Q4 2023 Travel + Leisure Co Earnings Call

Participants

Michael A. Hug; CFO; Travel + Leisure Co.

Michael D. Brown; CEO, President & Director; Travel + Leisure Co.

Brandt Antoine Montour; Research Analyst; Barclays Bank PLC, Research Division

Charles Patrick Scholes; MD of Lodging, Gaming and Leisure Equity Research & Analyst; Truist Securities, Inc., Research Division

Chris Jon Woronka; Research Analyst; Deutsche Bank AG, Research Division

Dany Asad; VP & Research Analyst; BofA Securities, Research Division

David Brian Katz; MD and Senior Equity Analyst of Gaming, Lodging & Leisure; Jefferies LLC, Research Division

Isaac Arthur Sellhausen; Research Analyst; Oppenheimer & Co. Inc., Research Division

Joseph Richard Greff; MD; JPMorgan Chase & Co, Research Division

Presentation

Operator

Greetings. Welcome to Travel + Leisure Fourth Quarter '23 Earnings Call. (Operator Instructions) Please note, this conference is being recorded. I will now turn the conference over to Michael Hug, Executive Vice President and CFO. Thank you. You may begin.

Michael A. Hug

Thank you, Sherry, and good morning to everyone. Before we begin, we would like to remind you that our discussions today will include forward-looking statements. Actual results could differ materially from those indicated in the forward-looking statements, and the forward-looking statements made today are effective only as of today. We undertake no obligation to publicly update or revise these statements. The factors that could cause actual results to differ are discussed in our SEC filings and in our earnings press release accompanying this earnings call.
And you can find a reconciliation of the non-GAAP financial measures discussed in today's call in the earnings press release available on our website at travelandleisureco.com/investors. This morning, Michael Brown, our President and Chief Executive Officer, will provide an overview of our fourth quarter full year results and outlook. And then I will provide greater detail on the quarter, our balance sheet and outlook for the rest of the year. Following our prepared remarks, we will open up the call for questions. With that, I'm pleased to turn the call over to Michael Brown.

