Timeshare industry

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Timeshare ownership has continued to expand as a mainstream travel product. The amount of units sold has climbed in recent years as more companies enter the segment and vacationers are considering timeshare as a viable option in their vacation plans. The downturn in the economy and the banking crisis may cause the numbers to change direction however at this point the most recent figures reported by the timeshare industry have shown an upward trend in sales (State of the Timeshare Industry, 2008).

The growth of acceptance of timeshare has been based on the inclusion of the timeshare segment amongst the major hotel brands. Currently, Starwood, Wyndham, Hyatt, Hilton, Marriott, and Disney all have timeshare proper ties. In 2004, only 12 15% of the timeshares were brands. In 2008 this number has increased to 17%. Sales have been driven up to nearly US$9 billion in 2004 and by 2007 sales were US$10.6 billion annually. Reflected in these numbers is an increase in timeshare owners and weeks/intervals owned. In 2007, 6.5 million weeks/intervals were owned by 4.7 million owners. These numbers reflect the trend that on average a timeshare owner owns more than one week/interval (Understanding Vacation Ownership, 2008).

The incentive of developing timeshare resorts was prompted by the availability of capital to build that has been lacking in the hotel industry. The source of the capital was via the purchasers of the timeshares. Seven out of 10 people who purchase timeshares financed through the developer that funded the building of the resorts. The recent problems in the banking industry in the fall of 2008 have caused banks to become more cautious about their outstanding loans and developers are having a harder time gaining financing to build. The banks that have been loaning money to the resorts have placed higher standards (i.e., credit score, income) on the people who are requesting financing through the developer to make a timeshare purchase. The effects of the decrease in funds available to the timeshare developers cannot be understood at this time because of the timing of these events (Kelly, 2008). The 2008 figures that will be available in late 2009 will show the impact of the financing issues. However, there have been many timeshare companies that have had to lay off or fire employees because of limited amount of capital now available to timeshare companies.

The timeshare owner is a sought after traveler and companies realize the importance of capturing a market of people who stay longer at a destination than the average traveler and make more money. Recent studies show that the median income of timeshare owners is $72,900, whereas the median income for United States households is $50,200 (Understanding Vacation Ownership, 2008). About half (49.9%) of timeshare owners have a college degree or higher and 89.8% own their own home (Vacation Timeshare Owner Report, 2008).

Timeshare is a worldwide phenomenon with over 5000 resorts in nearly 100 different countries. Just over one third of these resorts (31%) are located in North America, 25% in Europe, and 16% in Latin America (where Mexico leads with 40% in the region). Asia houses 14% of these resorts (Organisation for Timeshare in Europe, 2008). There are emerging markets in the Middle East (5% of the 14% figure) in places like Dubai. Dubai passed in 2008 regulations for the time sharing industry (AME Info, 2008). Other countries in Asia where the timeshare business is becoming increasingly prominent include Japan, Thailand, and India. The growth internationally has been aided by the increase in capital available for development and education into the economic impact of the development. Countries that do not want to give up prime property to failing development approve of the positive numbers seen in other projects.

The most obvious growth in the timeshare industry has been in the fractional, private residence club, and destination club segment. This segment is geared to the higher income clientele. Brands include the Four Seasons, St. Regis, and Ritz Carlton. These companies offer high end villas that are sold in larger fractions than one week increments that exist in the timeshare industry. Prices range from $100,000 to more than $500,000, depending on the size of the fraction, the size of the residence and location. Along with the cost of the ownership the owners pay an annual homeowner fee, which ranges from $8000 to $25,000. The attraction is that the owner has the benefits of second home ownership without all of the maintenance hassles and receives services such as daily housekeeping and on site restaurants and health spas (Halogen Guides, 2009a).

Destination clubs are an innovative and growing concept in the luxury vacation industry. The destination clubs focus on having a variety of homes/villas for members to select from that include five star amenities and services. Companies tout that for less than the costs of owning and maintaining a single second home, members pay a refundable membership deposit and have access to a portfolio of homes and villas throughout the world. Destination club member ship fees range from $300,000 to $500,000. The average deposit across all 25 destination clubs is $405,000. The membership fee allows the member to book a certain number of nights per year from as few as 10 nights to over 40 nights per year. The average amount spent per night in a destination club home averages $1800 a night. The selling point is the quality and size of the offerings. The average destination club home value is valued at $2.7 million (Halogen Guides, 2009b).

