In theory, and in practice, we have come to know – especially in this economy – that everything seems to relate to everything else.

Here are some miserable stats of the travel and luxury products industry:

• Estimated airline losses in Q4-08 were $4 billion, significantly higher than first expected and leading to a total 2008 loss of $8 billion, according to a Monday report from the International Air Transport Association.

• Monday, luxury-jewelry retailer Tiffany & Co. reported a 76% plunge in fourth-quarter profit, hurt by sales declines across all geographies and by restructuring charges. The New York-based company said that worldwide sales so far in the first quarter have declined more than 20%, and noted that its go-forward plans assume challenging economic conditions throughout the year.

The deflation of travel and fancy stuff can be easily seen, but looking at the decline of sales volume numbers in 2008 garnered from the three major segments of the shared residence industry underscore losses even further. According to Dr. Ragatz' survey results, active fractional interest (FI*) projects diminished in number from 84 in 2007 to 77 in 2008, Private Residence Club projects shrank from 69 in 2007 to 61 in 2008, and Destination Clubs 21 in 2007 to 12 clubs in 2008. The overall percentage decline across all fractional industries - fractionals, destination clubs and private residence clubs - was 34%. 

Breaking the categories down even further, for fractional interest products, sales were down 46%, PRC sales were down 24%, and Destination Club sales were down 43% from 2007. These numbers, garnered from 2008, tell of a nicer story than we are living with in the first and second quarters of 2009.

Many who attended the Ragatz Fractional Interest Conference did so this year out of a sense of loyalty, certainly, but also out of a sense of curiosity: this was the time to attend a conference whose themes have reflected expansive growth and optimism in years past. But this year, many of the 350 plus attendees were new to Dr. Ragatz; “I have looked at the attendee list, and I only know about two-thirds of them. In past years I knew almost everyone. This defines new blood, resourcefulness, curiosity – all good in times like these.”

The sense of renewed resourcefulness showed itself especially with those involved in fractional marketing. They knew strategies had to change, and are moving away from old messaging. “You cannot fool the marketplace in times like these”, says RJ Gallagher, Sales and Marketing Director for The Residences at the Little Nell in Aspen, “Fractionals are a creative way to own a second home in an elite location. The fractional offering is gaining traction as an accepted real estate transaction. As financing becomes more available, we are in pretty good shape. We have to learn from the present and apply to the future.”

Applying lessons learned also deals with the changing perspectives of the vacationer. As Jim Whitteron, President of Spring Creek Partners a high-end fractional consultation firm, said, “The needs and wants of the fractional owner/vacationer in 2006 are not the same as in 2009. Now, potential owners are more skeptical, they know about the destination club bankruptcies, they know about the economy, and they take fewer – though sometimes longer – vacations. They want to own a piece of a club or a residence – they don’t want to lose money like so many destination club members did. Their needs and wants are just as strong, but they want honesty, transparency and a good deal also.”

Along with the educative aspects of this conference, there was a certain irony also regarding the Destination Club industry. The only representative person who spoke at this conference was Jeff Potter, CEO of Exclusive Resorts. Exclusive is the largest, best-funded and most well-known of the non-equity based clubs, with a redemption rate of only 4%. If someone at the conference heard Jeff – an engaging, optimistic speaker – and knew nothing else about the Destination Club industry, he/she would think there were no problems at all.

But the fact is, three bankruptcies of three major Destination Clubs, LUSSO, Solstice and High Country, have upset the delicate balance of the non-equity based destination club industry to a great degree. Those left have had to re-calibrate their companies by levying special assessments (Ultimate Escapes) and expanding their annual dues commitments (Quintess). The equity based clubs, Abercrombie & Kent Residence Club, and Equity Estates are doing moderately well, as the members own equity stakes in the clubs.

If there is one thing (and there are many) the destination club bankruptcies have done to the industry, it is a renewed interest in the high-end fractional and equity-based Destination Clubs. Reasons are understandable: many families who have money still want vacations, want to own a share of the club or of the residence of their most beloved destinations. Thus, they are looking twice at products within the industry that will allow an equity stake in either.

Dan Ruda, a developer from Thousand Hills in Branson Missouri, put these issues in the most basic, pastoral way: “I am here because of bad times, and I believe in the fractional model. I see it this way - if you have a cow, you have two options: If you milk her regularly you will get something. If you don’t milk her at all, the milk will dry up and you get nothing. So, it is the same way with this and most everything else. I am here because I expect to get something. If I didn’t go, I wouldn’t get anything.”