Given Choice’s significant demand base of leisure travelers, essential workers, and road warriors, it isn’t surprising that it will be the first major hotel company to eclipse 2019 performance levels. But it is certainly a bragging point.
While other hotel companies are less certain of their recovery timelines, Choice Hotels leaders are already talking about eclipsing pre-pandemic performance levels.
Choice Hotels reported a nearly $117 million third quarter profit Thursday, but profits only tell one part of the story.
The more significant number was that the company’s domestic revenue per available room — the industry’s key performance metric — in the U.S. was 11.4 percent higher in the quarter than the same time in 2019 before the pandemic. This is a significant feat, as Choice’s portfolio is largely centered on the U.S.
Company leaders saw enough strength in the third quarter to do what many hotel executives are still hesitant on doing: providing a full-year forecast amid all the uncertainty with the pandemic. Choice Hotels expects to outperform 2019 this year.
“What’s most impressive is we continue to drive strong performance through rate improvement and occupancy share gains,” Choice Hotels CEO Patrick Pacious said Thursday on a company investor call coinciding with the earnings release.
Choice’s strong quarter and outlook shouldn’t come as a shock to the greater hotel industry. The company’s significant focus on drive-to and leisure travel even before the pandemic made it one of the most resilient hotel companies during the pandemic. It was the first company to outperform 2019 levels system-wide and has had the longest profitability streak during the health crisis.
Pacious asserting the company is seeing growth in both occupancy and rate is a notable boast, as executives at companies like Marriott and Hilton — both of which historically leaned more into business travel than Choice — have largely touted rate preservation through the crisis as helping to accelerate their recoveries.
Occupancy gains have been less consistent across the larger companies due to their global footprints in markets with choppy recoveries due to spikes in cases and new waves of lockdowns.
Company leaders noted significant growth stemmed across the company’s extended-stay portfolio, which has quadrupled in the last five years to 467 U.S. hotels across brands like Woodspring Suites. There are an additional 310 extended-stay properties in the company’s development pipeline.
But Choice Hotels also noted growth in its midscale brands like Comfort and Quality as well as the high-end Cambria and Ascend Hotel Collection. The company also reported four of its five all-time highest booking days from its own website came from the third quarter.
“We expect to maintain our growth trajectory for full-year 2021,” Dominic Dragisich, chief financial officer at Choice Hotels, said on the investor call. “Importantly, our strong [room revenue] trends have continued into [the fourth quarter].”
Still Room to Grow
Choice Hotels leaders still see opportunity to significantly ramp up operations next year. Analysts noted the company’s stronger line-up of brands relative to competitors like Wyndham and the focus on extended-stay, middle-market, and high-end hotels is likely to continue.
Dragisich noted the company is underway with targeted terminations of contracts with owners of underperforming economy-tier hotels as well as Quality-branded hotels that are “unable to maintain the standards of a midscale brand.”
A similar move is underway at IHG Hotels & Resorts, which is wrapping up a review process of 200 underperforming Holiday Inn and Crowne Plaza hotels. Choice’s direct competitor Wyndham Hotels & Resorts also removed 20,000 rooms from its network for being unprofitable or non-compliant with brand standards.
“We believe that these actions will not only ensure an even stronger brand portfolio over the long term, but we also expect these targeted terminations to be an opportunity for royalty revenue growth, as we plan to replace these hotels with higher quality and more revenue-intensive units,” Dragisich said of the ongoing initiative at Choice Hotels.
Choice Hotels also sees upside in reopening international borders, especially the land border with Canada, as many Canadian travelers stop at roadside hotels along the way to warmer destinations in the winter.
The $1 trillion U.S. infrastructure bill, if passed, could also provide a lift to Choice’s business travel demand, as construction workers also tend to stay in roadside hotels while they work on nearby projects.
“When I look at sort of the momentum that we’re seeing, and some of these key trends that are impacting the travel environment in general, they tend to favor our brands, they tend to favor our locations, and they tend to favor our guests,” Pacious said.
Photo credit: Brands like Comfort helped propel Choice Hotels above pre-pandemic performance levels again in the third quarter. Choice Hotels