You can’t blame Holiday Inn Club Vacations for acting like it’s in the catbird’s seat of the timesharing industry. Parent IHG was one of the last mega-brand companies to enter the vacation ownership segment, doing so just a year ago, and it did it using a model radically different from other hotel brand companies.

“While other timeshare companies have had to scale back in the past year, we’ve moved ahead and have been able to achieve higher tour flow (up 14 percent this year) and sales,” says Christian Hempell, vice president, new business delivery and growth planning for IHG, in the Americas. “It proves the power of the Holiday Inn brand and Orange Lake management expertise and our marketing channels.”

Last December, Holiday Inn and Orange Lake Resorts launched HICV, an alliance that leverages IHG’s and Holiday Inn’s brand power and Orange Lake’s quarter-century of expertise in timesharing. What makes the partnership more poignant is the two company’s share a common legacy: the late Kemmons Wilson founded both Holiday Inn and Orange Lake, and his family still operates the timeshare business. The alliance originally covered the massive Orange Lake resort in Orlando, but earlier this year five other properties east of the Mississippi were added to the portfolio.

“The alliance represents the best of both public and private company business models,” says Hempell. “It enables IHG, the public company, to earn fees while doing what it does best and that’s acting as a powerful marketing engine. Orange Lake’s expertise is in financing, selling and operating timeshare resorts so being a private company gives it the ability to make long-term strategic decisions.”

According to Orange Lake President & CEO Don Harrill, the success of the alliance will enable it to grow through acquisitions in the coming year and beyond. “We plan to stay in an acquisition mode and begin to look westward,” says Harrill. “Our targets are Las Vegas, Hawaii and perhaps California.”

THE CREDIT CRUNCH
While HICV enjoys its early success, it’s been a time of transition for many existing branded and independent timeshare development companies. After years of double-digit sales growth and increasing consumer acceptance, the vacation ownership industry hit a speed bump last year. Industry sales in 2008 were down 8.5 percent to $9.7 billion, and revenues could drop another 30 percent this year, reports the American Resort Development Association.

And while the state of the U.S. economy—job losses, the bursting of the housing bubble, etc.—didn’t help the industry, it’s been the stagnant credit markets, not a loss of consumer interest, that has punished many timeshare companies.

“The media has portrayed our difficulties as a demand problem, but that’s not right,” says Howard Nusbaum, president of ARDA. “In reality, it was the freeze in the credit markets that has made the industry unable to continue to do business as it had been.”

The credit crisis dried up most financing for new timeshare projects. But more critically, the credit squeeze effectively shut off all receivables financing, the common practice by many vacation ownership developers of bundling and selling consumer purchase loans to lenders who assume the loans and give an immediate discounted cash return to the developers. In recent years, this process became the primary cash flow and profit source for many developers.

The closing of this monetization tap forced many companies to curtail some or all loans to purchasers. The hotel-branded timeshare companies have been hit particularly hard. Marriott, Starwood and Wyndham effectively put a halt to much of their timeshare sales machines, resulting in sharply lower revenues (Wyndham says its timeshare sales will be down 40 percent this year) and profits, the closure of sales operations (Starwood shuttered nine sales centers) and layoffs of thousands of workers, including many sales personnel.

Independents haven’t been immune, either. Westgate Resorts, the giant timeshare company based in Orlando, furloughed more than 4,000 workers. And to add to its pain, earlier this year Westgate agreed to pay a $900,000 fine to settle a Federal Trade Commission investigation over alleged violations to Do-Not-Call regulations. Another casualty: Consolidated Resorts, a Las Vegas-based timeshare developer, filed for bankruptcy in July.

RETRENCH AND ADVANCE
The timeshare industry has reasons for optimism, however. Because of the pre-paid nature of the vacation ownership product, owners tend to use their weeks or points, even in tough times. According to ARDA figures, timeshare resorts have enjoyed occupancies above 80 percent this year, even as the traditional hotel industry struggles to hit 60 percent. Wyndham Vacation Ownership says it saw no decline in resort occupancy for the first half of the year, even though it added 1,300 units to its portfolio in 2008.

“Even in the darkest hours, people are still vacationing,” says the always-optimistic Nusbaum. “With timehsare, you bought it, so you’re going to use it.”

Demographics favor long-term growth for the industry. An in-depth study of timeshare supply and demand commissioned by Group RCI shows 56.6 million households in the U.S. with incomes above $50,000 that don’t own a timeshare unit. Assuming a 10-percent penetration of that market, and the propensity of timeshare owners to buy additional weeks or points, existing vacation ownership demand is an additional 4.1 million units or about $100 billion in sales, according to the research.

Perhaps more heartening is how many timeshare companies have reacted to changing market dynamics. They’ve revamped sales and marketing techniques to cut expenses while targeting more attractive prospects; many companies are retooling their business models to rely on development profits rather than securitization; and with little new development on the horizon, some well-positioned companies are seeking acquisitions of timeshare properties or companies and examining opportunities in conversions of condos, condo hotels and second home complexes caught up in the residential real estate collapse.

Scott Berman of PricewaterhouseCoopers told a timeshare conference recently that the industry has done a better job in controlling sales and marketing costs, lowering the industry average from about 50 percent of sales to 43 percent.

“We need to get back to the basics in sales and marketing,” said Jay Digiulo, president of Boutique Club International at the Vacation Ownership Investment Conference in September. “Scrutinize every marketing program and process, assign each one a value and only focus on those that produce.”

Many developers are honing in on potential buyers who are better credit risks and are able to put up higher down payments. At the same time, many buyers rent timeshare units before buying (48 percent of buyers, according to Interval International research), making them more familiar with the product and less likely to exercise rescission clauses in their sales contracts.

“It’s time to stop talking about sales and instead talk about profitability,” said Starwood Vacation Ownership CEO Serge Rivera at VOIC. “This requires a stronger focus on relationship selling and the willingness to test new marketing ideas."