Time for timeshare

Written by Anirudh Vohra | Updated: Aug 3 2014, 06:53am hrs
After a spell of relative obscurity, the timeshare market in India is witnessing a burst of activity. Club Mahindra, the leading player, has just announced the acquisition of a Finnish holiday company, while the other major player, Sterling Holidays, had earlier announced a strategic merger with Thomas Cook. The twin deals would suggest that the timeshare industry is starting to eye a bigger slice of the tourism pie.

The Mahindra Holidays & Resorts India (MHRIL) agreement with the shareholders of Finland-based Holiday Club Resorts Oy allows the company to acquire 18.8% of its stake, with a right to increase its ownership over the next two years. Holiday Club Resorts Oy has 32 resorts, 24 located in Finland, two in Sweden and six in Spain. Seven of these resorts have spa hotels with indoor water parks, three have golf courses and five offer indoor theme parks for children.

For existing MHRIL members, it means an expanded horizon. Says Arun Nanda, chairman, MHRIL: The merger will give our existing and future members an opportunity to visit a different country. It is for the kind of tourist who has either already shopped in Milan, seen the Eiffel Tower, been to Disneyland or doesn't care about it; its geared more towards a family experience, as the properties have golf courses and theme parks too.

As of now, existing Club Mahindra members will be permitted to use the new properties owned by Holiday Club just as they use the Club Mahindra properties, depending upon the availability of rooms. Other details are to be worked out after the acquisition is completed. Meanwhile, the company is also looking at expanding its domestic footprint by adding 500 rooms in the country within the next 18 months, with an investment of R500-600 crore. The company, part of the Mahindra Group, has around 1,71,000 members and operates 43 properties across India and abroad, totalling some 2,500 units.

Club Mahindras rival, Sterling Holidays, also took a giant stride by its merger with travel giant Thomas Cook earlier this year. The proposed merger with Thomas Cook and the resultant fresh injection of capital will further strengthen Sterlings market position and allow us to accelerate the pace of expansion into new holiday destinations, says Ramesh Ramanathan, managing director, Sterling Holidays.

The timing is significant. The vacation ownership industry was growing at an average of 15% per annum, as per reports. However, the major players were adversely impacted by the economic slowdown. As per a report by Edelweiss Securities, the slow pace in inventory addition and customer dissatisfaction led to a drop in membership addition and increased cancellations. Member addition fell from 20,420 in 2008 to 17,489 in 2013.

The timeshare players have been enthused by the new governments focus on building the tourism industry in India, and with economic sentiment on the upswing, the industry is expecting a boost in the growth of vacation ownership sales. The membership acquisition has been disappointing, as we sold less than 25,000 memberships in the last quarter, but the turnover has increased significantly, says Nanda of MHRIL.

What is vacation ownership

Vacation ownership or timeshare is a property with a particular form of ownership or use rights. These properties are generally resort condominium units in which multiple parties hold the rights to use the property, and each sharer is allotted a period of time. Units may be on a partial ownership, lease, or right to use basis, in which the sharer holds no claim to ownership of the property. While the vacation system became popular after World War II in Europe, in India, the concept was introduced only in the 1990s, with Sterling Holidays and Dalmia Resorts International being the pioneers. It wasnt a very auspicious beginning though. As per a report by Crowe Horwath HTL Consultants, In the past, Indian timeshare companies failed to deliver on their promises and lost customer trust as a consequence.

Dalmia Resorts International went bust a few years after it started operations, while Sterling Holidays went through difficult times. MHRIL, which has more than 160,000 members and began with an initial investment of R18 crore in 1996, was a late entrant in the space. Sterling Holidays also faced customer resistance for not meeting expectations after promising much with an initial burst of explosive growth soon after its 1986 launch. The company started turning around after private equity firm Bay Capital Partners invested $13.8 million in 2009.

