Will Hyatt Finally Report a Profitable Pandemic Quarter This Week?

Hotel earnings season largely concludes this week with Marriott, Choice Hotels, and Hyatt all reporting. 

Marriott and Choice will almost certainly rely on different profit narratives while the pressure is on for Hyatt to finally show a profitable quarter during the pandemic. 

Marriott, which has outperformed competitors like Hyatt and Hilton during the pandemic, just needs to show the company is moving beyond leisure travel and showing signs of life in other sectors like business and group. Hilton, which reported its best quarter of the pandemic last week, rallied in recent months thanks to accelerating business travel demand from small and medium-sized businesses. 

Choice Hotels is expected to post a strong quarter in light of its greater reliance on leisure travel and essential workers to fill up its hotels. The company’s most direct competitor, Wyndham, reported a $103 million profit last week, and there is general analyst expectation Choice will perform better in light of stronger brands like Comfort and Cambria that garner higher rates and developer interest. 

The biggest earnings question is if the third quarter will be when Hyatt finally returns to the black after several devastating quarters during the pandemic. Company leaders are likely to promote their recent deal to acquire Apple Leisure Group and gain stronger footing in Europe as well as the all-inclusive space.

But shareholders also want to see profits accompany growth, and Hyatt is the last major U.S.-based hotel company to not report a profit since the crisis began. 

Most of the major brands swung to profitability in the second quarter — even Accor, which lost a staggering $2 billion last year — while Hyatt still posted a small $9 million loss. Given how competitors like Hilton are now onto their second consecutive quarter of profitability, Hyatt leaders will field tough scrutiny this week if it doesn’t show a better recovery is underway. 

Signs of Strength: Hyatt leaders will be able to point to several areas of growth and recovery on this week’s earnings call. Summer leisure travel demand will have helped Hyatt’s entire portfolio, even in major cities that have performed weaker than vacation destinations like Miami. 

On the growth front, Hyatt leaders were already pointing to the Americas and select-service brands like Hyatt Place and Hyatt House as what accounted for the vast majority of company growth during the second quarter. 

Both areas are strong places to be, given the erratic recovery taking place in China amid its zero-tolerance approach to new coronavirus cases as well as higher profit margins found with select-service hotels. Those type of properties don’t have the higher-cost amenities like restaurants and spas found in full-service hotels like a Hyatt Regency or Park Hyatt. 

The strength in select-service is why Choice Hotels is almost certain to report a strong third quarter this week. But Marriott’s larger exposer to China could be an obstacle for the company’s ongoing recovery. 

It wasn’t that long ago when Marriott leaders were touting China as its life raft to a faster recovery, so expect company leaders this week to point to other areas of opportunity like reopening international borders in other parts of the world as well as business travel demand picking up.

Areas of Concern: One area to watch is Hyatt’s reliance on group meetings and convention travel. Hyatt CEO Mark Hoplamazian touted the company’s exposure to this sector as a major strength earlier this year and even predicted group travel would leapfrog over business transient demand as far as what would recover quicker. 

But the Delta variant surge over the summer around the world threw that recovery forecast into jeopardy. 

The only time Hilton CEO Christopher Nassetta on last week’s investor call noted the variant’s impact on business was about group travel. He said the return of group meetings and conventions was likely pushed into later this year and into 2022. While Hilton is still benefitting from some group travel, it largely involves social events like weddings and athletic competitions.

Hoplamazian will likely have to find a new recovery narrative this week instead of the group business demand he had been touting on recent investor calls. 

“The pent-up demand is there, but people are sort of advanced planning more into next year, just to sort of finally get through Delta and hopefully to the endemic stage of Covid,” Nassetta said. 

Travel + Leisure Co. Doesn’t Rule Out More Mergers

The timeshare and vacation club sector was among the most active in hospitality mergers and acquisitions during the pandemic. 

Hilton Grand Vacations acquired Diamond Resorts for $1.4 billion. Wyndham Destinations bought Travel + Leisure for $100 million to become the Travel + Leisure Co. The merger mania won’t stop there.

Travel + Leisure Co. CEO Michael Brown noted on the company’s investor call last week there are further opportunities for consolidation in the industry. 

“A lot of the effort as we head into 2022 is make sure we adjust and get that balance exactly right as the core and foundational aspect of the business, but there does remain opportunity in the overall [mergers and acquisitions] arena,” Brown said. “We remain active in scanning across the landscape of timeshare potential for tuck-ins.”

That thinking may sound familiar, as Marriott leaders in recent months touted the idea of smaller mergers and acquisitions to fill in holes in the network rather than costly mega-mergers like its $13 billion Starwood Hotels & Resorts acquisition. 

Brown’s outlook sounds a lot like what CEOs at traditional hotel companies say coming out of the pandemic: Branded is better and tethering to a global brand network will be a better financial win than remaining independent. Brown estimated as much as 90 percent of the timeshare supply will be branded next year. 

“The M&A that we’ve done has been, we think, strategic and economically the right aspects of where we’re going,” he added.

He did not indicate what companies are on his radar, but the comments come amid months of significant growth trajectory at Travel + Leisure Co. The company indicated on an investor day presentation in September there is $12.5 billion in owner upgrade potential from its existing client base.

“It’s not about marketing. It is about owner occupancy,” Brown told Skift in September. “The more owners we get back to our resorts on an annual basis, the more they enjoy it, [and] the more they buy.”

No Room at the Inn

The law of supply and demand is getting the ultimate test this week in Glasgow during the United Nations COP26 climate summit. While 25,000 people are expected to attend the conference this week in the Scottish city, there are only 15,000 hotel rooms. 

That’s putting the city in a massive hotel room and housing crunch, the Wall Street Journal reports. Several countries held off on booking accommodations for their delegations in light of the pandemic and uncertainty on travel restrictions, and that delay is proving extraordinarily costly. 

Skift found a Kayak booking at the three-star Crosshill House exceeding $8,000 during the conference but going for roughly $1,800 for a two-week stay in December. 

Airbnb offered hosts $140 vouchers for listing their homes in Glasgow during COP26. Someone had listed a Volkswagen van for the length of the conference for $2,100. Two cruise ships — not exactly known for their sustainability — are docked on the Clyde River to house thousands of attendees during the event.