Michael D. Brown

Good morning, and thank you for joining us. As you saw from the press release, we had a solid finish to the year with fourth quarter adjusted EBITDA of $240 million, a 7% increase over the prior year. Adjusted diluted earnings per share was $1.98, inclusive of a $0.37 income tax benefit, which Mike will discuss. Excluding this benefit, our adjusted EBITDA -- adjusted earnings per share growth would have been 24% over Q4 2022. Our full year 2023 results reflect an intense focus on organic execution, delivering 5% year-over-year top line growth, 6% year-over-year adjusted EBITDA growth to $908 million, 10% adjusted EBITDA growth in vacation ownership, our core business segment, reflecting strong consumer demand for our product and great execution by our teams and 26% adjusted EPS growth over the prior year.
Excluding the Q4 tax benefit, our adjusted earnings per share growth would have been 18%, reflecting in part our strong continued commitment to share repurchases. For the second consecutive year, we returned approximately 15% of our market capitalization to shareholders. That brings our cumulative capital return to shareholders since spin to over $2.1 billion.
Now let me review the operational highlights from the quarter and full year and touch upon how we're positioned for growth in 2024 and beyond?
I'll begin with our core business, vacation ownership. In a year that demonstrated the stabilization of domestic leisure travel demand, our VOI business delivered fully to the 2023 guidance that we laid out last February. Gross VOI sales in the fourth quarter increased 4% year-over-year to $540 million with a VPG of $3,058. For the full year, gross VOI sales increased 8% year-over-year to $2.15 billion with a VPG of $3,128, we delivered both gross VOI sales and VPG at or above the middle of our 2023 expectations, a credit to our sales and marketing teams.
Tours increased 17% year-over-year in the fourth quarter and 18% year-over-year for the full year. We made great progress last year in sourcing and securing new owners. As we mentioned in last quarter's call, we have been investing in new owner marketing channels, focusing on both additional marketing packages for future stays as well as adding new off-premise marketing locations. The results have been strong with new owner transaction mix improving 330 basis points in the fourth quarter and 240 basis points for the full year.
In our experience, new owners in the system spend on average an additional 2.6x their initial purchase during their ownership, giving us a large, reliable revenue pipeline. Our receivables portfolio continues to perform well. The portfolio grows naturally with sales, but we are accelerating that growth somewhat while maintaining our tightening credit standards to help offset higher interest expense.
We expect the provision to remain below 19%.
Turning to Travel and Membership, we reported fourth quarter adjusted EBITDA of $52 million, above the range of $45 million to $50 million we shared on our October third quarter call. We completed our cost realignment during the quarter and feel confident that we have rightsized the business to execute our plan and fully leverage future opportunities. With these changes, we expect Travel and Membership adjusted EBITDA to grow low single digits in 2024, providing recurring revenue, high margins and strong free cash flow.
In addition to strong organic execution in 2023, we were excited to announce the acquisition of the rights to the Sports Illustrated Vacation Ownership business in September. It represents an opportunity to drive incremental growth for years to come with the most celebrated name in sports. So far, we have announced our first resort in Tuscaloosa, Alabama, home of the University of Alabama, which is expected to open in late 2025. The Sports Illustrated club will be immaterial to 2024 earnings but will support our long-term growth. We look forward to announcing more locations and universities and leisure destinations in the months and years ahead.
Last month, we announced the addition of a core to our vacation ownership portfolio, which already includes Wyndham, Margaritaville and as noted, Sports Illustrated. This was the second significant milestone in executing our multi-brand strategy in less than 6 months, demonstrating great momentum. It is further affirmation of our ability to be a trusted steward of world-class hospitality brands for vacation ownership development. The agreement gives us the exclusive license to grow the Accor Vacation Club brand, utilizing the Travel + Leisure global platform. The acquisition will have 24 resorts, 30,000 members and finished inventory to our Asia Pacific region and lays the groundwork for economic benefits for years to come, providing revenue streams from sales, resort management and consumer finance.
We expect to close the transaction next month and I couldn't be more pleased to welcome Accor to the Travel Leisure brand family.
Mike will review guidance in a moment, but let me first share some color on the key performance indicators we monitor to gauge the health of our consumer. Forward resort bookings, sales volume per guest and the performance of our consumer finance portfolio. Regarding forward bookings, 2024 owner nights on the books are ahead of 2023, reflecting continued robust consumer demand. VPGs are normalizing from post-pandemic pent-up demand for leisure travel but remained at the high end of our 2021 Investor Day range and 30% above pre-pandemic levels.
And finally, as I mentioned earlier, our continued focus on credit quality has resulted in a portfolio that continues to perform to our expectations. To summarize, we are pleased with our performance and execution in 2023. We delivered our full year plan with 5% top line growth, 6% adjusted EBITDA growth and 26% adjusted EPS growth. We returned a significant amount of capital to shareholders, paying $136 million in dividends and repurchasing 7.8 million shares of stock. These results were achieved by the strength of our business model and by an intense focus on organic execution by our associates around the world. I want to thank each and every one of them.
For 2024, we are off to a solid start with a strong foundation in our core vacation ownership business and a clear line of sight for execution in the Travel and Membership segment. Reflecting our confidence in the future, we intend to recommend to the Board a first quarter 2024 dividend increase to $0.50 per share. This action supports our continued commitment to use our significant free cash flow generation to drive shareholder value through increased dividends, strategic M&A should opportunities arise and continued share repurchases.
The ability to generate and effectively utilize our free cash flow, combined with our proven track record of organic execution leave us excited about the opportunities ahead. For more detail on our performance and outlook, I would now like to hand the call over to Mike Hug.
Mike?

