Partners in time
Holiday ownership, period ownership or vacation clubs - the hotel giants are doing all they can to avoid using the word timeshare. The tactic is understandable, because underhand sales and marketing tactics in the past have tarnished the image of what started out as a brilliant idea - that of paying in advance for future holidays.
"Don't rent the room, buy the hotel" was the slogan used successfully in 1964 to sell the first timeshare scheme, at Superdevolvy in the French Alps. From its start in hotels, timeshare moved to the USA, more particularly Florida, where it was used to help sell condominiums during an economic downturn. Now, 30 years later, it is the fastest-growing segment of the travel and tourism industry, and its image is also on the up.
There are now more than 5,000 resorts worldwide accommodating well over four million timeshare-owning families. The industry represents nearly 12% of the entire British package-holiday market and, despite the marketing problems and related bad publicity, recent surveys have shown that the great majority of timeshare owners are satisfied with the product.
Bad practices have recently been outlawed following the implementation of EU legislation, and the entry into the market of respected hotel companies has also helped to change consumer perception.
For hoteliers, one of the biggest attractions of a timeshare operation is the occupancy rate. There is little seasonality in timeshare, and year-round occupancy is estimated at more than 83%, compared with 60% in the hotel industry generally.
The timeshare side of the business can also help boost occupancy levels in the hotels themselves. By using a points system, under which points can be traded for hotel accommodation, demand can be tailored to fit the supply. The same number of points could buy two weeks in the low season, one week in a shoulder season or, say, three days at peak time.
Such a system offers the public flexibility, allowing them to make different holiday choices each year while enabling hoteliers to even out seasonal fluctuations.
Marriott International offers its timeshare owners several ways of using their holiday allocations. They can take their allocated week; swap it for another at a different time of year; exchange it for Marriott Reward points and use these on a range of leisure options; or rent out their week. If they have a larger apartment, they can use part of it themselves and lock off the other part so it can be rented out.
Alternatively, they can exchange through Interval International (II), one of the two major exchange organisations operating worldwide.
It is flexibility like this that has helped Marriott Vacation Club International (MVCI), the holiday ownership arm of the Marriott business, to achieve 15% growth in the last financial year. MVCI now claims to be the world sales leader in timeshare, with 50 resorts in 28 locations and more than 175,000 holiday owners on its books.
Hilton International offers a similar package for members of its timeshare business - the Hilton International Grand Vacations Company (HIGVC). Guests can choose to take their allotted week; have their apartment rented out; exchange it for hotel accommodation; or swap it for a resort in the USA managed by the US Hilton Grand Vacations Company. And if that is not enough choice, they can always exchange through Resort Condominium International (RCI), the other major exchange bureau.
Hilton International inherited three timeshare resorts in Scotland after acquiring Stakis, and these generate about 1% of the company's overall profit. Plans for up to six new timeshare resorts - three in the UK and three overseas - are expected to increase profits by a further 2%. These will be either timeshare accommodation built next to existing hotels or new-build hotel-and-timeshare complexes.
Creating timeshare accommodation next door to a hotel is a growing trend for this sector and brings both extra profits and cost savings. The timeshare-owning clientele contributes to the costs of maintaining the leisure facilities through an annual management or maintenance charge.
Also, all the indications are that the bars and restaurants will be busier. The fact that users of the resort have prepaid their accommodation expenses usually means they have more available to spend on site. Hilton's holiday owners spend, on average, £115 per lodge per week on food and drink in the adjacent hotel.
It may work for the larger groups, but what about smaller, stand-alone hotels? Conventional thinking is that to be cost-effective, there need to be at least 15 units or suites capable of conversion to timeshare. Fewer than this would be unlikely to produce the economies of scale.
However, smaller hotels are usually more susceptible to seasonal vagaries, and timeshare can help to level these out, which not only helps cash-flow and the bottom line but also assists with staff continuity.
One independent property considering timeshare is the Crieff Hydro hotel in Perthshire, which already has self-catering guests in separate apartments.
"In a week's stay, those self-catering visit the hotel at least twice and their spend on food and beverage is higher than those staying in the hotel - they see it as more of a treat," says Alison Dalton, group sales and marketing manager.
The Crieff Hydro, which comprises a 220-bedroom hotel and 28 self-catering apartments, has planning permission for a further 70 units. The decision now is whether to make them self-catering or timeshare - what Dalton calls "period ownership". Existing guests will be surveyed to gauge potential for sales and see what loss of revenue to the hotel there might be. Either way, the outcome will not be known until at least 2003.
Entering the timeshare market is a huge decision. The biggest pitfall is that once a hotel has decided to go down this route and has sold its first apartment, it is difficult to turn back unless it is prepared to buy the holiday owner out.
