Officials with Hyatt Hotels Corporation said they’re seeing payoff from offering discounted rates to loyalty members, even though most drawn in by them book at other rates.
CHICAGO—Hyatt Hotels Corporation is the latest hotel company to lower its expectations for full-year 2016 during second-quarter earnings seasons.
President and CEO Mark Hoplamazian said Hyatt is reducing its full-year guidance, driven by relative weakness in transient business. Earlier in the year, the company projected revenue per available room to increase 3% to 5% for full-year 2016, but officials have since lowered their RevPAR growth forecast to 2% to 3% for the full year.
Hyatt’s comparable systemwide revenue per available room grew by just 2.3% year over year. Hotels in the U.S. saw a stronger RevPAR growth rate of 4.2%. Hoplamazian discussed the various global headwinds—particularly security concerns in various regions, the timing of Ramadan, and concerns about the Zika virus—that made the second quarter especially challenging for the industry and the larger economy. Hyatt also managed several large-scale renovation projects in Q2.
“The underlying core of our business performed well and we were able to drive profitability through brand differentiation, revenue enhancement, profitability initiatives, disciplined cost management and new hotel growth,” he said.
The company’s owned and leased hotels saw RevPAR grow 4.5%.
Hoplamazian discussed the state of group business at Hyatt’s full-service hotels going forward during a recent call with investors and analysts.
He said group business was negatively impacted in the second quarter by the timing of the Easter holiday, but he believes there are reasons to feel optimistic going forward, and heading into 2017 “group pace in the U.S. continues to be up in the mid-single digits range” with 60% of it on the books for 2017 and 40% for 2018.
“We remain encouraged by the fact that lead volume is strong, group spending per roomnight increased over 3% in the second quarter, and group cancellation and attrition activity has been nearly flat,” Hoplamazian said.
Booking behavior around loyalty discounts
In what has become a theme for the hotel industry over the second quarter, Hoplamazian said his company is enjoying a boost in loyalty membership and direct booking due to a discounted rate program for Hyatt Gold Passport members.
He said Gold Passport membership is growing four times faster than it was a year ago and online direct bookings have seen a significant boost.
“Room revenue through hyatt.com has increased at a double-digit rate,” he said.
Hoplamazian said offering the discount isn’t hurting individual properties.
“In fact, a majority of hotels utilizing member discount rates are gaining share in both (average daily rate) index and RevPAR index compared to prior year,” he said. “Since the rollout of the program, over 70% of the revenue associated with member discount clickthroughs has been sourced from new or previously inactive Gold Passport members.”
Hoplamazian noted more than 40% of those new or inactive members have become repeat customers.
He pointed out what seemed to be an unexpected booking behavior for those who engage with the company’s direct booking channel after being spurred by the promise of a discounted rate—only 30% of those who book actually book at that rate.
“It spans across many different buying behaviors that relate to people who are booking for different time periods in different hotels and across different rate levels,” Hoplamazian said. “We’re actually doing more work on this right now to see if we can see other patterns.”
Acquisitions and dispositions
Hoplamazian predicted his company will be both an active buyer and seller going forward, and company officials discussed the state of several recent transactions. Those include the purchase of the Thompson Miami Beach Hotel, which was rebranded as The Confidante and added to the new Unbound Collection, and the sale of the Andaz 5th Avenue.
Hyatt sold the 184-room Andaz 5th Avenue in June for $250 million and signed a long-term management agreement for the property at the same time, which Hoplamazian described as a good move because it “maintained a long-term presence … while reducing our real estate exposure in New York City.”
He said that property was never put on the market, and the sale arose from discussions with an existing Hyatt owner.
“The fact that we think we’re going to be growing with them in the future pointed to (the sale being) a very sensible transaction,” he said.
The company saw a sizeable jump in net income year over year for the quarter, which was up 67.5% to $67 million. At the same time, adjusted earnings before interest, taxes, depreciation and amortization grew 5.6% to $227 million for the quarter. That metric increased by 7.1% when viewed in constant currency.
Hyatt’s select-service brands, Hyatt House and Hyatt Place, saw RevPAR growth of 6.9% for the quarter. The company’s number of hotels grew 8% year over year while rooms grew by 6%.
As of press time, Hyatt’s stock is trading up 6.9% year to date, while the Baird/STR Hotel Stock Index is up 7% for the same period.