Hyatt Hotels had a strong year in 2019, so the story it had to tell on Thursday wasn't all dreary. The problem is that shareholders and guests hate uncertainty. And so far the travel industry faces nothing but uncertainty, left beholden to how the coronavirus crisis evolves.
Talk of coronavirus overshadowed Hyatt Hotel’s strong finish to the year during Thursday’s quarterly earnings call.
CEO Mark Hoplamazian began by acknowledging the company’s staff in the Asia Pacific region, which he said is operating in “extraordinary circumstances and demonstrating a profound commitment to care for their families, for our guests and our customers, for our hotel owners and for the communities in which our hotels operate that have been hard hit by the reduction in travel associated with COVID-19.”
Hyatt — which has had a presence in China for more than five decades —has already closed 26 properties in the country in response to the virus, with many others running at extremely low occupancy. Hyatt currently operates 86 hotels throughout Mainland China and several in Hong Kong. In Singapore, a cluster of coronavirus cases were traced back to a multinational business meeting held at Grand Hyatt in the city-state in January.
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“There is no question there will be an impact to our results [from coronavirus], but it’s simply too early to reasonably quantify what the full-year impact to our business in 2020 might be,” said Hyatt Chief Financial Officer Joan Bottarini.
Twenty-two percent of Hyatt’s consolidated base, incentive and franchise fees came from the Asia Pacific region in 2019, with 11 percent from greater China alone.
Bottarini said so far in February revenue per available room (RevPAR) is down 90 percent in China and down 32 percent in Asia Pacific overall, excluding China. Hyatt is estimating that every 1 percent decline in greater China RevPAR equals $1 million to $2 million hit to EBITDA, or earnings before interest, taxes, depreciation, and amortization, on an annual basis.
“Where we are in the range depends on the nature and extent of the stabilization period and recovery, and we don’t presently believe that the current conditions will persist for an extended period of time,” she added.
Despite a near complete halt of Chinese outbound tourists, Hyatt locations outside of the Asia Pacific region have remained relatively unaffected by the coronavirus outbreak. Inbound Chinese travel in the U.S. accounts for less than 1 percent of total U.S. rooms revenue.
Hyatt ended the fourth quarter on a high note, with a net income of $321 million, up more than 600 percent from the fourth quarter of 2018. Adjusted EBITDA for the quarter was $191 million with a system-wide RevPAR decline of 0.5 percent, which was attributed in part to the shift in timing of the Jewish holidays.
The company opened a record number of hotels and signed a record number of new management and franchise agreements in 2019, resulting in pipeline growth of approximately 13 percentage on a year-over-year basis. Hyatt expanded its global presence, adding 35 new markets last year through hotel openings and conversions.
Hyatt also sold two major properties, the Grand Hyatt Seoul and the Hyatt Regency Portland, plus a stake in the Hyatt Centric in Philadelphia for a total of more than $560 million last year.
“We ended the year with a material increase in the percentage of our earnings coming from our managed and franchise fee business,” Hoplamazian said. “This was driven by consistent execution of our strategy to concurrently drive our organic growth and continue to reduce our holdings of hotel real estate at attractive valuations.”
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Photo credit: The Hyatt Regency in Wuhan, China, is one of 26 locations hotels in the country closed due to the coronavirus outbreak. Hyatt Hotels