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Wyndham is banking future growth will come from independent hotels converting to flagged properties, but continued uncertainty in travel will dictate the opportunity timeline.

Wyndham is taking a page from its Great Recession recovery playbook to guide future growth.

The hotel industry is in coronavirus survival mode, grappling with cratered occupancy rates and revenue per room. But executives at Wyndham Hotels & Resorts also see room for opportunity from the downturn. Wyndham leadership expects independent hotel operators to rush to branded opportunities to capitalize on bigger reservation systems, loyalty programs, and marketing budgets.

The global hotel company grew its room count by 3 percent during the last recession from independent operators converting to a Wyndham-flagged brand, according to a Tuesday investor presentation.

“We have a long-proven track record of growing net rooms through lodging cycle downturns by igniting our conversion engine, which is fueled through the strength and flexibility of our value proposition,” Wyndham Chief Financial Officer Michelle Allen said on Wyndham’s first quarter earnings call.

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Wyndham, which owns brands like Days Inn and La Quinta, expects conversion rates to remain slow in the near-term but accelerate as soon as travel begins to return. The hospitality company has initially earmarked $30 million for development opportunities but that figure could increase, Allen added.

There are more than 15,000 independent economy and mid-scale hotels in the U.S., Wyndham CEO Geoff Ballotti said. The company’s franchise and sales teams have been restructured to increase Wyndham’s conversion coverage by approximately three times current rates. Wyndham’s new construction salespeople have also been redeployed to convert independent economy and mid-scale hotels to Wyndham flags.

Wyndham’s strategy comes as analysts predict travelers will return with a heightened focus on safety and cleanliness. Branded hotels that offer a better sense of familiarity or increased display of cleaning standards will likely be in a better position than independent properties. If the anticipated travel trend pans out, independent hoteliers will likely migrate toward flag affiliation.

“Converting independent hotels to our brand has always been a consistent part of Wyndham’s growth through up and down cycles,” Ballotti said.

Tough Times to Come

There are still choppy waters to overcome before Wyndham can fully chase opportunities.

First quarter revenue was down 12 percent to $410 million. Wyndham’s adjusted net income, at $47 million, for the first quarter was down 8 percent. Revenue per room or RevPAR, the hotel industry’s key performance metric, was down 23 percent.

The second quarter will most likely perform even worse. Preliminary April results show RevPAR at Wyndham’s U.S. properties down 66 percent, Allen said. U.S. occupancy was at its lowest point the week of April 11, averaging 22 percent but showing slight improvements in following weeks. Occupancy in China, where roughly 200 of Wyndham’s 1,200-hotel portfolio remains closed, is running in the 20 percent range, up from single-digit lows.

The company last quarter generated more than $250 million in cash savings, of which Allen expects $100 million will be permanent savings. That stems from about 440 eliminated staff positions and reductions in facilities and other discretionary expenses like spending on vendors.

About 5,900, or 94 percent, of Wyndham’s U.S. hotels remain open. The majority of the hotels need an occupancy rate around 30 percent for owners to continue to make debt service obligations, Ballotti said. But government assistance like a Paycheck Protection Program loan lowers that breakeven number considerably.

More than 95 percent of Wyndham’s franchisees have applied for a PPP or Economic Injury Disaster Loan from the U.S. Small Business Administration, Ballotti added. Nearly 80 percent have been approved for one or both.

The Drive-To Bounce Back

Wyndham’s biggest selling point to independent hoteliers during conversion talks will be how most of its portfolio is positioned.

More than 90 percent of Wyndham’s hotels is in the select-service sector, which is less labor intensive and operates at a higher profit margin than full-service hotels. A typical Wyndham-flagged property requires less than a dozen full-time staff members, and staff levels are “highly scalable to demand,” Ballotti said. Nearly 90 percent of the Wyndham portfolio is in drive-to locations, which travel industry analysts and executives expect to be the first sector to recover from the coronavirus crisis.

“Our customer profile in the U.S. is about 70 percent leisure and 90 percent drive-to,” Ballotti said. “While the impact of Covid-19 continues to evolve, as this pandemic abates in the U.S., our franchisees should be the first to benefit.”

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Tags: coronavirus, days inn, la quinta, wyndham

Photo credit: Wyndham Hotels & Resorts plans to throttle up growth through independent hotel conversion during the coronavirus recovery. Tony Webster / Flickr

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