Desties

posted by Desties on Jan 6

The luxury travel industry came to a bumpy finish in 2008, as falling real estate prices and waning interest — and ability — to invest six-figure deposits in superior vacation experiences left their marks.

Rather than look back at the year that was, let’s take a look at how 2009 will play itself out. I have a few predictions. Let me know what you think.

1. Consolidation will continue, at the hand of the hospitality giants

It’s inevitable. The shakeout of weaker clubs started last year and will continue until either the economy improves or just the self-sustaining operators are left. This is the kind of environment that is ripe for sector consolidation, but who will do the buying when the credit markets are tight? By the end of the year, you will see the fractional and interval giants like Ritz-Carlton, Marriott, and Disney swooping in. They want into this sector, and it’s going to be a lot cheaper to buy an established club with a dedicated member base to learn the industry from the inside out than to start from scratch. 

2. Deposit hikes are history, for now

Remember the days when fast-growing clubs would hike their initial deposit fees to shake potential members off the fences they were straddling? That is unlikely to happen in the near-term. Clubs will simply move to temporary promotional incentives or offer to grandfather new members in with old perks as a way to rattle observers into action.

3. The 3-to-1 member redemption ratio will be toast 

During its glory days — circa anything leading up to the summer of 2008 — clubs could get away by offering to redeem exiting members on the resignation list once three new members signed up. That won’t work on either end these days. Resignations are likely to pile up in a recession. New memberships will be harder to come by. Some clubs have supposedly been quietly implementing a 1-in, 1-out plan to help clear up the bottleneck at the exit turnstile. Now that clubs are shoring up their annual fees and slashing expenses to be self-sustaining enterprises, it makes sense that the new member to resignation ratio go to 2-in, 1-out, or even 1-in, 1-out.

4. More clubs will follow Ultimate Escape’s lead in creating luxury hotel and resort partnerships

Cutting overhead will mean increasing the member-to-property ratio. The solution to avoiding frustrating availability levels will be deals where clubs broker great rates to have members exchange their plan nights at third party destinations. The entire luxury travel industry is smarting, so everyone wins in that scenario. Clubs will also ramp up the use of seasonal rentals for peak travel periods.

5. There will be more failures, but the industry will close out 2009 stronger than it started

There will be more failures in the industry. Some will get scooped up by larger players, while others will not. However, real estate prices should stabilize by year’s end. This doesn’t mean that prices will head higher. That aspect of the DC model is toast for at least several more years. However, new memberships will begin trickling in once the dust settles and bigger names move in to validate the industry while educating the country on the concept. Larger clubs will introduce concepts like club-financing at attractive rates, broadening the reach of the market. It will be a bumpy 2009, but it will be worth it in the end.

Again, these are just predictions. If I’m way off on some — or all — of these, blame my crystal ball.

Tags: destination clubs