To date, the fifteen Disney Vacation Club resorts have already lost more than 4 million points worth of villa availability to COVID-19 with no immediate end in sight.
Your beloved 2005 Honda Civic will not start. Despite the 175,000 miles on the odometer, you have painstakingly cared for it since the day it entered your life: oil changes, tire rotation, all of the required preventive maintenance. It has responded with 15 years of flawless service.
But now, something is wrong. Your mechanic agrees that there’s a problem. Unfortunately he cannot give you an accurate repair estimate. It could cost $500, or $5000 or some number in between. In your mind, the price is critical to deciding whether to repair the old beast or put the money toward something new. Nevertheless the mechanic wants an answer on how to proceed.
Disney Vacation Club faces a similar dilemma thanks to COVID-19. Members seek answers regarding the status of their points, but like the hypothetical Honda owner, DVC is in the difficult position of not knowing how big of a problem they face.
Timeshares are built on the concept of near-100% occupancy year round. The traditional timeshare model enabled developers to sell weeklong stays for each room they build. With 52 weeks on the calendar, most developers would sell 51 of those weeks, leaving each room vacant for one week per year to perform maintenance. Each of the 51 owners would have their designated week to use the accommodations.
Points-based timeshares operate under the same concept with nightly point costs assigned to each room, providing owners greater flexibility in the timing, location and duration of their stays.
Disney's Saratoga Springs Resort & Spa represents a little over 14 million points. That is the number required to book every room for every night of the year. Disney Vacation Club is able to sell about 13.75 million points to owners, retaining the other 2% for periodic maintenance on each villa.
The problem COVID-19 has created is that Saratoga Springs no longer has enough availablity to accommodate the use of all points for 2020. Between the March 20, 2020 closing of all Walt Disney World resorts and April 10, Saratoga Springs has lost 904,570 points worth of accommodations. There are still about 13.75 million points in circulation but only 13.1 million points worth of villas for the year. And the problem worsens with each day Saratoga Springs remains closed.
Prior to 2020, the longest known resort closure occurred in 2016 when Hurricane Matthew forced Disney's Hilton Head Island Resort to close for 21 days. From October 5-26, Hilton Head lost about 91,000 points worth of villa availability. Disney Vacation Club's maintenance holdings amount to at least 27,000 Hilton Head points, which could be combined with a modest amount pulled from elsewhere in the system to absorb the lost weeks.
If the Disney parks and resorts remain closed through May 31 as many expect, Saratoga Springs alone will lose more than 2.8 million points worth of its availability. That's more than 20% for the year. Extrapolate that across the roughly 67 million declared points in all fifteen Disney Vacation Club resorts and the availability shortfall would exceed 13 million points.
The anticipated Coronavirus availability losses are already daunting, and Disney Vacation Club must prepare itself for the possibility that resorts will not reopen on June 1st.
DVC is currently allowing some exceptions to its normal point management rules. Reservations are being cancelled without placing points in Holding. Points that have been borrowed from a future Use Year are being returned without penalty.
What they are not currently doing is allowing owners to bank points beyond the normal timeframe, within the first eight months of the Use Year. They also are not extending the date of points set to expire while the resorts are closed. Given the availability losses cited above, it should be apparent why they are forced to draw a proverbial line in the sand.
Is there any hope for owners who stand to lose points? Yes, there is. Point usage is not as straightforward as what we previously laid-out. Even under normal circumstances, Saratoga Springs owners would not use exactly 13.75 million points in 2020. The challenge to DVC is to examine a variety of factors and consider whether the system can withstand having additional points reinstated. Here are some of the things they will likely consider:
Number of Points that go Unused Annually: This may be difficult to comprehend but not all owners use their points each year. The number of unused points is a total mystery. For the sake of argument, lets assume it is around 3% of all points. If so, DVC doesn't actually need 67 million points' worth of villas to satisfy everyone. Instead it is closer to 64 million.
