edge to the supply side. So if a developer has a project operating or selling at this time, he will not be worrying about competition in the next 3-5 years. When we do come out of this downturn, things will be very good as far as the travel industry coming back with a vengeance.” On top, the Chinese and the Indians will be coming to the resort areas and cities in the US after the market turns the corner. He believes inbound tourists have shown resilience in some difficult times.
To the new arrivals in the industry, this is just a wonderful time. “Opportunities will be abundant. Crisis comes with threats, which we perhaps have focused on too much. But crisis always comes with opportunities. This will be a constant reminder on caring for marketing to customers. We have to focus more on sales and marketing opportunities than sales and marketing costs. In a depression, it will be a different story of course,” said Kenneth Chupinsky, CFO, The ASNY Corporation.
We see ebbs and flows all the time. Organizations who weather the storm come out better, brighter and stronger on the other end. Rushmore believes that whoever is elected should not only promote travel within the US but also encourage traveling into the US.