Drive-To Travel Helps Choice Hotels Return to Profits

Analysts expected the drive-to and leisure sectors to lead the hotel industry in a pandemic recovery. Choice Hotels is profitable proof.

Choice, owner of brands like Comfort Inn & Suites and Clarion, managed to pull off a $14.5 million third quarter profit amid the worst year on record for the greater travel industry, the company reported Thursday. But even during the second quarter — the financially worst so far for the greater hotel industry —Choice only had a $2.4 million loss compared to the hundreds of millions of dollars in losses seen by bigger brands like Marriott and Hilton.

Choice’s relative financial strength stems from the company’s portfolio largely rooted in drive-to and leisure hotels.

“These core strengths have positioned us well to capture the shifts in consumer demand that occurred over the last eight months,” Choice Hotels CEO Patrick Pacious said on an investor call.

While travelers may hesitate about hopping on a plane to take a vacation during a pandemic, there is less fear around road trips. This puts Choice at an advantage, according to company leaders. Roughly 4,000 of Choice’s hotels are within a mile of a U.S. interstate highway exit. Another 2,000 hotels are near beaches or national parks.

Wyndham also posted a small profit in the third quarter and similarly attributed the financial strength to its own drive-to and leisure hotel mix.

Choice owns the upscale Cambria brand and the Ascend Hotel Collection soft brand, but its significant base of more affordable brands like Comfort and Woodspring Suites are expected to perform well for the duration of the crisis.

Finances at Choice Hotels aren’t completely upbeat, however. Revenue per available room — the hotel industry’s key performance metric — was down nearly 29 percent. But the company, using STR data, claims that outperforms the general hotel industry by 20 percent in the market segments Choice Hotels operates.

“We believe in uncertain times, as in previous downcycles, consumers will be looking for more moderately priced limited-service hotel offerings, presenting an opportunity for our portfolio to capture this demand,” Pacious said.

Winter Cliff? Maybe Not.

One of the most volatile spots for the hotel industry at the moment are the rising coronavirus case counts around the world, particularly in the U.S. and Europe. While Hyatt CEO Mark Hoplamazian Thursday cautioned the surge could hinder performance in the fourth quarter, Choice executives had a more positive outlook heading into the winter.

“We expect the impact of Covid-19 on [revenue per available room] will be less significant in the fourth quarter compared to the third quarter,” said Dominic Dragisich, chief financial officer at Choice Hotels.

Choice leaders see emerging trends in the hotel environment that could buoy the company through the pandemic, even with cases rising in so many parts of the world.

American risk tolerance is rising thanks to the perception travel safety is similarly up, Pacious said. This includes all the heightened cleaning measures many hotel companies implemented early in the crisis. The number of Americans considering a domestic leisure trip in the next six months is the highest it has been since mid-March, according to Choice’s own reporting.

“We’re optimistic we’ll see sequential month over month [revenue] improvement,” Pacious added.

A large part of Choice’s optimistic take on the recovery from the downturn stems from what is causing it: a health crisis instead of any economic volatility. That has company leaders expecting a much faster recovery timeline than some of their competitors that operate more significantly in the full-service hotel space.

“Unlike the Great Recession, which was caused by underlying fundamental economic problems, the current downturn is tied to the course of the Covid-19 pandemic, which we believe could lead to a faster recovery,” Dragisich said.