By The Numbers... Best case scenario availability will be bad for next 3 years, worst case as much as 9 years

[Hjs33]

I’m a numbers guy so I started thinking through the potential implications of the closures on future availability.

Extra Points:
There is currently about 68 million declared points, so every week the resorts are closed means an extra 1.3 million points go unused and will affect future availability. Let’s assume conservatively the resorts will be closed 10 weeks. That’s an extra 13 million points. I know some people are losing their points, but this is mostly limited to just those who have April and June use years and happen to book the last couple of months before their use year anniversary. Everyone else should have been able to cancel and bank, rebook, or transferred to RCI. So I think it’s at most about 1 million points that are being ”lost”. But this still means a 10 week closure will drown future inventory with 12 million extra points.

Extra Room Inventory:
Due to the 2 bedroom lock off premium, the resorts end up with more room nights than can be used by the owners points. Disney then rents these rooms out for cash and part of that goes towards paying resort expenses, but Disney keeps most of it. I did a rough calculation and realized that if all the 2 bedrooms were broken up into studios and 1 bedrooms it would create about 3.8 million points available for Disney to rent out. Now not all rooms get broken up, but given the high demand for studios I believe most of them do. Let’s say 70% are broken up and that would create about 2.7 million points that become available for Disney to rent out. In addition, some points just expire every year due to neglect or error. Let’s say it’s about 2%. That would add about 1.4 million points available to be booked. Together this means that if Disney stops selling these breakage points as cash rooms, there‘s a potential 4.1 million extra points a year that can absorb the extra points that are going to flood the system.

Availability and Dues Implications:
Availability will look bad until all these extra points are absorbed. Let’s assume it’s a 10 week closure and that’s 12 million extra points. If Disney stops selling cash rooms with the breakage(lock off) points I think it’ll take about 3 years for it to normalize (12 million / 4.1 million). If Disney keep selling the cash rooms with the breakage points it will take about 9 years to normalize (12 million / 1.4 million). Also if Disney stops selling the breakage points, everyone’s dues would go up about .15 to .20 as Disney passes some of that value back to the owners.

Scenario 1: Disney stops selling cash rooms using the breakage points until system is back in balance in 3 years and everyone pays .15-.20 more per point in dues for those 3 years.

Scenario 2: Disney continues selling the breakage points as cash rooms. Everyone keeps the breakage benefit for those 3 years but availability is bad for the next 9 years.

I’m hopeful Disney will do the right thing and go with option 1, but it’s a lot of money they would lose over those 3 years and I think they will most likely go with option 2. They could also create some other option where everyone could use the points for something else to absorb the points. Not as good a value as booking rooms(think cruises or booking other non DVC resorts), but that will still cost DVC something as nothing is free. I guess we’ll be able to tell if they chose option 1 if we see our dues go up do to the breakage offset in our dues going away.

I know there are several assumptions in my numbers, but let me know if anyone thinks of anything I might have missed.

 

[i<3riviera]

͏

 

[zavandor]

Given the choice, would you either:
A) pay $10,000
B) do nothing, no consequences.

Anyone would choose B. Which is also what Disney would because it's the logical choice. And it's not even unethical or evil, it is what it is. They do not have to do anything, as many have said in other threads, this is a Timeshare, buying we have accepted (knowingly or not, not important) the risks of a Timeshare so Disney doesn't have to do anything that cost them money.

But, given the choice, would you:
A) pay $10,000 now and receive every year $10,000 for the rest of your life
B) do nothing

I would guess in this case the choice would be A) for everyone, it's called "investing" and it's a pretty good one.
Disney is not yet in this situation, but owners could put them in it, just with word of mouth. What if you search on the internet DVD and the first result is: "it will be very difficult to use DVD for years because of the consequences of Coronavirus, people are losing their points, do not buy".
Then Disney loses his golden egg goose. Suddenly putting their hands in their pockets wouldn't seem like such a bad idea anymore.

