Profitability is one thing, but out-performing 2019 is the genuine sign of a rebound. Choice Hotels is lucky to not have to worry as much about corporate travel and conventions as some of its competitors.
Limited exposure to corporate and group travel can be a major financial advantage to a hotel company in a global pandemic. Just ask Choice Hotels.
The company behind more drive-to and leisure-oriented brands like Comfort, Econo Lodge, and the higher-end Ascend Hotel Collection reported Thursday that its revenue per available room — the hotel industry’s key performance metric — exceeded 2019 levels for the last two months.
The performance bragging right, a first among major U.S. hotel companies, comes at the same time Choice was the first hotel company to post three consecutive quarters of profitability together during the health crisis.
“These elevated competitive share gains, even as the broader industry recovers, illustrates that our strategic investments are working and give us further optimism about our future revenue trajectory,” Choice Hotels CEO Patrick Pacious said Thursday on the company’s second quarter earnings call. “Our goal is not simply to return to our 2019 performance levels but rather to capitalize on current and future investments to fuel our long-term growth and drive our performance to new levels.”
Some of the investments Pacious was referring to include a brand refresh of its highly popular Comfort hotels in the middle-market segment while expanding its reach in both the extended-stay sector and upscale space. Beefing up the portfolio makes Choice more popular with potential new franchisees considering a brand switch, a deal known as a conversion.
The investments appeared to have paid off: Comfort posted its highest level of conversion deals over the last decade in the last quarter. Overall conversion openings across all Choice brands for the first half of 2021 exceeded the same time in 2019.
The company also launched new brands, like Everhome Suites, in recent years to capture more potential franchisees.
“We strengthened our existing brands and launched new brands to appeal to the customer of tomorrow in key segments that provide a compelling return on investment,” Pacious said.
Along with the revenue per available room wins in June and July, Choice Hotels posted just shy of an $86 million profit for the second quarter. The company also reported revenue for Memorial Day and Independence Day in the U.S. were the strongest seen for either holiday in company history.
Financial wins aren’t just limited to Choice Hotels this earnings cycle. Marriott reported a $422 million profit earlier this week, and even Paris-based Accor — which lost roughly $2 billion last year — vaulted back into profitability.
But Choice’s major, global competitors have more exposure to regions still heavily impacted by the virus as well as sectors like corporate travel and conventions. Pacious touted that Choice’s group travel bookings were back to 90 percent of 2019 levels, but he also indicated a major part of the company’s financial strength stems from its hotels relying more on leisure and drive-to travel.
“We are benefiting from trends such as Americans rediscovering domestic destinations and the continued rise of road trips, an increase in workers retiring early, and the trend of work from anywhere, which affords Americans flexibility in where and when they travel for leisure,” Pacious said. “We now know that the pandemic has only accelerated these trends, and we believe that our business will therefore benefit in an outsized way from additional travel demand coming to our key segments.”
Caught Up in Conversions
A key growth driver for Choice Hotels going forward is to convince owners of existing hotels to take on one of the company’s brand flags. Most hotel companies expect conversion talks to increase, given the pandemic downturn and hotel owners wanting to expand their distribution networks to build up customer bases.
A third of Choice’s Comfort brand development pipeline are conversions while the entirety of brands like Quality, Clarion, Econo Lodge, and Rodeway are conversion deals. The company also has the higher-end Ascend Hotel Collection to appeal to independent hotel owners.
Several of these brands, like Clarion Pointe and Ascend, either didn’t exist or were just in their infancy during the last downturn.
“We have additional brands that 10 years ago were not really in the conversion part of our portfolio right now,” Pacious said. “So it’s really providing us that strength.”
But the Choice Hotels CEO also took a swipe at some of his competitors, which have also touted conversion opportunities in recent weeks. They’re new to the game in the eyes of the Choice Hotels leadership team.
“Conversions are nothing new to us, and it may be new to some competitors and certain brands,” Pacious said. “During good times we do conversions. During bad times we do even more conversions. It’s not a switch we have to turn on. It’s an always-on process.”
Photo credit: Choice Hotels' focus on leisure and drive-to travel across brands like Comfort (pictured) boosted the company to several financial wins in recent months. Choice Hotels International