Michael A. Hug

Thanks, Michael. As well as discussing our fourth quarter results, I will provide more color on our balance sheet and cash flow as well as our outlook for 2024. All of my comments will refer to comparisons to the same period of the prior year, unless specifically stated. We reported fourth quarter adjusted EBITDA of $240 million and adjusted diluted earnings per share of $1.98, increases of 7% and 52%, respectively. For the full year, adjusted EBITDA was $908 million and adjusted EPS was $5.70, representing year-over-year growth of 6% and 26%, respectively.
Full year adjusted EPS includes a $0.35 benefit from foreign tax credit carryforwards that we now expect to be able to utilize. Looking at the fourth quarter performance of our 2 business units, Vacation Ownership reported segment revenue of $776 million, an increase of 5%, while adjusted EBITDA increased 12% to $208 million. We delivered 172,000 tours in the fourth quarter, growth of 17%, and VPG was $3,058 in line with expectations. Revenue in our Travel and Membership segment was $158 million in the quarter compared to $163 million in the prior year.
Adjusted EBITDA was $52 million compared to $57 million in the fourth quarter of 2022. Exchange member count continue to grow, but as expected, exchange transactions were down 8%, reflecting the continued mix shift to clubs whose members have a lower propensity of exchange. As Michael said, we have rightsized the business to the current environment, which will drive EBITDA growth in 2024. Our full year performance was solid despite significantly higher interest rates and disappointing results at Travel and Membership. We partially offset these challenges with strong decisive cost cuts throughout the year and reductions in variable compensation expense.
We continue to drive strong adjusted EBITDA margins across our businesses with our 2023 full year adjusted EBITDA margin coming in at 24.2%.
Moving to our balance sheet. Our financial position remains strong. And in the fourth quarter, we continued to return capital to shareholders through share repurchases and our quarterly dividend of $0.45 per share. For the full year, we repurchased 10% of shares outstanding at the beginning of the year for $307 million and paid dividends totaling $136 million for total capital returned to shareholders of $443 million.
As you saw in the press release, we completed 3 important transactions in the fourth quarter. We closed 2 timeshare receivable financing, a $300 million term securitization transaction in October and a $238 million term securitization transaction in December. Also in December, we secured additional term loan borrowings under our credit agreement which we will primarily use to pay the $300 million senior notes due in April.
Adjusted free cash flow was $379 million for the year, resulting in a 42% adjusted EBITDA to free cash flow conversion. Excluding the impact of the Sports Illustrated investment of $41 million, adjusted free cash flow conversion would have been 46%. We ended 2023 with our net corporate leverage ratio for covenant purposes at 3.4x. Remember, our goal was to end the year below 3.5x [levered]. Overall, our capital allocation for the year was right in line with what we anticipated when looking at our share repurchases, quarterly dividend and year-end leverage.
Now let me provide some more detail about our expectations for the full year and first quarter of 2024. For the full year, we are providing a guidance range of $910 million to $930 million for adjusted EBITDA and for now, we are most comfortable at the midpoint of the range. Note that our guidance includes $30 million of incremental interest expense on our ABS debt and assumes no variable compensation benefit in 2024. For comparison purposes, the variable compensation benefit in 2023 was $17 million.
Turning to Vacation Ownership. We expect gross VOI sales in the range of $2.25 billion to $2.35 billion, with CPGs in the range of $2,900 to $3,000.
For Travel and Membership, as Mike already mentioned, we expect adjusted EBITDA to grow low single digits in 2024. For the full year, we expect an effective income tax rate of 26% to 28%.
Turning to the first quarter. We expect adjusted EBITDA in the range of $185 million to $190 million. Keep in mind that Vacation Ownership's adjusted EBITDA faces a $9 million year-over-year headwind to interest expense in the first quarter as a result of higher interest expense on our most recent ABS transactions. In Vacation Ownership, we expect first quarter gross VOI sales of $460 million to $480 million and VPGs of $2,925 to $3,025.
For Travel and Membership, we are guiding to adjusted EBITDA in the first quarter of $75 million to $80 million. And finally, we expect our first quarter tax rate to range from 28% to 30%.
Turning to cash. We expect our 2024 adjusted free cash flow conversion to be in the neighborhood of about 50%. Elevated interest rates have increased our ABS and corporate interest expense assumptions for 2024, approximately $75 million from when we set out our cash flow conversion goals in September 2021.
However, as adjusted EBITDA grows and interest rates decline, we expect to move towards an adjusted free cash flow conversion of over 55%. In closing, we are pleased with the earnings and free cash flow we delivered in 2023 and proud of our continued ability to return capital to shareholders. For 2024, our guidance reflects our confidence in the strength and resiliency of our business and our ability to grow. Long term, we expect our adjusted EBITDA growth rate to return to high single digits as interest headwinds subside, and we no longer lapped to 2023 variable compensation benefit.
With that, Sherry, can you please open up the call to take questions.

Question and Answer Session

Operator

(Operator Instructions) Our first question is from Chris Woronka with Deutsche Bank.

