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Having just become its own public company in June, Wyndham Hotels & Resorts is primarily focused on three things: growing the number of rooms in its system; demonstrating the value of its brands to hotel owners; and integrating its $1.95 billion purchase of La Quinta.
And according to CEO Geoff Ballotti, the company is “very optimistic” about its future, as he noted on a conference call on Tuesday discussing Wyndham’s third quarter earnings for 2018.
The La Quinta Integration
In an interview with Skift in June, Ballotti said the acquisition of La Quinta would be “transformational” for the company, and so far, the integration, which is expected to be completed by the first half of 2019 is proceeding as planned, Ballotti said.
The press release noting Wyndham’s third quarter earnings also indicated that the remaining parts of the La Quinta integration pertain to loyalty and information technology (bringing La Quinta hotels onto Wyndham’s own cloud-based central reservations system).
Wyndham reported an increase in hotel franchising revenue in the quarter of 35 percent, largely because of La Quinta, which accounted for $72 million of incremental revenue. Without La Quinta factored in, that revenue rose 7 percent.
The company also noted that Wyndham “has terminated approximately 60 percent of the employees ultimately expected to leave the company in conjunction with the integration.”
Growing the Number of Rooms
For at least the past two years, Wyndham has been focused on improving the quality of its hotels, actively removing some 80,000 to 90,000 rooms that have not met its brand standards, especially in the U.S.
Now, however, the company is beginning to add more rooms, with 1,000 rooms added on a net basis in the third quarter.
“In fact, we’ve opened open 14,000 U.S. rooms in the first nine months this year, which is up 15 percent from last year and nearly 35 percent from two years ago, reflecting what we believe to be the growing interest in the improving quality and performance of our brands,” Ballotti said.
Ballotti and Wyndham Hotels Chief Financial Officer David Wyshner also expressed the company’s interest in pursuing future growth through acquisition — something both have discussed on previous earnings calls.
In his prepared remarks, Wyshner said, “We’ve significantly increased the earnings contributions from our acquisitions. While investors may be able to invest in our stock and the stock of an independent brand, a public market investor can’t produce the synergies that we can. This, in a nutshell, is why it you can make good sense for us to pursue some more strategic acquisitions.”
Later, when asked about the possibility of more acquisitions, Wyshner said, “We’ve averaged about a brand acquisition every 18 months, and we will continue to look for good accretive additions to our brand portfolio.”
If that timeline holds true, the company’s next acquisition may likely take place in mid-year 2019. Increasing consolidation in the hospitality industry has made it more challenging for independent hotel brands to compete, and companies like Wyndham have grown their respective portfolios with a variety of brand acquisitions in the past two years.
Until then, Wyshner also expressed confidence in the economy and midscale hotel segments where the majority of Wyndham’s brands sit. “According to the STR data that are now available, economy and midscale hotel demand grew about 0.5 points faster than supply in the first nine months of the year. This is a continuation of a trend we’ve seen for a while, and one reason why when looking at the lodging cycle, we don’t think there’s any oversupply issue developing in select service lodging.”
Earlier this year, Wyndham chose to add “By Wyndham” to all of its 20 brands and Ballotti said that, so far, that addition has paid off.
“Since we announced the initiative in April, we have seen a 9 percent increase in searches for brands that did not previously carry the By Wyndham endorsement,” Ballotti said.
Wyndham isn’t alone in adding its parent company’s name to its brands, either, as a number of hotel companies such as InterContinental Hotels Group and Hilton have also done with some of their newest brands.
The call also gave Wyndham an opportunity to express the advantages for hotel owners who choose to franchise with Wyndham. They include savings on fees paid to online travel agencies (OTAs) and the Wyndham Rewards loyalty program, which now has 59 million members.
“If you think that most independents are doing roughly half of their business to an OTA, at an OTA commission rate, which might be 700 to 800 basis points higher than what they would be receiving through a Wyndham arrangement, with us,” Ballotti said. “And more importantly, being able to shift that mix from 50 percent of their business coming through the OTA down to where it should be and in the mid-20s.”
Ballotti also said that Wyndham’s “central systems domestically deliver 67 percent of the feed to our economy and midscale hotels.”
The Third Quarter by the Numbers
Wyndham reported strong results for the third quarter, with revenues growing 74 percent from the same period last year to $604 million. Net income as $58 million, and the company’s global revenue per available room (RevPAR) was up 9 percent, year over year.
Shares of the company were trading up approximately $2, following the third quarter earnings call.