Skift Take

Choice knows where the money is, and right now it's not in midscale brands. Will upgrading Comfort Inn be enough to lift room rates?

Choice Hotels plans to shift its focus towards higher-end lodgings in a bid to attract upscale business travelers.

The hotel giant struggled somewhat last quarter, as revenue per available room declined nearly 1 percent domestically, driven primarily by flatness in its midscale and economy brands. Choice was also hurt by the partial government shutdown, the company said in an earnings call Thursday. Choice aims to raise revenue by expanding its footprint in the upscale segment, potentially with a new brand acquisition, as well as by upgrading its most popular midscale brand, Comfort Inn.

“One of our most successful initiatives has been growing our share in the upscale segment. We believe that our strategic focus on upscale will continue to evolve our portfolio and drive top line growth because of the revenue-intense nature of the brands,” said Dominic Dragisich, chief financial officer of Choice Hotels.

Total revenue for the quarter was $218.3 million, a 4 percent increase from the year before. The company stock declined about 3 percent after market open, but has since partially recovered.

A single Cambria hotel — one of Choice Hotel’s higher-end brands — produces roughly three times the gross revenue of one Comfort Inn hotel, its most popular midscale brand, noted Patrick Pacious, CEO of Choice Hotels.

“I think as we look at acquisition opportunities, primarily we would look at segments that would be additive to our current portfolio. So that’s in upscale, full-service and above,” Pacious added.

The hotel group grew its number of upscale hotels, from its Cambria and Ascend brand, by 12 percent this quarter, bringing the number of Cambrias up to 41. The company plans to grow this number to 84 Cambria hotels — a total of 11,400 additional rooms — in the near future, though it did not give a definite date.

The company is also growing its extended-stay brand, WoodSpring Suites, opening its 250th location in Portland, Oregon last month. The brand has also signed 14 new franchise agreements in Colorado, Arizona, and Nevada, a geographic area the hotel group otherwise has little presence in. Choice plans to have 300 WoodSpring Suites throughout the country by the end of 2020.

The company has even added special perks to its loyalty program, Choice Privileges, in order to pull in luxury travelers, something it plans to implement by the end of the year. It has partnered with AMResorts, a collection of luxury resort destinations across Latin America and the Caribbean. Upscale customers can earn points through the company’s loyalty program, and redeem them at the resorts’ destinations.

Comfort Inn Transformation

Choice has tried to narrow the revenue gap between upper and mid-scale brands by undergoing major transformations to the Comfort Inn hotel.

Over the past year, Choice has ramped up its efforts to raise the status of the brand, renovating the rooms, as well as changing the design of the signs. So far, over one-third of Comfort Inn locations have been upgraded, and the company said it is already seeing improvements in revenue per available room.

However, the renovations at its hotels have impacted revenue forecasts, but the company expects revenue per room to pick up later in the year, once more Comfort Inn hotels have been upgraded. The hotel group also pointed to the government shutdown as a reason for lowered revenue, saying it put a damper on the number of travelers.

The company has also invested heavily in technology, and has seen big payoffs in direct bookings from digital channels. In particular, mobile saw a 43 percent increase in bookings from a year prior. Choice has partnered with Google to allow guests to book on Book on Google. But the company still relies on its own proprietary cloud-based global reservation system, ChoiceEDGE.

Overall, the company has about 570,000 rooms, with 78,000 rooms in the pipeline. This quarter represented the highest number of hotel openings for the first three-month period of the year since 2014, according to Dragisich.

CORRECTION: An earlier version of this story incorrectly stated that the first quarter represented the largest number of hotel openings for the company in any quarter. It was the largest number of openings in the first quarter of the year since 2014.

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Tags: choice hotels, earnings

Photo credit: Cambria Hotel interior, one of Choice Hotel's upscale brands. Choice Hotels / Choice Hotels

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