Skift Travel News Blog

Choice Hotels, a U.S.-based franchisor, said on Tuesday it had opened an average of more than four hotels a week in the first half of 2023 — a 39% jump year-over-year. The steady onboarding of properties was one reason it reaffirmed its profit forecast for the year despite some industry concerns about leisure demand patterns in the U.S. going into reverse.

Choice Hotels opened 107 hotels in the first half of the year, with an increase in conversion hotel openings of 45% and a rise in new construction hotel openings of 24%. The gains were impressive in a hotel sector where interest rate uncertainty had raised concerns about the willingness of banks to endorse hotel development.

The first-half openings growth was across all segments. Openings in the upscale segment were by 83%, the midscale segment by 42%, the extended stay segment by 50%, and the economy segment by 11%.

“The company remains optimistic about extended stay franchise business growth and expects the number of its extended stay units to increase at an average annual growth rate of more than 15% over the next five years,” it said in a statement.

The positive news helped the company re-commit to its previously provided financial guidance for full-year 2023, where it forecasts net income — a measure of profit — of between $255 and $265 million.

The news is positive at a time when analysts have become more cautious about the hotel sector. For more context, see “Analysts Pare Back Enthusiasm for Hotel Companies.”

Investors closely watch trends in another metric, adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA). The news on that front was also positive relative to its peers.

“In 2024, Choice Hotels expects to generate more than 10% adjusted EBITDA growth at the midpoint, year-over-year, driven by approximately $20 million in incremental contribution from [the merger with] Radisson Hotels Americas as well as organic growth in more revenue intense segments and markets, strong effective royalty rate growth, and other factors.”

For more, see “Choice Hotels’ Brands, Explained.”

How are hotels doing post-pandemic? It all depends on the market and the type of hotel. In the U.S., average hotel rates nationwide have barely recovered to 2019 levels after accounting for inflation, but individual markets like New York City are performing better than before, while other individual markets, like San Francisco, are doing worse. But overall, it’s not price gouging.

In Europe, there’s a similar market-by-market dynamic at work. In the highest-demand markets for leisure travelers, especially Americans, hotels have been able to hike prices above inflation.

An article in Friday’s Financial Times had a compelling chart to make the point.

“Hotels in London, Rome, Madrid and Paris are enjoying a boom even when compared with the pre-pandemic era. Revenue per available room rose the most of the four cities in Rome, where it was 60 per cent higher in June than in the same month in 2019, according to hotel data provider STR.”

—Eri Sugiura and Robert Wright of the Financial Times

Enthusiasm for extended-stay hotels seems boundless among U.S. hotel developers. The national extended stay pipeline is now 44% of supply, up by almost 10% in the last 18 months.

Analysts at Bernstein, led by Richard Clarke, produced a chart in a research note on Thursday that captures the trend — using data from STR, the hotel performance benchmarking firm. The chart shows how extended-stay development takes an increasingly large share of the mix of hotel development.

The chart has lagging data. Since October, several hotel groups, including Marriott, Hilton, Hyatt, Wyndham, and BWH (Best Western) have debuted new extended-stay brands. The new options may drive developer interest higher.

Looking ahead, which hotel groups are best-positioned to gain from the tailwinds?

“Marriott leads all asset light groups in extended stay exposure, at more than 15% of their global portfolio and 4.5% ahead of Hilton at number 2 — so naturally stands to gain from demand tailwinds. However, Hilton looks best placed to capture supply growth, with its Home2 brand boasting an impressive relative pipeline of 108% of supply, despite being well established with more than 60,000 rooms.”

—Richard Clarke, Niall Mitchelson, and Kate Xiao of Bernstein

Rising hotel room rates in the U.S. are still contributing to an overall rise in the national cost of living, but the pace of hotel rate hikes is slowing, according to new numbers released on Tuesday.

Hotel rates rose 1.8% in May from April, according to the U.S. Bureau of Labor Statistics, which reported the seasonally adjusted percentage changes.

Looking longer-term, rates in May were 3% higher than a year earlier. That’s a much lower annualized inflation rate than the 22.2% a year ago.

The government also provided an update on recent monthly hotel rate changes: Rates dropped 3% in April versus March. Rates rose 2.7% between February and March.

The backstory is an overall moderation in the recent bout of inflation. The hotel sector has seen dramatic spikes in nightly rates compared to post-pandemic lows, as rises in demand collided with strained supply from properties struggling to find and keep workers.

“In the U.S., the average daily rate on a real basis is a dollar off where we were in March 2019,” said Amanda Hite, president of STR, the leader in hotel performance benchmarking, in an interview last week. “So for all the price growth we’ve seen, we aren’t back to where we were pre-pandemic, on average overall.”

The government data includes “lodging away from home including hotels and motels” but excludes lodging at schools and is based on survey data.

