Luxury travel is sensitive to travel demand changes and more susceptible lately to pricing pressures. Inspirato's story is a lesson in managing the pace of growth.
Occupancy is at its lowest, losses are mounting, and the company announced another round of layoffs last month. Despite this, the luxury hospitality brand Inspirato has a few wins, including a new partnership with Capital One, and a rewards program launch.
For the quarter ending June 30th, The Denver-based company posted a consolidated net loss of $47 million; its revenue totaling $84 million remained flat compared to last year.
CEO Brent Handler told analysts and shareholders Wednesday that in addition to the reduction in its portfolio and weaker occupancies, the headwinds for the quarter were travel demand leaning towards urban travel, an area that is not the company’s strong suit.
“The high-end, traditional vacation rental markets were down this summer, more than I have ever seen,” Handler said. “Nantucket, Rosemary Beach in Florida, Malibu, Hilton Head Island in South Carolina — this is where the bulk of our inventory is, and they have to do well for us.”
Capital One Partnership
Inspirato announced on Tuesday that Capital One Ventures would provide the company with a $25 million convertible note. Handler added that the partnership could be beneficial to both companies with Capital One providing Inspirato the demand it needs, and in turn giving access to a membership-based travel perk to its cardholders.
Handler called it a “perfect storm” where lower demand met a mistimed strategy of portfolio growth. But since then, the company has pruned its underforming assets, removing 60 residences from its portfolio due to non-renewal and/or early terminations, resulting in a net decrease of 39 residences compared to the last quarter. As a result, controlled accommodations decreased annually by 6% to 663.
Handler told Skift in an interview after the earnings call that $25 million worth annualized lease savings from early terminations, renegotiations and non-renewals will come out of its system, and in addition to that, the company will pull out of many drive-to destinations that are oversaturated, and instead take on a few extra “underperforming properties” in destinations like Cabo and spruce them up.
“We can get out of 88% of our leases in six to 12 months,” Handler said, referring to the structure of the company’s contracts. And for the leases that the company is stuck with, it often distributes them on third-party channels at lower rates.
Path to Profitability
For 2023, Inspirato anticipates total revenue between $320 million and $340 million. The decrease in total revenue compared to prior guidance is primarily attributable to the aforementioned travel dynamics. The company anticipates a full-year 2023 adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) loss between $30 million and $45 million.
Handler noted that over $50 million dollars will come, and that the company has a path to profitability without growth. “The erstwhile strategy to prune costs will work even without the partnerships and the other features and updates,” he said. “It’s a cost and overhead story and it’s about the right size of inventory. We have been profitable [in 2019 and 2020], we just got heavy into growth.”
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Photo credit: The exterior of the member lounge at Inspirato's Solaris resort in Vail, Colorado, where guests can relax before or after skiing. Source: Inspirato.