Hyatt, best known for appealing to business travelers, is relying lately on vacationers who accounted for half its business in the most recent quarter. Yet July data points to group business and banqueting tracking toward a comeback that's faster than some expected.
Hyatt Hotels Corp notched a few company records when it reported quarterly earnings on Tuesday, and the company’s performance may not have peaked yet, executives said.
The Chicago, Illinois-based company had a record level of leisure demand in the second quarter, with 19 percent more revenue from vacationers compared to pre-pandemic levels. Leisure travelers drove 54 percent of Hyatt’s room revenue.
Record average room rates of $198-a-night system-wide led the company to notch a record in management and franchisee fees of more than $200 million — 27 percent higher than the next-highest quarter.
The company produced $255 million in adjusted earnings before interest, taxes, depreciation, and amortization — a company record for this measure of profit. It generated revenue of $640 million.
The hotel group reported that its revenue per available room surpassed pre-pandemic levels in June for U.S. hotels — and surpassed 2019 levels in July system-wide, excluding Greater China.
The company remains on an upward trajectory even if many economies sink into a recession this year, executives argued.
“If you look at the total share of wallet of the consumer, it’s not even close to where it was pre-pandemic for travel,” said president and CEO Mark Hoplamazian during a call with investors.
Banqueting Is Back
Business travel is also rebounding, albeit at a lagging pace. The company’s top 10 largest business customers were 80 percent recovered in business transient bookings. That was up from 50 percent four months ago.
In July, the company’s group business for the month slightly exceeded 2019 levels for the first time.
“Some of this group travel is from technology companies in particular who thought they would never return to 2019 levels of travel,” Hoplamazian said during a Tuesday interview with Bloomberg TV. “They’re now getting close.”
Bookings by companies and associations that come together for team meetings recovered to 2019 levels in July for the first time, too.
Group spending on banquets, or food-and-beverage services, was at about 98 percent of 2019 levels for large groups and about 70 percent for weddings and smaller groups.
Fully half of Hyatt’s fee-based revenue was fed by spending on high-margin banquets. At the U.S. hotels the group manages, banqueting represented 46 percent of its total revenue base in the quarter.
All-Inclusive Resort Boom
Hyatt’s acquisition last year of Apple Leisure Group continued to pay metaphorical dividends as the manager of all-inclusive resorts outperformed forecasts.
“[Our all-inclusive business] is fundamentally a completely different business than it was in 2019,” Hoplamazian said. “They have fundamentally changed the cost model. A lot of machine learning and AI [artificial intelligence] has been applied in the processes that they have.”
In July, Apple Leisure Group’s gross package revenue was 74 percent above the same period in 2019. That’s partly because the portfolio is about half as big as three years ago.
In just the first half of the year, Apple Leisure Group exceeded its full-year 2019 economic performance. Revenue from upselling and cross-selling guests on offerings not covered by packages rose 26 percent compared with the pre-pandemic level.
More growth is possible this year, executives said. In the first half, the company was tracking lower in terms of the total number of passengers that were moving through vacations, partly because of problems at airlines. But airlines should resolve their operational issues over time.
Sustained growth is also possible because Hyatt plans for the rest of the year to invest in its direct-to-consumer marketing technology, executives said.
Loyalty program efforts may also enhance growth in all-inclusive resort bookings, in particular, executives said.
On May 9, guests at resorts run by Apple Leisure Group began to earn and redeem points in Hyatt’s loyalty program. The company enrolled more than 41,000 new loyalty program members at participating ALG resort properties — representing a rate of enrollment that was significantly higher than what Hyatt typically sees at its newly opened Hyatt properties.
The company expects to complete the integration of the loyalty program with the all-inclusive resorts in Europe by the end of the year, further boosting performance.
Systemwide, Hyatt’s loyalty program’s contribution to room revenue is approaching 50 percent.
Forecasting a Strong Second Half
Management pointed to a few reasons why backlogged demand for travel will continue to gain the upper hand in a clash with inflationary and recessionary pressures for the rest of this year.
The company’s customer base tends to have higher income and is more insulated from the typical downturn, executives said.
“We aren’t terribly concerned about the economic uncertainty,” Hoplamazian told Bloomberg TV.
The company has benefited from strength in pricing. Its average daily rate systemwide was $198.
Hyatt has a relatively higher exposure to urban and premium hotels than its U.S. peers. Its luxury properties have recovered from pandemic troughs. In July, comparable system-wide luxury brands in the Americas and the Indian Southwest Asia regions saw revenue per available room up 28 percent compared to July 2019.
Pipeline and Asset Sales
Hyatt continues divesting, intending to sell $1.2 billion more of its properties by the end of 2024.
It recently put on the market two assets — the 241-room Hyatt Regency Green Bay, and the 373-room Hyatt Regency Greenwich — according to a recent report by Joseph Greff of J.P.Morgan Research. Greff assumes Hyatt will use the proceeds to pay down debt.
It’s a good time to be selling hotels. Hyatt sold four assets recently for collectively $812 million, or about 15 times earnings before interest, taxes, depreciation, and amortization.
For context, Hyatt’s total managed and franchised properties amount to 1,194 hotels with 290,987 rooms as of June 30.
The company forecast that its net rooms growth for the full year will be greater than 6 percent, higher than most of its peers — though it is starting from a smaller network base than many of those peers.
“We have exciting hotel openings scheduled over the back half of the year and compelling conversion opportunities under negotiation,” Hoplamazian said.
So far this year, Apple Leisure Group has grown its net rooms by 10 percent.
But growth will be slower in some parts of the world.
“In China, people have basically put their pens down,” Hoplamazian said, noting that lockdowns have impacted the rate of construction.
Hiring remains another challenge, including at the 28 hotels added to the system since April.
Hyatt has been working with industry lobbies to pressure the federal government to increase the availability of temporary work visas. The company has also streamlined many hiring procedures to try to speed up the process.
Direct Bookings Boom
Hyatt said 75 percent of bookings came from direct bookings in the quarter thanks to a multi-year effort to reduce consumers booking through online travel agencies.
The effort famously began in 2016 with its “stop clicking around” marketing campaign.
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Photo credit: A "beach room living room" at the Park Hyatt Dubai. Source Hyatt.