Chris Jon Woronka

Thanks for the details so far. Michael, I was hoping you could talk a little bit about some of these OPC channels and some of the other marketing channels you're looking at this year. And the question is really kind of you sit here in February, you have a plan, you have -- I know you have some new partners. How do you kind of typically evolve or adjust those -- some of those -- your mix of partners through the year as various events unfold. Just trying to get a sense as to whether your visibility to some of the tour flow in the bookings improves with your partner mix.

Michael D. Brown

Chris, yes, the new owner question is a very important one. And as we came out of the pandemic, we said that there were 2 very important elements. Number one was, we wanted to increase our marketing standards -- the credit standards. And secondly is we wanted to ensure our marketing partners delivered positive margins as well as new owners. So we took a very measured approach coming out, and we've seen our -- I would say, diversified OPC channels grow on a regional basis. We're not overly dependent on a single partner. We do have some bigger partners that generate a lot of tours for us. But region by region, each of our regional marketing executives will evaluate the best opportunities in their region. And therefore, contract locally.
What typically happens in the cadence of the year, and you also see it in our VPG guidance in the Q -- in the first quarter versus the full year is, the summer months are your big new owner months. So our teams right now will be working with marketing partners to sign up deals for the upcoming summer. So you're just building on the success of last year, which was 18% tour growth from the prior year. And we're expecting tour growth this year over 10%. So it's just a steady growth on a regional basis of developing the right partners that will deliver, a, new owners and, b, at a profit from day one.

Chris Jon Woronka

Okay. Very helpful. Just as a follow-up. This is on the Travel and Membership clubs business. It sounds like you said you've rightsized the cost structure. And you obviously have a couple of growth initiatives that have started. But the question will be going forward, is it possible to kind of maintaining level EBITDA with very minimal top line growth? Or do you -- could you do more on the cost side if you need to? Or do you expect -- is the expectation really that we begin to see the top line growth accelerate a little bit in that segment.

Michael D. Brown

Yes. Well, yes, you can get the growth through top line growth. One of the key elements that we've modified is that -- the addition of the Travel Club business is driving incremental EBITDA growth in that space. Although it's not meeting the expectations we originally laid out on Investor Day, it is providing growth and it is providing a new source of revenue for that side of the business. So the rightsizing was really a reflection of the growth trajectory we saw in Travel Club, and we've seen a lot of predictability start to come into the exchange side of the equation as we've seen coming out of pandemic, it dropped, but we're starting to see that stabilize to a revenue range that we think is pretty predictable.
So yes, I think we can see top line growth. And we just needed to make some changes to make sure the cost structure reflected what we thought was the future growth in revenue in the Travel and Membership space.

Operator

Our next question is from Joe Greff with JPMorgan.

Joseph Richard Greff

Mike, the reference to the variable compensation expense benefit in 2023, you indicated that $17 million. Can you break that out between segments? Does that hit corporate? Does that hit [VO, TM] as well as corporate and that even through the year. And then I guess my bigger picture question is this. I mean, your full year EBITDA guidance implies a low single-digit EBITDA growth rate. You referenced the variable compensation of year-over-year delta, the incremental interest expense of $30 million. Would you basically expect VO to grow low single digits as well and travel membership is flat. I'm just trying to triangulate how you're seeing the rest of the year what's incorporated in there.

Michael A. Hug

Yes, Joe, thanks for the question. On the variable compensation as you would expect, the biggest impact is going to be at the Travel and Membership segment because they were the ones that as compared to our original expectations, didn't quite meet to the level that we set out. The second most significant impact would be at the consolidated level, Travel and Membership -- I'm sorry, Travel and Leisure because we're confident Travel and Leisure based on consolidated NAV, and then as Michael Brown touched on, Wyndham Destinations basically performed well for the year, so their impact is going to be the smallest.
In terms of the cadence of that throughout the year, pretty much evenly spread in Q2 through Q4. Obviously, as you're [being laggard] in the year, you get in July and you kind of see how things are going, and that's when you start to make those adjustments if there are any adjustments to be made. So in your models, you can think about that coming through pretty much evenly in Q2 through Q4. As far as the year-over-year growth rate, you're exactly right that the 2 big headwinds we have are the $30 million interest expense headwind that we've talked about and then the variable compensation, which obviously we mentioned today.
If you take those 2 out of the picture, you're basically looking at 4% to 6% growth year-over-year. When we think about the long term, the reason we believe over the long term, we can get back up to high single-digit growth is we do expect interest rates to subside. We're already seeing that. And what happens on the ABS transactions, they have about a 3.5-year life. So the less expensive ones that we did, but truly ended in the middle of 2022, we'll finally kind of be all rolled off by the middle of 2025. So that interest headwind should basically be neutral in '25 and then start to become a tailwind in '26 as the more expensive transactions that we put in place in late '22 and throughout '23, start to roll off. So you factor that into the growth that we're able to generate even covering some of that headwind. And that's really the big item that gets us back to long-term growth of high-single digits over the next several years.