Lockoff Premium: When determining how many points it can legally sell, DVC counts all Lockoff Two Bedroom Villas as a two bedroom unit. However, these rooms can actually be booked separately as a Deluxe Studio and One Bedroom Villa. At most resorts, the cost of the Studio + One Bedroom is higher than the Two Bedroom. This higher combined cost, which some have dubbed a "lockoff premium," indirectly provides some wiggle room in availability.
As previously cited, Saratoga Springs has about 14 million points available with up to 13.75 million in the hands of owners. However, if all 432 of its Lockoff Two Bedroom Villas were booked separately as a Deluxe Studio and One Bedroom Villa, the total point cost to book all villas across the entire year grows to about 14.9 million points. This "lockoff premium" helps create additional capacity by charging more for the two halves of the lockoff villa.
Delaying Refurbishments: Saratoga Springs is in the midst of a lengthy refurbishment project. Other resorts slated for refurb over the next two years include Aulani, Disney Vacation Club Villas, Boulder Ridge Villas at Disney's Wilderness Lodge and Villas at Disney's Grand Floridian Resort & Spa. During a refurbishment, DVC uses its ownership stake to remove blocks of villas from inventory. Delaying these projects--perhaps for several years--would increase the number of rooms available to owners.
Declaring More Inventory at Disney's Riviera Resort or Aulani: As DVC is actively selling a resort, its points--and the corresponding rooms--are gradually added to the timeshare program. Right now only 98 the 341 vacation homes at Riviera are available to owners. The other 243 villas are not available for timeshare reservations. According to our best estimates, about 1/3 of the 460 rooms are Aulani are undeclared. Adding more of those villas into each condominium association would give DVC members more rooms to book, helping to absorb more points once all resorts reopen.
However, doing so reduces the number of rooms Disney can rent to cash-paying guests, which is normally their right when dealing with unsold DVC properties. In effect, this move would result in Disney sacrificing its own revenue to help accommodate DVC owners.
Banking and Borrowing: It goes without saying that point banking will increase in the coming years. The number of points available to use starting in 2020 will exceed availability. Over the next several years, owners will be organically forced to roll their points forward in response to the lack of rooms. The banking feature enables DVC to essentially spread the effect of the COVID closure over several years.
Meanwhile, each resort's Public Offering Statement gives DVC the right to temporarily suspend point borrowing. If deemed necessary, DVC could suspend borrowing for the next several years to prevent owners from bringing future points into years where demand is already certain to exceed availability.
In light of this dramatic loss of resort capacity, DVC's first responsibility is to ensure that there is enough availability to resonably accommodate all points in circulation. When it comes to booking, first-come, first-served will still rule. Availability will be more scarce than in recent memory, and many may be forced to bank their points from 2020, 2021 and beyond if they find they cannot secure an acceptable villa.
DVC's current COVID-19 position statement bears this out, stating:
Some Members may have questions about reservation cancellations involving Points that are set to expire soon. At this time, we are evaluating the banking and expiration policy and the use of certain Points impacted by the closures. As a part of our evaluation process, we need to be considerate of the impact any changes could have on future inventory availability for the Membership overall. A decision will be made when we better understand how long COVID-19 will impact our operations.
Ideally we would like to see DVC restore some or all of the points that owners are currently poised to lose, particularly points that expire on March 31 and May 31. But until DVC has a better understanding of how long the closure will last, it is impossible to make that commitment.
Admittedly the Honda Civic is an imperfect analogy. (Honestly, I’ve yet to come across any perfect analogies when it comes to timeshares.) Still we cannot ignore the reality that Disney Vacation Club is being asked to offer solutions to a problem without knowing exactly how large the problem will prove to be.
There are other things Disney could do to accommodate owners, like expanding availability at non-DVC resorts or giving some sort of cash equivalent compensation for lost points. Most of these moves represent a financial commitment on the part of The Walt Disney Company. It is money they are not legally obligated to spend to support unplanned downtime among each Condominium Association.
As a Disney Vacation Club owner for nearly 18 years and close follower of the company, my personal opinion is that Disney will eventually do something to compensate owners for unplanned point losses. But they require additional time to fully asses the length of the closure--along with the near-term impact of COVID-19 on resort and park operations--before they can settle on a workable solution.
Thanks to Wil Lovato for assistance!