Especially since I think for a while they'll have lower occupancy at their hotels as well.
A simple thing would be to revise the point exchanges for hotels to make them reasonable, and open them to everyone, for one or two years. That would help burn quite a bit of points in a year when occupancy could be very low due to a recession and fear.

 

[i<3riviera]

͏

 

[CraigInPA]

I believe your analysis is the first I've seen that takes into account the "sliding window" theory that most unused points are banked forward, and then used the next year, with the then current year unused points banked forward until the next year.

However, your belief that the rooms will be used for cash stays ignores the greater economic and social issues. How many people will be out of a job for some period of time because the public is afraid to go into a restaurant or travel? How many small businesses will go out of business because the public's habits have changed? Will some large employers, like the car companies, hotel businesses, and even companies like Mears (who operates DME) survive the extended closures intact or will they shed jobs? Will people want to travel in the next year, of will their fear of a resurgent COVID-19 prevent them from planning travel until such time as a vaccine is available?

I think, in the next year, there will be a tremendous amount of lost points as people aren't willing to book 7-11 months ahead and, lacking a demand in the rental market (if that even survives), allow their points to expire.

 

[Hjs33]

excellent analysis! Tim and Wil did some number crunching as well and came up with similar assumptions and results...
https://www.dvcnews.com/other-resou.../4734-disney-vacation-club-s-covid-19-dilemma

Thanks for linking that article. I had not seen it, but glad someone else was thinking about it the same way and came up with similar numbers.

 

[Hjs33]

I believe your analysis is the first I've seen that takes into account the "sliding window" theory that most unused points are banked forward, and then used the next year, with the then current year unused points banked forward until the next year.

However, your belief that the rooms will be used for cash stays ignores the greater economic and social issues. How many people will be out of a job for some period of time because the public is afraid to go into a restaurant or travel? How many small businesses will go out of business because the public's habits have changed? Will some large employers, like the car companies, hotel businesses, and even companies like Mears (who operates DME) survive the extended closures intact or will they shed jobs? Will people want to travel in the next year, of will their fear of a resurgent COVID-19 prevent them from planning travel until such time as a vaccine is available?

I think, in the next year, there will be a tremendous amount of lost points as people aren't willing to book 7-11 months ahead and, lacking a demand in the rental market (if that even survives), allow their points to expire.

This is a good point. I do assume that it stays similar to normal periods and a small 2% just have their points expire. With less availability and bad point management a larger percentage could just let them expire. Also fears over traveling might make some people not want to go to Disney this year and they might just let their points expire because they can’t bank any more. But I think this would only affect this next year and then settle back at a more “normal” level. So it might jump up to 4-6% in expiring points for the next year and knock a year or two off my worst case scenario. But we’re still talking 7-8 years of bad availability.

 

[CastAStone]

There is currently about 68 million declared points, so every week the resorts are closed means an extra 1.3 million points go unused and will affect future availability. Let’s assume conservatively the resorts will be closed 10 weeks. That’s an extra 13 million points.

March and Easter are some pretty expensive weeks to lose. I doubt that it’s just 13 million points for these several weeks.

 

[Sandisw]

March and Easter are some pretty expensive weeks to lose. I doubt that it’s just 13 million points for these several weeks.

I don’t think I even thought of that. Two of the 4 most expensive point weeks.

 

[tjkraz]

Scenario 1: Disney stops selling cash rooms using the breakage points until system is back in balance in 3 years and everyone pays .15-.20 more per point in dues for those 3 years.

Breakage isn’t something that is actively created by DVC, rather it’s simply a byproduct of inventory exceeding demand.

Per the POS, rooms are only made available for breakage reservations when they are not booked by members more than 60 days prior to arrival. When reservations go up, there’s less remaining to fall through the system as breakage. That’s not unique to 2020, 2021, etc.

It has been said that DVC uses historical trends and other data to project breakage and release some rooms prior to 60 days. Those projections should take into account the volume of banked points—in this case a dramatic rise—and update accordingly.