Joseph Richard Greff

Got it. And then my final question is, buyback flows fairly substantially from the fourth quarter versus earlier in the year, it slowed down from the 3Q, which was slower than what was in the 2Q and 1Q. What's driving that lower activity?

Michael A. Hug

Really, when we look at our total capital allocation strategy, we've talked about, if the right opportunity presents itself to invest in the business, we're going to make that decision to help drive once again, the high digit long-term growth that we talked about. So what we looked at, obviously, as we got into the second half of the year as we had the opportunity to invest $41 million in Sports Illustrated, a great opportunity that we're very excited about. And as we talk about all these things that when we look at M&A it's really the marketing opportunity that presents to us, and that's what we think the Sports Illustrated brand as well as the relationships with the universities that we'll be working with offers that opportunity.
So when we think about how we use our free cash flow, obviously, the dividend is very important to us as demonstrated where we increased it again this year, and then we'll look at M&A and absent M&A or the ability to invest in the long-term growth of the business, the difference goes to share repurchases. So that's why you see share repurchases being down in the second half of the year was because, right, we had executed on the Sports Illustrated opportunity. And then you'll really see the same thing in the first quarter this year where the acquisition of Accor, which we're very excited about for just under $50 million will come out of our free cash flow and as part of our capital allocation strategy.

Operator

Our next question is from David Katz with Jefferies.

David Brian Katz

I wanted to just go back to the capital allocation choices and in view of what is obviously enthusiasm for some of the new brands and channels. I just wanted to make sure to sort of capture your philosophies about capital returns, obviously, with repurchases and dividends being paramount for the story for many years. Any change in the philosophy about those policies or strategies near term given some of these new initiatives?

Michael D. Brown

David. There's no change in our capital allocation strategy. I think for the last 5 years, we've said dividends are the foundation and then you're consistently choosing between strategic M&A opportunities and share repurchases, and we'll only act on anything M&A as it relates to what we think is, has the right IRR and also fits into our long-term strategy. Sports Illustrated does exactly that. And for the ability to grow with a brand of that quality with the marketing capabilities that come along with it, which is lifestyle, leisure in the hospitality space, combined with a world-class hospitality brand like Accor, which really strategically decided to put on pause its sales effort in Asia Pacific region, post-pandemic.
The opportunity to get an existing operation, 30,000 members with a brand to the quality of Accor made complete sense to us. As Mike mentioned, we returned 15% of our capital through dividends and share repurchases last year. On top of this, yes, pretty much the same the year prior. And when we saw these 2 opportunities to invest in the long-term growth of this business to support our long-term initiatives to be in high single digits, it was really an easy choice for us, and we couldn't be more excited about it.

David Brian Katz

Understood. And just to follow up, I think the essence to the question is whether something Accor or others like it, are consumers of capital in ways that alter the path. And it sounds like it's no, I just want to make sure.

Michael D. Brown

Look, we're in the business of leisure vacations in the vacation ownership space. And I think our 2023 execution against that shows that our business model performs extremely well. And if we have the opportunity to invest in the long-term success of our business -- look, Accor is more immediate because it's an existing operation of size -- of relatively decent size as far as their owner base in resort system and to build something like Sports Illustrated from ground up is, it is an investment in what we do well, which is leisure vacations and vacation ownership. And in the absence of those opportunities going forward, we'll use our free cash flow to keep plowing into share repurchases and paying the increased dividend.