For more context, read: “Hotel CEOs Are Loving Limited Rooms and High Prices.”

Sonesta International Hotel Corporation announced the debut of two soft brands within its expanding portfolio, Classico, A Sonesta Collection, and MOD, A Sonesta Collection. These two new brands offer independent hotel owners the opportunity to affiliate with Sonesta’s network while retaining their iconic hotel names, identities, designs, and established styles.

Marketed by Sonesta’s Luxury and Lifestyle Lodging Development Team, each Classico property will have a distinct identity and offer signature local cuisine, traditional high-touch service, and refined interiors.

The first Sonesta Classico brand property is the 40-room Z Ocean Hotel in Miami, Florida’s South Beach neighborhood, which opened on May 1, 2023. Each MOD, positioned within Sonesta’s upscale portfolio, will feature eclectic interior designs and amenities, such as curated food and beverage options. The first MOD property will launch as Hotel 11 in Calgary, Alberta, Canada. 

Choice Hotels sees a potential in generative AI (artificial intelligence) to reshape the hotel sector, according to an interview chief information officer Brian Kirkland did on Bloomberg TV right before the U.S. Memorial Day holiday weekend.

“To be commercially viable, and to be something that really transforms how we do business, … we need to make sure that we can securely use it. So how do we get private data sets in there? How do we curate the answers to make sure that … the right answer is coming back that’s curated and accurate, and not based on old data? That’s something we’re talking about with some of our partners. When [that’s available], it will be transformative.”

—Brian Kirkland of Choice Hotels

Kirkland speculated that generative AI could help guests find answers faster about properties and help Choice Hotels franchisees to figure out the right type of business strategy or even the policies around how they run their business.

Full interview here:

UPDATE: The original post misspelled Brian Kirkland’s name. Apologies.

Skift editors were struck by this chart of Wyndham’s stock price as of Friday. Investors continue to behave as if it would be a good thing for the world’s largest hotel franchisor to merge with another player. Sustained investor pressure on that score might prompt Wyndham’s management to change strategy at some point.

Shares spiked on Wednesday after the Wall Street Journal floated a rumor that Choice Hotels wanted to buy Wyndham. Analysts quickly cast doubts that any deal would materialize.

Yet Wyndham’s shares remained elevated even when analysts like those at Baird poured cold water on this rumor. Many investors seem to dare to hope that a merger or takeover by some player will happen.

So why would investors cheer an offer for Wyndham?

Baird Equity Research held meetings with Wyndham’s management team after the announcement.

“The company continues to believe the stock is trading at a ‘significant and unwarranted discount,'” wrote the Baird analysts, who agree with management’s view.

To be clear, Baird analysts like Wyndham’s management and neither call for nor predict a merger. But in a flash report, Baird analysts suggested some reasons about why Wyndham’s stock had “underperformed” before the merger rumors.

“The list of potential reasons (among others) includes: growing competition in the lower-end chain scales; recent banking/financing uncertainties that might disproportionately impact Wyndham’s development pipeline; and Wyndham’s typical customer, which has an average household income of $91K, potentially being more impacted from a disposable income perspective due to continued inflationary pressures.”

—Michael Bellisario and Jo Choy of Baird.

Wyndham’s management had retorts to every concern. They said they saw no signs of fundamental slowing in leisure travel demand or in hotel development deal flow, signings, and ability to meet announced targets. Only about two dozen deals in its pipeline appear to face any risk of headwinds because of trouble getting financing because of recent banking and interest rate turmoil.

And yet, the market continues to value Wyndham more when they believe it’s in play. That partly reflect’s an investor mentality. Analyst David Katz at Jeffries estimated this week that any takeover bid might come with a price premium of as much as 30 percent of Wyndham’s stock prices. Some investors, possibly naive, are looking for a quick gain.

Yet Wyndham has weaker earnings growth forecasts for 2024 when compared with Choice Hotels, its competitor with the most overlap in hotel profile.

To paraphrase Baird’s Michael Bellisario and Jo Choy, risks to Wyndham include:

• the sustainability of brand equity and customer loyalty when facing the larger loyalty and co-branded credit card machines of players like Marriott International
• the endurance of its popularity among developers especially as larger groups like Hilton and Hyatt increasingly develop brands in the premium economy sector that Wyndham has heavy exposure to
• exposure to a more price-conscious traveler during macroeconomic headwinds in the context of rivalry from other hotel brand companies

Wyndham’s management capably managed its way through the pandemic and have consistently met their announced targets while avoiding unpleasant surprises. Yet Wyndham’s trades at a noticeable discount to the sum of its parts, according to a few investment banks that cover the stock.

It appears that some investors believe Wyndham would be stronger as part of a larger group that could have more scale efficiencies, such as in a larger loyalty program, an ability to negotiate deeper discounts on things like furniture supplies and commissions for distribution, and back-office synergies.