I suspect banking and borrowing are rarely in equilibrium from one year to the next. Instead, the volume of banking and borrowing activity will naturally ebb and flow in response to factors like the strength of the economy and pending attraction openings. (E.g.: recession = fewer people traveling and banking goes up; strong economy = people borrow points to travel longer / more frequently; high profile attraction opening 1-2 years down the road = more deferred trips and banking goes up; new attraction opening = higher demand and borrowing increases.)

Bottom line: even though things like the lockoff premium and unused / expired points exist, DVC doesn’t have predetermined rights to any rooms. If sufficient demand exists from members, all rooms declared into the condo association are ours to book (Less maintenance allocation.)

As for the impact on dues, breakage revenue is capped at 2.5% of the operating budget. Every year in recent memory, the breakage revenue has met this 2.5% threshold. We really don’t know how much Disney collects above the 2.5%. Even with increased villa demand, it’s unlikely that breakage revenue will drop to $0. Heck, it may not even drop below the 2.5%.

 

[tjkraz]

March and Easter are some pretty expensive weeks to lose. I doubt that it’s just 13 million points for these several weeks.

I have run some numbers myself and it's a reasonable estimate for the entire program. Using actual nightly point rates, Saratoga Springs stands to lose 2.82 million points' of availability (or 20.1% for the year) over the period March 20 to May 31.

 

[Hjs33]

March and Easter are some pretty expensive weeks to lose. I doubt that it’s just 13 million points for these several weeks.

Agreed, but May is a low point month. So 1.3 million points a week is an average, but it might be ballpark close enough without manually calculating the actual number.

Has anyone ever built out something to calc the actual points by week?

 

[EYL]

Has anyone ever built out something to calc the actual points by week?

I usually go to one of the bigger DVC point rental companies and plug in the dates to see how many points it would cost. Of course, I am assuming that they programmed it correctly. You can calculate the future but not the past, though.

 

[BlueRibbon]

I suspect banking and borrowing are rarely in equilibrium from one year to the next.

Next year was probably going to be a heavy year regardless of Wuhan virus due to the 50th celebration. A lot of members out there banking their points to experience all the new attractions and experiences slated to open in 2021.

Combine this with the virus and all its impact, I can see members only being able to get their home resort next year.

 

[CastAStone]

Maybe with the glut of points people will have after banking someone will actually book the Bungalows. That’ll eat a few hundred thousand points all by itself.

 

[CastAStone]

I’m a numbers guy so I started thinking through the potential implications of the closures on future availability.

Extra Points:
There is currently about 68 million declared points, so every week the resorts are closed means an extra 1.3 million points go unused and will affect future availability. Let’s assume conservatively the resorts will be closed 10 weeks. That’s an extra 13 million points. I know some people are losing their points, but this is mostly limited to just those who have April and June use years and happen to book the last couple of months before their use year anniversary. Everyone else should have been able to cancel and bank, rebook, or transferred to RCI. So I think it’s at most about 1 million points that are being ”lost”. But this still means a 10 week closure will drown future inventory with 12 million extra points.

Extra Room Inventory:
Due to the 2 bedroom lock off premium, the resorts end up with more room nights than can be used by the owners points. Disney then rents these rooms out for cash and part of that goes towards paying resort expenses, but Disney keeps most of it. I did a rough calculation and realized that if all the 2 bedrooms were broken up into studios and 1 bedrooms it would create about 3.8 million points available for Disney to rent out. Now not all rooms get broken up, but given the high demand for studios I believe most of them do. Let’s say 70% are broken up and that would create about 2.7 million points that become available for Disney to rent out. In addition, some points just expire every year due to neglect or error. Let’s say it’s about 2%. That would add about 1.4 million points available to be booked. Together this means that if Disney stops selling these breakage points as cash rooms, there‘s a potential 4.1 million extra points a year that can absorb the extra points that are going to flood the system.