It is not a business venture suited to all hotels. Timeshare requires capital and top administration and management. The initial costs are high, but the rewards can be good.
The big players are confident that their name alone will help to erase any doubts consumers may have about timeshares.
"Unscrupulous sales and marketing practices had given timeshares a bad name, but one of the advantages of a brand like Hilton is it gives an indication of the service and standards and stability," says Ken Thomson, marketing manager for HIGVC.
The hotel companies have adopted a softly-softly approach when it comes to timeshare sales. A significant source of sales is the hotel guests themselves, beguiled by the thought of returning year after year and helped along with a subtly placed brochure extolling the virtues of buying accommodation. Between 35% and 40% of the Hilton's timeshare sales come from hotel guests, and 30% of Marriott's timeshare sales come from existing owners or referrals. Marriott is planning to use its hotels more to promote its timeshare business, but Sarah Turnbull, public relations executive, says: "We won't be going down the hard-sell route."
Owners who trade timeshare weeks through the two exchange organisations - RCI and II - can bring extra marketing opportunities for the hotelier: if the new guests enjoy their holiday, they may want to buy into the resort.
Such a subtle approach to selling timeshares is a far cry from the telephone tactic of telling unsuspecting consumers they have won a holiday but could they come and discuss it first before they pick up their prize. Those days could soon be over, and it will be the quality hotel companies that are partly to thank for raising standards and giving timeshares a better image.
Hilton
The Hilton International Grand Vacations Company has three resorts in the UK:
Hilton Craigendarroch, Aberdeenshire - 99 one- to three-bedroom lodges.
Hilton Coylumbridge, Inverness - 61 two- to three-bedroom lodges.
Hilton Dunkeld, Perthshire - 16 two-bedroom lodges.
It plans to make an announcement later this year about a potential six new timeshare projects - three in the UK and three overseas. The first could be opened by the end of this year.
Marriott
Future timeshare resorts to be opened by Marriott Vacation Club International include:
Phuket, Thailand, in December 2001.
Disneyland Paris, France, in September 2002.
Denia, southern Spain, in November 2002
Timeshare facts
There are 5,300 timeshare resorts worldwide.
There are more than 4.4 million timeshare-owning families.
Sales of timeshares have risen to a projected $6.7b (£4.7b) in 1999 from $1.7b (£1.2b) in 1984.
The average number of weeks owned per holiday owner is 1.6.
There are some 1,400 timeshare resorts in Europe - 40% of which are in Spain, followed by Italy and France.
The USA has 32% of all timeshare resorts.
The year-round occupancy rate in holiday ownership resorts is estimated at more than 83%, compared with 60% in the hotel industry.
Sources: RCI, II, OTE and Marriott International
What is timeshare?
The basic concept is that of paying in advance for future holidays. It is the sharing of residential units either on a weekly basis or, more frequently now, through the ownership of points, with common concurrent ownership. All the timeshare owners contribute to the expense of running the resort, and the management is undertaken by the owners themselves or, more often, contracted out to management companies. Alternatively, if the scheme is located next to a hotel, the hotel manages the scheme.
The most common legal structure in the UK involves a club trustee. In this, the landowner or hotelier lets the accommodation units on long leases to an independent trustee, who holds the property on trust for the timeshare occupiers. This provides security for the owners of the timeshare, as the main asset is put beyond the reach of creditors. The downside for the landowner is that, by granting the leases, the property's value as a security is reduced.
The landowner will normally form a club and retain the right to sell club membership and, thus, occupancy rights. These sales form the first income stream for the project. If the landowner provides finance to would-be buyers, that can produce a second source of income.
A further safety mechanism for the timeshare buyer is that the purchase price is usually paid to the trustee, who will hold this in a separate account and will not release the money to the landowner until the project is completed and ready for occupation. This, although protecting the buyer, can create potential cash-flow difficulties for the landowner or hotelier.
Contacts
The Organisation for Timeshare in Europe
15-19, Great Titchfield Street, London W1P 7FB
Tel: 020 7291 0900
Web site:www.ote-info.com**Resort Condominium International
Tel: 01536 310101
Interval International
Tel: 020 8336 9300*
Additional information: Keely Harrison* Tim Bourne is a partner at Stones Solicitors, Exeter, a firm specialising in the travel and leisure industry. Tel: 01392 666777, fax: 01392 666770, e-mail: mail@stones-solicitors.co.uk.
Chestertons (Commercial Agents) and Stones are planning an introductory seminar on timeshare this autumn. For more information call Barbara Trotter on 01392 666827.