Michael A. Hug

And David, on the use of capital, it would be our intent on both Accor and Sports Illustrated to have delivery -- inventory delivered on a just-in-time basis. So we'll work with our partners to make sure that inventory comes in when the revenue starts to come in.

Operator

Our next question is from Patrick Scholes with Truist Securities.

Charles Patrick Scholes

Michael and Mike, could you talk a little bit about expectations or growth rates for tours. It looked like at least versus Street consensus numbers, VPG was a little bit lighter, but implied in there because gross VOI sales in line -- maybe towards your expectations for tours a little bit better than us analysts. First, could you, yes, talk about that please.

Michael D. Brown

Yes, very important sort of the strategic direction for the next few years is our growth this year will be tour led. As I mentioned, we had 18% growth last year. We'd expected our tour growth this year to be over 10%, which is a combination of a number of factors. We mentioned that our owner room nights will be -- are already projecting up versus 23%. That results in incremental owner tours. We have a great relationship with the Wyndham hotel groups that, for the first time, broke $100 million of sales last year.
We expect that to grow as that relationship remains very strong and productive. And then lastly, back to Chris' question is our regional teams continue to grow incrementally, good profitable, local marketing channels. As it relates to the volume per guest, we are projecting at the high end of our long-term guidance range. And that really -- that with our tour growth is an important dynamic to look at because with our expected new owner growth this year, this will put us over 35% of our transactions being new owners. And for those who are -- those of you familiar with our story, we said once we get to 35%, we are set up for the long haul to be stabilized, and we can start making decisions on a year-on-year basis as to if we want to grow that number or not. So that implies that as we get beyond 2024, the decisions on -- you should have less of an impact on VPG related to a mix adjustment unless we proactively make that choice beyond this year.

Charles Patrick Scholes

Okay. I have another question here, and then I'll hop back in the queue, the B2B, B2C business. Would you say that's fully on the cost side, fully right-sized or where you want it to be at this point?

Michael D. Brown

I do. It's -- it's never easy to make changes. And I think the industry has evolved dramatically over the last 12 years. And at some point, the nature of the structure of the industry changes, and therefore, you have to change the structure of your business. Our teams continue to deliver great exchanges with over 3.5 million members in that space, but you recognize structurally where the exchange business is, which as we shared, will be low single-digit growth this year.
And you have to make those changes, which is what we did. We still love the business, high margin, high free cash flow and think that this sets us up for a very clear line of sight to our performance in 2024, which, candidly, was a constant conversation that we had on these calls. And that change along with our clear line of sight to this year's performance should hopefully result in a lot of calls this year where people are nodding their heads because we're hitting those expectations and achieving the goals we laid out on this call.

Operator

Our next question is from Brandt Montour with Barclays.

Brandt Antoine Montour

I'm curious on Accor, if you could give us a sort of sense for the run rate EBITDA for this asset at the time of purchase. If you put anything in your '24 guidance and assuming no, but also help us understand sort of if there are synergies that you see in that asset. And if there's a fee to Accor and how that -- well, I am sure there is but how that fee is structured with them so that they're incentivized to sort of help you with their database?

Michael D. Brown

Absolutely. So their run rate EBITDA is approximately $6 million to $8 million. And as I mentioned previously, is they have really stalled their sales efforts coming out of the pandemic to decide exactly how they want to take the business forward. So as we look at this year, we should be closing this deal at the end of Q1, which means we have 3/4 of the year, which means very immaterial EBITDA for this year, $2 million to $3 million.
But our investment and real focus this year will be the reramping and growth of the sales efforts related to the Accor Vacation Club. There's no one on this call that doesn't know the brand and know the quality of it and having the level of resorts in the [region '24], the Accor team is excited about it. The Travel + Leisure team is excited and very similar -- it's a license fee arrangement. So they're incented for us to grow their member count, their top line and ultimately leading to more resorts at more Accor destinations.

Brandt Antoine Montour

Sounds great. And I guess just 1 quick follow-up. Is your expectation that, that could be accretive to VPGs when you guys get everything running the way you want it to?

Michael D. Brown

The short answer is yes. The more detailed answer is materially against $2.2 billion of sales. It's not going to move a VPG needle. But the Accor Vacation Club is an upscale brand which tends to bring with it slightly higher VPGs.

Operator

Our next question is from Dany Asad with Bank of America.

