Luxury hotels have taken a beating this year in the wake of Wall Street's bailout by the U.S. government. Financial and other firms are canceling meetings and corporate conferences so as not to appear to be spending excessively. Hotel executives are not optimistic for the luxury segment in 2009 either.
Our timeshare business was particularly hard hit by the economic climate. Contract sales of our core timeshare product declined 37% during the quarter while sales of our fractional and residential products were negative reflecting $150 million of sales reversals related to anticipated contract cancellations at three luxury projects.
We have the least optimism around [the luxury] product class. That product class is more like whole residential. As a consequence it is more likely to be sticky in a weakened demand environment and will take some time to come back. Therefore of all the possibilities in the future we think the likelihood of starting new luxury projects any time soon is very, very slim.
We don’t expect that we will start many core [residential] timeshare projects either in the near term but we are hopeful we will see demand come back to the point where returns have improved significantly and that business can go forward. That certainly is much more possible to happen sooner than the luxury fractional does.
Having said that in January where we have the Ritz-Carlton product we were pleasantly surprised by some of the fractional volume we saw and I think it gives us some optimism for the year. Partly that is a function of these resorts reaching opening... They are easier to sell obviously when they are right there before you.
WSJ notes that government seems to be taking up some of the slack for luxury travel. That may not last too long in the court of public opinion:
Corporate customers from relatively higher rate paying financial services firms are being supplanted by lower rated corporate and government business.
We have cancelled pre-development projects and don’t expect to start any new projects in 2009.
As we look ahead beyond 2009 U.S. hotel supply growth is likely to substantially trail demand recovery. This is the reverse of the situation we will encounter this year but it is clearer than ever that the brakes on new construction are being and will be applied more dramatically than ever before. This is not likely to change for some time.
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