When Destination Clubs Collide

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Love is in the air in the nascent destination-club industry. Ultimate Resorts and Private Escapes, the two largest clubs behind Exclusive Resorts, announced their plans to merge this morning. The combined high-end vacation club will watch over 1,200 members and a portfolio of properties valued at roughly $200 million.

Destination clubs don't get the same kind of media attention that lower-priced timeshares and fractional-ownership residence clubs do. When destination clubs are in the news, it's usually when the news is either troubling -- like last year's bankruptcy of pioneer Tanner & Haley -- or it's a small story about two smaller clubs hooking up.

That's a shame. Shortly after Steve Case left the helm at Time Warner's (NYSE: TWX) AOL, he was so love-struck with the destination-club concept that he eventually acquired a majority stake in Exclusive Resorts. His prolific purchase and chairmanship helped transform Exclusive Resorts into the industry leader, with thousands of active members.

Destination concepts aren't cheap. Initial deposits start as low as $60,000 for entry-level clubs, but they typically require an upfront outlay in the six figures. But annual dues do give members access to exotic getaway destinations all over the world.

I joined Private Escapes earlier this year. It wasn't an easy step for a perpetual penny-pincher like me, but I haven't regretted it, either. Sure, we had fun in our Orlando digs, but instead of being holed up in cramped hotel rooms or just settling for our Orlando vacation home, my family's summer travel album is loaded with snapshots of us living it up at a cliff-hugging cottage in Abaco (where NFL Hall-of-Famer Steve Young was a recent guest) and a beachfront home in Providenciales.

The allure of destination clubs is the ability to stay at a variety of properties, with local planners on hand to stock the fridge with your shopping list, secure any reservations, and help with travel arrangements if necessary.   

I have nothing against the more reasonably priced timeshare alternatives. The once seedy industry has cleaned up nicely now that lodging giants including Disney (NYSE: DIS), Hilton (NYSE: HLT), Starwood (NYSE: HOT), and Marriott (NYSE: MAR) have moved in. If you're bored with your timeshare, weeks can be exchanged for stays at other timeshares through companies such as IAC/InterActiveCorp's (Nasdaq: IACI) Interval International. However, destination clubs offer superior homes -- some of them multimillion-dollar digs -- to stay in.

This morning's merger is noteworthy. The industry has already learned from Tanner & Haley's mistakes. Leading players now prefer to own many of their properties rather than get caught in a web of prohibitive leases and holiday rentals. Consolidation is a sound financial approach to make strong clubs even stronger, as long as the industry doesn't become too cookie-cutter for the discerning globetrotter's tastes.