Soaring accommodation prices could be good news for ‘destination club’ models – and that could spell an opportunity for travel firms
Your humble columnist and Panmure Gordon’s top travel analyst Gert Zonneveld have at least one thing in common.
I can’t boast a Dutch background or the same level of knowledge about the travel industry’s business structure but both of us have young families and both of us find the cost of leisure accommodation absolutely prohibitive.
Many moons ago after interviewing Gert about Ryanair’s business model (and its plans to hand money back to its shareholders) we joked that if nothing else the Irish operator was largely true to its brand in providing cheap air travel (most of the time) to its less than adoring fan base.
Cheap is not a word I’d use to describe the other main cost element of most family holidays – the accommodation. Air travel costs have collapsed but accommodation costs appear to be rocketing.
Of course mass market hotel chain operators such as Travelodge and Premier Inn lull us into the idea that £19.99 bargains abound, but in my experience these prices have very little relevance except for business travellers in the middle of the week in motorway locations.
Book at a family orientated hotel in the UK or Europe and the costs shoot past £200 per room per night, sometimes per person, for anything half decent.
In my experience well-serviced family accommodation now comprises well over 80% of the total cost of a decent family summer holiday.
We all know where this cost inflation is coming from, yet no-one seems to be offering an alternative, outside of the big travel groups and their bulk buy deals.
One traditional alternative is suffering a slow and very painful death. The second home abroad was, for many middle class families, the only sensible way out. You didn’t “waste” countless thousands every year on an expensive hotel over which you have no control – instead you ploughed that money back into paying for a nice little French farmhouse.
That was the theory I certainly signed up to, but I can say now, without the slightest hesitation, that it doesn’t work. The kids get bored of going to the same place every year – “Daddy, Samantha’s friends have been to Spain last year and Florida this year – why can’t we!” – and the real costs in terms of time and bother are huge.
House maintenance is, trust me, a veritable pain in the ass. We’ve just sold our house – at a small profit thank god – and I know of many others desperate to do the same thing.
Which leaves us in a pickle – go shopping in the online accommodation market, or trust in the mass market packagers?
Another alternative might start taking shape over the next few years, one which both tour operators and agents might want to think about engaging with.
Last week in this column on I mentioned Geoffrey Kent of Abercrombie and Kent’s successful Residence Club model. In passing I mentioned that business was brisk but I probably understated its importance – for Mr Kent this is a big part of his future.
According to the Abercrombie and Kent founder, as people come out of this recession they are “analysing seriously their second homes” and opting for a pooled or fractional ownership model a la his destination Club.
It is by far his “hottest and biggest” product, and apparently uptake of the $300,000-plus service in the first few months of 2010 has already exceeded the total for 2009.
This buzz is echoed by one of Mr Kent’s former business partners, David Rogers at a company called Rocksure.
The travel industry veteran is now pioneering a fascinating model which involves wealthy types such as accountants, lawyers and CFOs investing between £50,000 and £200,000 in a range of property syndicates that then buy into a pool of luxury, serviced villas around the world.
This equity based model is similar to The Hideaways Club but marketed at a slightly more humble crowd, and with a clearer syndicate ownership structure.
Moving further down the wealth ladder we’ll also see a profusion of fractional ownership structures emerge in the next few months. Some will be based on something approaching the old timeshare model, others the Rocksure ownership model, and yet more closer to the Holiday Property Bond model, where there’s no direct link between the investment and the properties but the backing of a general insurance bond (business is booming here as well).
Middle class consumers want some choice in the range of properties they can access, as well as proper service when they get there, plus some sense that this is an investment in an expensive product which isn’t entirely being flushed down the drain.
The fractional ownership sector is certainly limbering up to supply this demand, in part because the fears surrounding the old timeshare model are fast fading away but also because the real estate industry now has a glut of properties it is looking to shift using innovative new financial models.
The pitch is also increasingly simple – give us between £20,000 and £50,000 and we’ll give you access to a range of serviced, well maintained properties in which you also have some investment potential.
The actual model might be a hotel club or the Rocksure full equity ownership model – both have a place but the missing ingredient is the channel. Who’s going to sell this product?
Step forward the existing travel industry chains and operators. Many were undoubtedly burnt by the time-share disasters of old but a huge opportunity awaits for those with the right brand, and the right product set.
Provide me with a model where my accommodation money is not seen as a wasted expenditure but a potential investment for the future, and give me excellent service and I’d suggest there are hundreds of thousands of potential customers out there, many flushed with cash from having sold their second homes.
Anyone up for the challenge?