Dany Asad

My first question is on margins, just kind of with the implied like VOI segment and kind of what we've talked about so far, where would you expect VOI margins to shake out in 2024 compared to '23. And how much would you quantify, if you could, the impact of remixing new owners and kind of driving that tour flow for '24?

Michael A. Hug

Yes. As you'd expect, I mean, our margins for next year for the VO business will be down a little bit. The $30 million interest headwind, obviously, is what's most impactful in terms of what's driving that margin down a little bit. We finished on a consolidated basis, 24.2% this year. We'll be down just a little bit once again because of the interest headwind. And then to your point, on the new owner generation that does have about $10 million in pressure on EBITDA as we move up to the 35%.
So the consolidated drop in margin I talked about is primarily at the VOI level. And if you think about to the comment I made earlier about how are we confident in that long-term growth going back up to high single digits, in addition to the variable cost and interest headwinds that we have in '24, we do have this continued investment in the new owner mix. So as Michael touched on, as we get up to 35%, 36% new owner mix. And if we decide to settle on their, that's a headwind that we no longer have as far as the potential VPG pressure or the higher marketing costs.

Dany Asad

Got it. And for my follow-up, as we keep driving tour flow, do you ever see kind of yourself running into any capacity limitations on tour growth? Or we're still kind of a ways off from 2019 levels, but just kind of curious there's any kind of like capacity issues that you can see?

Michael D. Brown

I don't see the physical capacity issues. We have sufficient sales pace. People are the key to success in this industry, and we're very focused on retaining and bringing in new talent. So I think physical capacity and human capacity are the most important along with the third leg of that stool is in today's world data is key. So it's one of the reasons that we love the relationship with Wyndham Hotels and are excited about their growth and their loyalty program as well as the reason we're excited about the additions of Sports Illustrated and Accor is they bring new databases, untapped data basis to a certain degree and give us the ability to grow our marketing component.
And if I could just swing back to add 1 comment to Mike Hug's earlier on margins. I think in a year like 2023, where we had challenges in our Travel and Membership segment, high margin and the rapid rise of interest rates, I just want to say I'm very proud of our team. Yes, we organically executed to our vacation ownership plans that we laid out at the beginning of 2023. And I think that was a great accomplishment, but also the overall margin of the business with some headwinds against high-margin business shows once again that our team, when faced with challenges finds a way to deliver against expectations and in the case of 2023 actually it improve our margins slightly.

Operator

Our next question is from Ian Zaffino with Oppenheimer & Company.

Isaac Arthur Sellhausen

This is Isaac Sellhausen on for Ian. First just a follow-up on Travel and Membership. How should we think about the to be top line recovery of that business as we move through the year? What are the expectations, maybe, around members and exchange transaction growth? Should we still expect some headwinds on exchange transactions and then maybe modest growth in members?

Michael A. Hug

Yes. This is Michael Hug. Thanks for the question. When we look at the travel membership business, on the exchange side, we do expect the exchange members to continue to grow. We are seeing across the industry continued new owner generation and increases in new owner generation, just like we're doing in '24 compared to '23. So member count, we expect to continue to go up. The one challenge we have that we've talked about is most of that growth is coming in the clubs, which obviously have a lower propensity to exchange. So when we look at the expectations for exchange transactions, we do expect them to be down a little bit like we did in 2023, we'll try to make up for that with some pricing.
And then as it relates to the travel clubs, we do expect increase in transactions out of the Travel Cub. So overall for this segment, you'll see revenue growth in the mid-single digits and as we mentioned EBITDA growth will be in the low single digits. The reason for that difference is the revenue that comes on the Travel Club side of the business does come with a lower margin as compared to the RCI exchanges.

Isaac Arthur Sellhausen

Okay. Very helpful. And then just as a follow-up, you mentioned resort bookings were ahead of 2023 levels. I'm not sure how specific you can get, but maybe how far ahead are we? And then maybe you could touch on regions that are performing particularly well.

Michael D. Brown

I can. For the first half of the year, the 2 primary destinations are, where you would expect, Las Vegas and Orlando are leading the charge. We -- I expect this year that you'll see a return to U.S. travel. I think we all know that Europe was the hot market last year in Cruise. I think the second half of the year blending into the first part of this year remains hot. I'm not sure how they trail through the year. But our bookings are ahead 5% on room nights for the full year and -- yes 5% for the full year. Just one more quick thing to add to that is post-pandemic, there's been a tendency for a longer length of stay. We're seeing that longer length of stay continue, which really sort of validates this work from anywhere environment that continues to persist even into 2024 related to our owner bookings.