The bottomline was clear: in the timeshare space, trust matters the most. Further, prospective customers want to be assured that the company will be around for at least 25 years, so that newlyweds, for instance, can dream of holidays with their children. In that context, a company like MHRIL, which is part of the Mahindra Group, one of Indias largest and most dynamic corporate entities, brings credibility and a level of trust.

Apart from that, the vacation ownership model has some unique advantages. For one, its a debt-free model, as customers pay for 25 years of holidays upfront. The funds raised from the sale of vacation ownership membership plans are used for the expansion of the resort and the holiday destination network, expanding inventory to bring in more members. Second, vacation ownership companies see better year-round resort occupancies, as members tend to holiday more to utilise their membership fully. Currently, the total number of vacation ownership memberships sold in India is approximately 0.4 million. Also, while the biggest players in the industry are Club Mahindra, Country Club and Sterling Holidays, there are several other smaller regional players.

Formula for success

One of the keys to timeshare resort success is location. Club Mahindra, one of the market leaders, started in 1998 with its first resort in Munnar, the popular hill station in Kerala located in the Western Ghats. Today, the resort map includes places in Goa, Binsar Valley, Mussoorie, Nainital, Kanatal, Sikkim, Corbett Park and Thekkady, while it also has resorts abroad in Bangkok and Dubai.We have seen that from our portfolio, the resorts people pick the most are the ones we built ourselves and not the ones we acquired like Munnar, Coorg and Goa, says Nanda.

Mahindra Holidays divides its memberships into four categories: purple season, for those who prefer to travel during festivals, national holidays and events like New Years Eve, which are classified as exclusive for purple members; red season, if you prefer holidaying during the peak season, that is, school or college vacations and the weeks around festivals, or who want the option of holidaying almost through the year; white season, which means weeks that arent really peak season, but cannot be classified as off-season eithera time when most of the regular tourists have gone back to work and there is some measure of peace at most destinations; and blue season, for holidaymakers who just want to get away for some peace and quiet, or holiday during the monsoons.

Club Mahindras current membership charge for the basic offering (one week every year at its studio apartment in the off-season for 25 years) is R1,99,999 and the annual subscription fee is around R12,500. For a similar package, Sterling Holidays charges R1,80,000 as membership and its annual subscription fee works out to be around R10,000. Both offer EMI options. Sterling also has resorts in popular destinations like Manali, Corbett Park, Mussoorie, Ooty, Yelagiri, Yercaud, Darjeeling, Goa, Lonavala and Bhutan.

Sterlings focus is on tapping the immense potential in the Indian timeshare market. We have already expanded our inventory from around 1,200 in 2011 to approximately 1,750 rooms now. We do plan to evaluate expanding to neighbouring countries, but our primary focus will be on India, says Ramanathan. Sterling also has an exchange arrangement with the RCIa leading global timeshare exchange networkfor stays at its affiliated resorts in India or abroad.

Gearing up for more

As per industry sources, the timeshare industry is ripe for expansion, and is now looking to tap NRIs. Mahindra is planning to expand its business by tapping the Indian diaspora in countries such as UAE, the UK and Africa, as per company officials. Sri Lanka is a clear candidate. And as the market evolves, we would evaluate having a bigger presence in Malaysia and the rest of Thailand and if we find tens and thousands of people going to Europe, we will certainly evaluate it, a company spokesman says.

Clearly, the timeshare market is at an evolving stage. As per HBJ Capital Securities, the real challenge still remains customer satisfaction and retention. So far, that has sent mixed signals. Says Anurag Chadha, a Gurgaon resident, I have been a part of Club Mahindra for the past five years and it suits me, as my kids get to spend a week at a resort, indulging in fun activities other than visiting their grandparents annually.

Yogesh Saxena, a Mumbai-based businessman, has a different take. Taking a Club Mahindra membership was a waste for me, as its really hard to find a room at the time and resort of my preference. In case I wish to go out for more than the free week covered in the package, I end up paying much more than I would have paid at a normal resort, he explains.

The contrasting views suggest the timeshare model is not for everyone, but for those who know how to play the odds and pick the right type of membership and vacation time, it is an idea whose time has come.