Availability and Dues Implications:
Availability will look bad until all these extra points are absorbed. Let’s assume it’s a 10 week closure and that’s 12 million extra points. If Disney stops selling cash rooms with the breakage(lock off) points I think it’ll take about 3 years for it to normalize (12 million / 4.1 million). If Disney keep selling the cash rooms with the breakage points it will take about 9 years to normalize (12 million / 1.4 million). Also if Disney stops selling the breakage points, everyone’s dues would go up about .15 to .20 as Disney passes some of that value back to the owners.

Scenario 1: Disney stops selling cash rooms using the breakage points until system is back in balance in 3 years and everyone pays .15-.20 more per point in dues for those 3 years.

Scenario 2: Disney continues selling the breakage points as cash rooms. Everyone keeps the breakage benefit for those 3 years but availability is bad for the next 9 years.

I’m hopeful Disney will do the right thing and go with option 1, but it’s a lot of money they would lose over those 3 years and I think they will most likely go with option 2. They could also create some other option where everyone could use the points for something else to absorb the points. Not as good a value as booking rooms(think cruises or booking other non DVC resorts), but that will still cost DVC something as nothing is free. I guess we’ll be able to tell if they chose option 1 if we see our dues go up do to the breakage offset in our dues going away.

I know there are several assumptions in my numbers, but let me know if anyone thinks of anything I might have missed.

What about Riviera? It’s basically still 80%+ unsold, with several million points of built-but-unsold inventory, right? Can’t that absorb a lot of this pretty quickly?

 

[Sandisw]

What about Riviera? It’s basically still 80%+ unsold, with several million points of built-but-unsold inventory, right? Can’t that absorb a lot of this pretty quickly?

It could, as long as Disney agrees to give up the potential loss of revenue from keeping them undeclared.

That is one of the biggest roadblocks we are faced with as DVC owners, Most of the best solutions require Disney, the company, to agree to take the financial hit.

 

[Yinn]

It could, as long as Disney agrees to give up the potential loss of revenue from keeping them undeclared.

That is one of the biggest roadblocks we are faced with as DVC owners, Most of the best solutions require Disney, the company, to agree to take the financial hit.

Even if Disney made it available, there’s significant challenges to just opening points at Riviera.

1) The pool opened is only eligible to blue card members, and Riviera home resorts. How many points would not be eligible here?

2) Riviera is expensive. What’s the avg contract size? I have 75 points I’d be able to use at Riviera, good enough for roughly 2 nights - maybe. And 2 nights is a tough sell to pay for a round trip flights for a family of 4.

Every bit helps, but I’m not sure Riviera would be a silver bullet here.

 

[Sandisw]

Even if Disney made it available, there’s significant challenges to just opening points at Riviera.

1) The pool opened is only eligible to blue card members, and Riviera home resorts. How many points would not be eligible here?

2) Riviera is expensive. What’s the avg contract size? I have 75 points I’d be able to use at Riviera, good enough for roughly 2 nights - maybe. And 2 nights is a tough sell to pay for a round trip flights for a family of 4.

Every bit helps, but I’m not sure Riviera would be a silver bullet here.

Really good points. I didn’t think of that. The RIV POS does give them the ability to change the restriction, but I don’t see that happening for temporary, but then again, right now, the restriction of resale points being used there only went in to place a little over a year ago, so it might not be that many.

But, it doesn’t change the points chart and you are correct, it may add rooms, but rooms that don’t get booked quickly,

Then again, if rooms are there, it absorbs the points in the sense that an owner either books those or loses points,

 

[Maistre Gracey]

It could, as long as Disney agrees to give up the potential loss of revenue from keeping them undeclared.

That is one of the biggest roadblocks we are faced with as DVC owners, Most of the best solutions require Disney, the company, to agree to take the financial hit.

Is that true? I admit I’m not an expert on The Walt Disney Company’s corporate structure, but I thought DVD owned RIV (fronted all the capital), and sells to the Resorts Division the undeclared inventory. IOW, DVD would be taking the hit, (along with the resorts division profit.)

That said, again, I’m not super educated in that area.