Beaches continue to be marketable attractions. In 2007, 45.7% of the resorts in the United States had a beach onsite and/or nearby the resort. Outdoor sports and activities still play a big role in the attractiveness of a timeshare resorts’ location. Accessibility to golf courses is most common amongst timeshare resorts. Resorts that have golf courses onsite and/or nearby totaled 82.4% of all timeshare resorts. Resorts that identified themselves having country/lakes nearby and/or onsite totaled 31.9% (State of the Timeshare Industry, 2008).

The reasons behind purchasing and why owners continue to own timeshares units in the United States include the location of the resort. The location of the resort was rated by 59.6% of timeshare purchasers as very important. Over all flexibility; use different locations; unit sizes; and times of year were rated by 58.6% of time share owners as very important. Save money on future vacation costs were rated by 56% of owners as being very important. Certainty of quality accommodations was rated 52.5%. Exchange opportunity with other resorts through the same company was rated 46.6%. Exchange opportunity with other resorts through external exchange company was rated 46.2% (Vacation Timeshare Owner Report, 2008).

Resorts continue to have a mix of guests and high occupancy. Owner/owner’s guest represents 51.7%, exchange guests represent 18.2%, renters represent 8.7%, and marketing guests represent 1.5% of the resort’s occupancy, respectively, leaving 19.9% of the resort vacant (State of the Timeshare Industry, 2008). The trend that owners are more likely to stay at their home resort instead of exchanging continues. Most timeshare owners stayed in their home resort (68.2%) instead of exchanging for another one (31.8%) in 2007 (Vacation Timeshare Owner Report, 2008). Owners are likely to use their timeshare. Half of the owners (50.3%) use their timeshare personally, 16.7% exchanged, 14.9% banked for future use, 9% left unused, 4% rented to others, 2.6% gave away to others, and 2.5% stated no time available in past 12 months (ARDA, 2008).

The hesitations about purchasing cover a wide range of reasons from the location of the resort to clarity of the exchange option. However, the primary reasons for hesitation to purchase include: do not make same day purchases (62%), possible future maintenance fee increase (61%), price (60%), and concerned about annual maintenance fee (56%). The issue of not making same day purchases is a larger issue in the mind of consumers over price and maintenance fees (ARDA, 2007). Most owners take more than one tour before they purchase so the typical buy it today mindset that has been held in the timeshare industry may be counterproductive.

Timeshare owners continue to be satisfied with their ownership. Almost85 percent (84.8%) rated their ownership experience as excellent, very good, or good. However, there is a discrepancy between the percentage of owners who are satisfied and whether they would recommend that friends and families become owners at their home resorts. Sixty four percent would make recommendations (ARDA, 2009). Resort owners should look at what causes the disparity based on the importance of referrals in timeshare sales.

Most US timeshare owners own 1 week of timeshare (72%). However, an increasing number own 2 weeks (19.3%), 3 weeks (6.2%), and 4 or more weeks (7.9%). As the timeshare product continues to evolve the standard fixed week plan is decreasing in popularity. The fixed time share plan constitutes 29.8% of all timeshare weeks. The floating weeks (33.8%) and points systems (33.8%) offer the flexibility that more owners are seeking (Vacation Timeshare Owners Report, 2008).

Most bedroom configurations at resorts still contain more two bedrooms (49.7%) than any other type followed by one bedroom (27.7%), three or more bedrooms (17%), and studio (5.5%). There has been an increase in larger units based on the increase in popularity of traveling with friends and family. A large percent of owners (72.3%) agreed to the comment that owning timeshare also allows them to vacation with friends or family who may not be able to afford a vacation on their own (Vacation Timeshare Owners Report, 2008). Most timeshare owners travel with their spouse/significant owner (79.6%), children under 18 (23.4%), family (19.7%), children over 18 (15.1%), and friends (13.9%) (Vacation Timeshare Owners Report, 2008).

