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Timeshare industry hopeful amid current economic downturn

Written by editor

Orlando, Florida (eTN) – Despite the global economic hardship, the timeshare industry is currently looking up with numbers reflecting only slight dips, compared to other tourism-related businesses tha

Orlando, Florida (eTN) – Despite the global economic hardship, the timeshare industry is currently looking up with numbers reflecting only slight dips, compared to other tourism-related businesses that report historical lows.

Although timeshare sales last year registered a small drop of $9.9 billion from $10.6 billion in 2007, numbers look promising in the months ahead.

At the ARDA 2009 Convention & Exposition held March 29 to April 2nd, the American Resort Development Association (ARDA) has indicated a level of stability and vitality built on a solid foundation of steady prices and increased interval sales, going forward. Based on the ARDA International Foundation study conducted by Ernst & Young LLP, out of 2008’s 1,660 timeshare resorts (with average size of 117 units) making up total of 194,000 ownership units within the US, sales in 2008 (showing negative 8.8 percent growth) was reasonably decent despite the major real estate crash. Resorts have grown 1 percent in size (as measured in units). Units went up by 7.2 percent.

Joseph Callender, senior manager, Ernst & Young, painted a less-than-negative picture for an industry that maintains a better posture than others have in the meltdown. He said that in 2008 the average interval price was $19,900 (up from 2007’s $19,216) with maintenance fees going up slightly to $619 from $575 per interval. “Overall, we noticed a compounded annual growth rate (CAGR) of 6 percent across the board for sales price (annual total and average interval). Most popular resort types were beach, country/lakes, ski, golf resort and coastal in descending order with states like Florida (23 percent), California (9 percent), South Carolina (7 percent) and mountain (18 percent) enjoying popular votes.

Some added good news: timeshare resorts reported 80.4 percent occupancy in 2008 from 2007’s occupancy of 80.1 percent, compared to an average of 63.2 percent in the lodging industry. Although recorded occupancy growth for all lodging is slightly higher – 3.7 percent for 2008, timeshare’s minimal 1 percent growth showed higher annual total occupancy rate, said Ara Aryan, manager Pricewaterhouse Coopers

“The highlight of timeshare in 2008 is that, occupancy remains extremely robust. Hotels, in this economy, would kill for 80 percent occupancy at the resort. But timeshare did it making up the numbers with owners and guests, and some renters/ exchangers which may have not been looked at before [the recession],” said Jorge Boone, senior vice president, Business Development, Group RCI, pointed to a 2008 Q4 erosion of $700 million after an uptrend from previous quarters. He added, “Though it is not as dire as earlier suggested, the industry will continue to contract in 2009.”

Jon Fredricks, president Welk Resorts, said, “We’ve seen lately a slight traction in the number of sales. We will continue to see that trend much more in 2009. In these challenging times, many of us who are willing to learn a lesson and continue to lead will find a number of innovations to get the business in shape. It’s a very exciting time to be in the industry.”

However, Fredricks referred to some negative growth in timeshare seen on the RevPar (revenue per available room) side of the business. “And in the future sales will decline on planned basis; future financing capacity will drive growth and contraction; consolidation will continue. Developers will be focused on reducing debt, maintaining cash and advancing their balance sheets. Management will be more involved; inventory will be a priority. Developers assisted retail action will decline and will put more stress on the secondary market. This business will attract new lenders and will assist existing lenders,” he said adding that developers who have high margins in sales and marketing and have strong balance sheets will survive.

In these troubled times, consumers will still like the product particularly when they can use timeshare to connect with loved ones. Lenders will return to the industry, attracted by only high yields and strong business models.

“We’re going back to basics and it’s all about margin,” said Michael Finn, vice president Resort Solutions, Diamond Resorts International. He said frontline acquisition will be much difficult so stay close to the internal database and in-house program. On top, it will be all about taking care of CAP (Customer, Associates and Profits). “Take care of the timeshare owners and make them want more and more; get everybody sold on the program. Because to today’s customer, value equals benefit in this slowdown,” Finn said adding, “It truly is a tough time but show the guests just your presentation – but not too much. Make it a little bit better and get better training.”

Finn added that timeshare owners who took their vacation last year just got their return on their investment that is “a lot more that they got from stocks or real estate. Let them think that because people who may not have even looked at time-share but making half a million dollars today may now be looking at timeshare. The business is out there if we are willing to work hard,” he said.

Economic impact measured in 2008 shows impressive results with timeshare-related trips totaled at 7.2 million trips in North America for 2008. Boone reported that the average spend of guests in 2008 was over $2000 (with 81 percent locally spent). Average number visitor per party is 3.4. At the close of 2008, timeshare spends were placed at $77 million, generating 588,000 jobs, at salaries of $25 billion and contributing $10 billion to tax revenues.

Timeshare appears prepared to weather this storm, no matter how long.