We’re now at the tail end of the hotel industry’s third-quarter earnings season, and there are a few key themes emerging.
At the start of Marriott International’s third-quarter earnings call with investors Wednesday, President and CEO Arne Sorenson charitably described the quarter as “eventful.” That’s obviously putting it mildly, as we’re now on the other side of a three-month span that saw a seemingly implausible stretch of natural phenomena and disasters.
But we now have the opinions and reflections on the quarter from many publicly traded hotel companies to help put it all in perspective. Here are a few of the recurring themes that seem to have been emerging from the recent earnings calls.
Natural disasters are devastating, but not all bad for business
The hotel industry entered into the third quarter with expectations things would be rough. The shift of the Jewish holidays and tough comparisons from 2016 combined for the likelihood of a down quarter. But the rash of natural disasters made any reasonable comparison impossible.
Not to sound crass, but the impact of these disasters was in some ways a net positive for hotels, pushing up metrics in key markets and overall giving companies cover for a messy quarter. To the industry’s credit, and not surprisingly, no one was celebrating the natural disasters while speaking to investors, and hotel executives universally praised first responders and property employees for their efforts in responding to strife and tragedy.
Fourth quarter could be strong, help beat full year expectations
Like I mentioned before, Q3 was expected to be weak. So weak, in fact, that the quarter was expected to drag down full-year numbers. Now that we’re past that stretch and things came across better than projected, hoteliers have a newfound sense of optimism.
The fourth quarter for many hotel companies seems to be expected to be the strongest of the year, and if that holds true, some companies could be set up well to exceed their full-year growth forecasts. That would be a meaningful win in a year defined by tepid growth and leading into another year that is projected to be solid but unspectacular.
Companies are using this opportunity to reset their strategies
This quarter seems to be one of companies talking about how they’re changing course in an effort to redefine themselves late in the cycle. Hyatt Hotels Corporation is one example of this, after company officials announced during its earnings call they plan to sell $1.5 billion in owned assets to embrace a more asset-light model.
Growth is still the name of the game
Publicly traded companies in the hotel industry seems to be in the constant push and pull, with brands needing to show constant growth and ownership groups hoping and praying for low supply growth. Those goals are never completely in line, but the current environment might be as close to a perfect equilibrium as the two sides can hope for.
The largely U.S.-centric REITs can point to relatively muted supply growth, and the expectation that things will remain that way with heavy competition for skilled labor in the construction trades—especially following the multiple hurricanes and wildfires that just hit.
At the same time, the more globally focused C-corps can point to huge pipelines outside the U.S. to quench the investment community’s endless appetite for high-percentage rooms and fee growth. It will be interesting to see how long that can last.
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