If investors continue to signal with their pricing behavior frustration with Wyndham for a year or longer, pressure will only grow on Wyndham’s management to adjust their business strategy in response or possibly entertain merger talks.

Travel metasearch company Trivago said on Tuesday that Johannes Thomas had become CEO and Managing Director, succeeding Axel Hefer, as the company struggles to return to its pre-IPO glory days.

Thomas began at Trivago as an intern and rose to become the company’s chief revenue officer, with a specialty in business operations and strategy.

Other executive changes include included Jasmine Ezz becoming chief marketing officer and Andrej Lehnert becoming chief product officer.

At $1.20 a share on Tuesday, Trivago is in danger of seeing its share price go below $1 and becoming de-listed if it doesn’t turn around its financial trajectory.

News this week that Marriott will make resort fees more fully transparent upfront in the search results of its website and mobile app drew focus once again to the topic of resort fees. Yet research analysts at Truist suggest U.S. hotel groups haven’t expanded the practice since 2019.

“We see no clear evidence that the actual resort fees/guest have grown materially since 2019,” wrote analysts Greg Miller and Patrick Scholes in a report. “Frankly, this was very surprising to us.”

The analysts estimate that resort fees remain “a modest” amount of total revenues, between 1 and 2 percent, based on data from HotStats, a benchmarking service.

One possible reason may be that resort fees may have become “less profitable than pre-pandemic given inflationary and labor cost pressures,” the analysts speculated.

Marriott is the first of the global hotel groups to boost pricing transparency. It alone made at least $206 million off the practice just from its self-managed resorts since 2012, according to depositions from the Washington, D.C., Attorney General’s ongoing lawsuit, which Skift reported on. But all of the major hotel groups engage in the practice.

So-called “drip pricing” continues to be a popular sales technique in travel, where a seller gets a consumer psychologically invested in an offering and then adds little additional costs without prompting the buyer to abandon the purchase.

Yet many consumers seem to take it in stride. One study found that guests dropped their online ratings by only a small percentage after they encountered fee surprises yet booked anyway.

Executives at MGM Resorts International are hopeful that gaming may be approved by the United Arab Emirates, possibly as soon as this year.

The Las Vegas-based casino and hotel operator announced back in 2017 its plans for an MGM Resort in Dubai that wouldn’t have gaming but would instead have 1,000 rooms and 10 villas. Yet executives sounded more hopeful about running a casino in a Gulf State someday when talking with analysts during the company’s first-quarter earnings on Monday.

“As it relates to Dubai, that property continues to evolve,” said Bill Hornbuckle, president and CEO. “We’re the managers, but the owners want to upgrade the property, I think, with gaming in mind. But it’s up to Abu Dhabi and the national government to ultimately decide. … We’re hoping ‘any day.’ But I got to believe as the summer fulfills itself, we’ll hear more news on that.”

“We have had people on the ground there basically nonstop since the first of the year, trying to understand the opportunity in Abu Dhabi and then ultimately, if it will open up,” Hornbuckle said. “If they pass on it, [the opportunity] will open up to the other Emirates. Whether the rulers of each Emirate then take it upon themselves to approve it is up to them.”

“Obviously, we’re focused on Dubai, and we think it would be ideal,” Hornbuckle said. “There happens to be 150,000 to 200,000 square feet of space that could be converted into such a thing. But time to tell there, and we’re not saying no to Abu Dhabi either.”

MGM already has competition on the non-gaming front. Wynn is spending $3.9 billion in the region, as Bloomberg reported this week, noted Alan Woinski, editor of The Gaming Industry Daily Report and Skift’s Daily Lodging Report. The Wynn property is on an island and is said to have a “gaming area” though this doesn’t seem to have been approved yet.

Here are other key points about the operator of 32 hotels and casinos in the U.S. and Macau.

Expansion Continues

In April, the company received approval of its development plan in Osaka, Japan. MGM and its partners Orix hope to start building the nearly $10 billion integrated casino resort, with an opening now expected in 2030.

MGM’s application process in New York is “progressing,” the company said.

Hotel Boom:

In the first three months of the year, the overall MGM Resorts company generated $467 million of net income on revenue of $3.9 billion.

Its Las Vegas Strip resort hotels, in particular, generated $752 million in revenue. That was thanks to a mix of strong pricing — with rates 31 percent higher than a year earlier — and an average occupancy of 92 percent.

There’s further room to grow, executives said, if Chinese and other Asian travelers come back to Las Vegas in large numbers. In the first quarter of 2019, Asian Pacific customer made up about 45 percent of its business, while now they’re currently only about 25 percent.

“So if that comes back, from that perspective, it would be pretty meaningful,” said Corey Sanders, chief operating officer.