The average price paid for an annual week of timeshare use in the United States was $14,200 per week in 2003 and this average increased to $20,331 in 2007 (Financial Performance, 2008). However, the recent financial crisis and the increase in the size of the resale market could lead to stabilization or perhaps a decline in this average price. A small percentage (11.9%) of timeshare owners stated that if they were buying another timeshare then they would purchase it new through the developer (Vacation Timeshare Owners Report, 2008). An important cost that needs to be taken into consideration when attempting to lower the sales price will be the marketing and sales cost. A high portion of each timeshare sale goes to sales and marketing costs (40 60%). Brands tend to be at the lower end and independents tend to be at the higher end of these percentages (Financial Performance, 2008).

Most timeshare buyers in the United States indicated that they are married/domestic partner (78.1%), and 21.9% were listed as single. Almost, one in four owners has children living in their home (23.6%). These numbers show that the owners are less than more likely to be traveling with children. There still is demand for children’s activities at resorts but more focus needs to be centered on adult activities. The average age of owners is 52.6 and almost half (49.7%) of owners are 55 or older (Vacation Timeshare Owners Report, 2008).

Over half of the timeshare owners live on the east coast (53.5%) with 21.5% heralding from the northeast (Vacation Timeshare Owner Report, 2008). Florida continues to have the largest percentage of timeshares (34%), Hawaii (8.6%), California (8.3%), South Carolina (7.4%), and Nevada (4.4%). Therefore the top five states comprise more than half of the resorts (62.7%) (State of the Timeshare Industry, 2008).

The popularity of the timeshare industry has in part been based on the money that enters the community via timeshare development. The latest economic impact figures include that the US timeshare industry contributed an estimated US$92 billion to the US economy in 2005 (Economic Impact of the Timeshare Industry, 2006). This number included US$62 billion in consumer and business spending; 565,300 jobs (full and part time) over US$21 billion in salaries, wages, and related income. Communities are most interested in the tax revenue measured at almost US$8.5 billion (Economic Impact of the Timeshare Industry, 2006).

The timeshare owner is more likely to stay longer in a community (average length of stay is 8.1 nights in the resort area) resulting in a higher amount of money spent. The average US travel party spends $1,768 in the local economy during its visit on average. The total number of time share trips taken is 5.7 million resulting in close to US$10 billion spent by timeshare owners in their travel (Economic Impact of the Timeshare Industry, 2006). The maintenance of the time share properties in the United States contributes to the local economies as well. Annually time share owners pay US$3.9 billion in maintenance fees to maintain and operate their resorts. Much of this money is spent in the local community through contract work for repairs and other services needed to upkeep the resort property.

The high occupancy rates help communities maintain a stable economy. Timeshare developers focus on areas that lend to year round occupancy resulting in a more sustainable tourism enterprise. Timeshare resorts on average run 80.1% occupancy (State of the Timeshare Industry, 2008). During the latest tourism downturn Hawaii timeshare resorts reported 17.8 28.5% higher occupancy rates than hotels during the second quarter of 2008 with the highest occupancy rate occurring in Kauai (94.4%) and the lowest occupancy rate occurring in Maui (84.7%) with a state wide average of 88.6% (Dugan, 2008).

The state of the timeshare industry throughout the world is at a crossroads. There has been a steady growth during the last few years. However, today there is a perfect storm facing the industry. The banking failure in fall 2008 in the United States has created worldwide problems attaining financing that is necessary for an industry requiring a constant flow of banking capital. This lack of available funding trickles down to the time share consumer who may not be able to qualify for financing for a potential timeshare purchase. The last issue of the perfect storm facing the timeshare industry is the economic downturn has caused people to become more cautious in their spending patterns based on the uncertainty of their financial future. This economic crisis has put many projects on hold until the economic climate looks better. A major issue that will shape the future of the time share industry will be how the industry bounces back from the current economic crisis. Other influences that will shape the industry will be the impact of the baby boom generation retiring and the millennia / generation Y entering the market as timeshare consumers.

References

Economic Impact of the Timeshare Industry. Prepared for ARDA International Foundation by Price Waterhouse Coopers (2006).

Financial Performance. Prepared for ARDA International Foundation by Price Waterhouse Coopers (2008).

State of the Timeshare Industry (2008). Prepared for ARDA International Foundation by Ernst & Young.

Understanding Vacation Ownership (2008). American Resort Development Association publication.

Vacation Timeshare Owners Report (2008). Prepared for ARDA International Foundation by Synovate.

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