Sticking to the basics like affordable hotels in drive-to destinations floated hotel companies like Wyndham through the pandemic. But there’s still room to improve with higher-end offerings.
There aren’t any concerns about a leisure travel demand drop-off this fall at Wyndham Hotels & Resorts.
Wyndham posted strong third quarter results this week with a $103 million profit. This isn’t surprising given the company’s faster return to profitability during the pandemic than companies like Accor or Hilton. Wyndham’s mix of affordable, drive-to hotel brands like La Quinta and Days Inn are popular with leisure travelers as well as so-called “road warrior” business travelers and essential workers who still needed to travel during even the early months of the pandemic.
Roughly 70 percent of Wyndham’s business comes from leisure travelers, which might make analysts nervous for a company like this heading into fall when students are back in school and adults are generally back in the office. But company leaders maintain their customer profile is the right mix for the future of travel.
“In this work from anywhere world we’re living in, and, with the flexible hybrid approach so many companies are taking to retain talent, we are seeing a strong rebound in consumer leisure travel,” Wyndham CEO Geoff Ballotti said on an investor call Thursday.
Wyndham continued to see extended weekend travel beyond the peak summer travel season, and Thursday and Sunday night occupancy rates hit historic highs during the third quarter. The company also notched its two highest non-holiday Sunday occupancy rates in company history.
Company leaders as well as the greater hotel industry were “fundamentally surprised” by the resilience of U.S. domestic leisure travel demand continuing beyond the traditional summer travel season, Ballotti said.
Wyndham and Hilton, the only two U.S.-based hotel companies to report so far this earnings season, both posted profits. Even leaders at Accor, which doesn’t have a massive presence in the U.S., noted strength in the Americas for its own recovery.
“We think that demand certainly is going to continue throughout this fall and into next into next year,” Ballotti said.
But it isn’t just leisure travel putting heads in beds at Wyndham. Twenty-seven percent came from the road warrior type of traveler, and only three percent stemmed from corporate transient travelers, according to an investor presentation.
The presentation also noted Wyndham’s economy brands like Microtel and Travelodge in the U.S. exceeded 2019 performance for six consecutive months and were 14 percent above pre-pandemic levels in the third quarter. The company’s mid-scale brands like Ramada and Wingate exceeded 2019 performance for the last 17 week.
While some of Wyndham’s competitors are counting on corporate travel to kick back in, there is a strong argument to stick to its current strategy. Both Wyndham and the similarly focused Choice Hotels were among the earliest hotel companies to report profits during the pandemic. Analysts consistently rank both companies highly for their resilience during the pandemic for this attention to leisure and essential worker travel demand.
“Just as [third quarter] domestic leisure demand outpaced [the third quarter of] 2019, so too did demand from our everyday business travel segments whose office is the road,” Ballotti said.
Deals and Development
A Truist Securities note earlier this week noted the leisure-focused similarities between Wyndham and Choice Hotels despite Wyndham’s lower valuation. The Truist analysis chalked this up to Choice’s perceived stronger brands like Comfort and the high-end Cambria and greater net growth.
While Wyndham leaders didn’t directly comment on that note, the company moved in recent months toward new offerings with the launch of its Registry Collection Hotels luxury brand and the Alltra all-inclusive resort brand, deemed an “upper mid-scale” brand in the investor presentation.
Michele Allen, Wyndham’s chief financial officer, noted on the call that having more higher-end offerings can help accelerate the pace of future development.
Wyndham leaders also embarked on a quality check last year similar to the ongoing one at IHG and 200 of its underperforming Holiday Inn and Crowne Plaza hotels. The Wyndham initiative removed 20,000 rooms it deemed unprofitable or non-compliant with brand standards from its network. But unlike IHG’s negligible growth in recent months, Wyndham continues to expand its network.
The company signed 151 new hotel deals in the third quarter, which was 3 percent more than the same time in 2019. U.S. domestic development activity is back to 2019 levels. Wyndham leaders also downplayed any fears of ripple effects from China’s trouble residential sector spilling into the hotel environment. The new construction pipeline there is up 5 percent, Ballotti said.
“The pipeline numbers in China on the new construction front continue to explode,” he added.
A New Kind of Customer
No customer is off limits for any hotel company building back from pandemic lows. While older travelers with more free time may seem like the best fit for a company so rooted in leisure travel like Wyndham, company leaders are also ramping up efforts to woo younger generations.
The combined millennial and Generation Z demographic is Wyndham’s top growth segment, representing 66 percent of the company’s arrivals so far this year. But winning over these travelers also requires a new kind of marketing outreach as well as approach to the business.
Flexible reservations and cancellation policies that grew during the pandemic are a must-have for this growing segment of Wyndham’s revenue pie going forward.
“These next-generation consumers shop and book differently,” Ballotti said. “We’re reframing loyalty offers to better suit behaviors, preferences, and trends [and] providing more flexibility to our members.”
What Does the Future of Lodging Look Like?
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Photo credit: A focus on drive-to and leisure markets consistently delivered strong results for Wyndham through the pandemic. Wyndham Hotels & Resorts