Operator

(Operator Instructions) Our next question is a follow-up from Patrick Scholes with Truist Securities.

Charles Patrick Scholes

Yes, I just have a couple of follow-up questions. Mike, can you talk about expectations for loan loss provision going forward? I think the long term, you've talked about in the past around 18% to 19%. And then related to that, have you -- I assume no changes to your credit standards. Let me know if there have been any? And then just if you also could provide a little bit of color on anything you've noticed since last earnings on customers' propensity to pay their loans.

Michael A. Hug

Yes. Patrick. First of all, on the provision, we've been consistent in terms of that being in the 18% to 19% range. Obviously, we ended up the year 2023 at the lower end of that range demonstrating, right, the good performance in the portfolio. We continue to be very happy with portfolio performance and obviously driven in large part by the move up to minimum 640 FICO. Our new originations are coming in at 739 in 2023. That's up from 736 in 2022. So we're very, very happy with the credit quality, and I don't see us changing that in the near term. I just couldn't be happier with the way the -- our consumer is performing when we look at delinquencies, very happy with the level of delinquencies.
Obviously, you see more pressure on the lower end of the FICO than the higher end, but nothing that is out of the ordinary or outside of our expectations. And that's another reason we continue to have confidence and great execution on the ABS transactions, right? Those things are something that we do very regularly and our quality portfolio makes it an easy decision for investors in those notes to jump in 3 times a year when we go to market.
So very happy with credit quality, very happy where the provisions at. I would say that if it does end up at the high end of the range in 2024 because of the conscious decision that we make to sometimes try to generate more financing from those good quality FICOs. So we do want to get that interest income growing again, doing everything we can to offset the interest expense headwind. And so don't read us coming in at the high end of that range in 2024. If we do a quality issue, make sure you listen to what we say as it relates to the level of originations we have and obviously the long-term earnings growth that drives.

Charles Patrick Scholes

Okay. And then just shifting gears a little bit here. Michael, I know you folks have a little bit of Hawaii exposure, certainly far less than some of your peers. But could you talk about recent trends in Hawaii visitation, et cetera? And then if you have any granularity on how that might break out, say, versus Oahu versus Maui?

Michael D. Brown

So we have significant Hawaii exposure in Oahu, Maui and the Big Island and Kauai. We only have 1 resort in Maui and what I would say for our 2023 performance, there was no material change from what we performed in that market from 2022. And as it relates to 2024 bookings, they look very similar to what they were in '23 and '22. So for us, we really didn't see any material variability in performance, both sales or occupancy for the year between the 3 years, '22, '23 and '24. And again, we only have the 1 resort on the Island of Maui.

Charles Patrick Scholes

Right. Okay. And then just shifting gears in the South Pacific or Australia. It seems like Accor is -- their properties are in that region. Any plans for expansion or growth, perhaps, down the road to take that to other destinations outside of where it's currently based.

Michael D. Brown

so The key to expansion is good execution. So our first priority will be to make sure we execute against the plan we put forward. But the short answer to your future expansion question is yes. We want to establish the relationship, build a good one with Accor just like we have with Wyndham Hotels, which has proved to be highly successful. And then from there, gain the mutual respect and alignment economically to grow and do more locations, countries and regions of the world.

Operator

We have reached the end of our question-and-answer session. I would like to turn the conference back over to management for closing remarks.

Michael D. Brown

Thank you, Sherry. We were very pleased with our fourth quarter and full year performance, particularly in our core business vacation ownership. We are effectively leveraging leisure travel momentum, which we expect to continue in 2024. As indicated by our announcement of the Accor agreement, we have great traction in executing our multi-brand strategy. We are excited by the opportunities ahead to drive earnings and adjusted free cash flow and to deliver value to our shareholders. I want to thank our teams who work tirelessly every day to put the world on vacation. And thank you for participating. Have a great day, everyone.

Operator

Thank you. This will conclude today's conference. You may now disconnect, and thank you for your participation.