What the recovery of travel through leisure means for future hotel development

0


[ad_1]

Anyone who expects a new hotel development playbook to emerge from the pandemic is sorely mistaken. Instead, development pipelines at large companies like Marriott and Hyatt are now aware of travel trends already underway before the health crisis.

A recovery in leisure-driven hotel performance continued to dominate the third quarter earnings story. All of the major hotel companies have reported profits this cycle – a first during the pandemic – and that was almost entirely due to summer vacation travel taking over from business travel demand.

This shouldn’t come as a surprise: Marriott executives noted last week that in their earnings calls, demand for leisure was picking up as early as 2010.

But the notable indicator of development is how much hospitality companies expect leisure travel to continue to dominate the recovery in the years to come. Marriott executives don’t think the recreation recovery is likely to dissipate next year, even if there is a noticeable return to in-person work in offices. Instead, Marriott is focusing on the idea that combined business and leisure travel remains a post-pandemic legacy.

“We continue to be quite optimistic about recreation. We think there are a lot more avenues for this recreation-driven recovery, ”Marriott CEO Anthony Capuano said last week on a call to investors. “We are convinced that leisure can continue to develop until 2022.”

This does not mean that hotel companies are abandoning the notion of developing properties for business travelers in major cities around the world. CEOs of all major corporations, from Marriott to Hyatt, have noted a revival in transient demand for on-going business despite the Delta variant pushing the return to the office until later this year or early next year.

But in the midst of these business trips, the optimism was the gossip about the growing importance of small business travel rather than large corporate contracts. This change shows how much uncertainty remains with larger companies and their return to the office and the business trips that usually accompany it.

When it comes to digging shovels into the ground, the best-placed hotel companies will be those with a good grasp of leisure and luxury. Wyndham, Hyatt and Marriott would not have taken steps to bolster their all-inclusive resort offerings over the past year if they hadn’t.

IHG’s new collection of upscale hotels, while not a stand-alone all-inclusive offering, allows the company to tap into the all-inclusive resort space, said company CEO Keith Barr, in an investor call earlier this year. Marriott does the same with its collection of autographs.

A reminder on all-inclusive resorts: Traditional businesses moving into all-inclusive resorts isn’t a new idea for 2021. Wyndham, Hyatt, and Marriott all had some form of all-inclusive offering for years before their most recent push on the gas pedal in larger portfolios or stand-alone brand offerings. .

But the accelerating expansion of the sector shows just how important leisure travel has become to the development community.

Hyatt is particularly bullish on the industry, as evidenced by its recent acquisition of Apple Leisure Group for $ 2.7 billion. Company executives noted last week that the “brand-defining” deal would accelerate Hyatt’s development pipeline along the lines of the acquisition of Two Roads Hospitality, the former owner of brands like Thompson Hotels, Alila Hotels & Resorts and Joie de Vivre Hotels. .

The deal with Apple Leisure Group notably gives Hyatt a head start in Europe, increasing the company’s footprint by 60%. But it also significantly strengthens the company’s profile in more leisure destinations. Hyatt is now the largest operator of luxury hotels in Mexico and the Caribbean after the takeover, thanks to Apple Leisure’s AMResorts portfolio.

“We also expect the ALG brands to generate accretive rooms in the future, such as what we achieved with our acquisition of Two Roads Hospitality in 2018, which has been a significant growth engine for Hyatt this year, including conversions and expansion of our pipeline, ”Hyatt CEO Mark Hoplamazian said last week.

Luxury financing: Marriott’s management team provided details on the significance of the benefits of pursuing higher-end developments, despite their capital intensity. The feedback pushes these plans forward, Capuano said in defense of an analyst question regarding Marriott’s high-end hotel pipeline higher than its competitors.

The cost potential of what Marriott might collect from a Ritz-Carlton is about 10 times what it would get from a more affordable brand like a Fairfield Inn. The pandemic has shown just how willing leisure travelers are to pay more for vacations, whether it’s a nicer hotel room or a premium seat on an airline. Real estate developers should take note of this when considering which brand flag to attach to a future project.

“These are more complex projects. These are more capital intensive projects. The complexities of their financing are not trivial, ”Capuano said of luxury hotels. “But as evidenced by the volume of luxury and upscale in our portfolio, the strength of our brands, commands [a] fairly effective ability to obtain debt for these projects.

“In leisure destinations, the premiums that we have seen in luxury fares over the past two quarters have been extraordinary,” he added.

Less can lead to more

Quantity isn’t synonymous with quality – that’s the message hospitality companies of all sizes have been sending over the past few weeks on earnings calls. While publicly traded companies must show signs of growth to appease shareholders, several major hotel groups have also highlighted how many hotel contracts have been canceled as part of a way to cut losses and increase attractiveness. of the brand.

Wyndham, Choice Hotels, and IHG executives have all touted room deletions as necessary to remove bad eggs from their networks and increase guest satisfaction scores as well as room revenues.

IHG plans to complete its review of 200 underperforming Holiday Inn and Crowne Plaza hotels later this year, with up to 130 of those hotels expected to leave the company’s portfolio.

“The rest are committed to significant improvement, which will be great as it dramatically increases the quality of these brands,” said Paul Edgecliffe-Johnson, chief financial officer of IHG, during a call to investors last month.

Wyndham has removed 20,000 rooms from its network for similar reasons while Choice Hotels is underway with its own quality checks of underperforming hotels.

Choice Hotels executives have not given a specific number on how many hotels are in their own review, but the move comes as company executives have indicated they are primarily focusing on brands of extended stay as well as on their mid-range and high-end brands. like Comfort and Cambria.

“We believe these actions will not only ensure an even stronger brand portfolio over the long term, but we also expect these targeted terminations to be an opportunity for royalty revenue growth as we plan to replace these hotels with a new one. higher quality and more income. intensive units, ”said Dominic Dragisich, CFO of Choice Hotels last week.

Amble valuations Return to normal

In case you missed yesterday morning’s daily accommodation report (and there’s no excuse: Subscribe here.), an HVS and EP Business in Hospitality webinar last week provided an overview of the most important hotel takeover for real estate developers: property valuations.

Both groups expect a full recovery in hotel valuations around the world by 2025, but some regions will naturally recover more quickly. Hotels in the Middle East and Africa were experiencing “mixed” recovery speeds, while properties in cities in the US and UK that were more reliant on international travel took longer to recover.

Of course, today might change the trajectory of the recovery a bit, as the United States finally reopens its borders today for non-US citizen vaccinated international travelers.

[ad_2]

Share.

About Author

Comments are closed.