Hyatt’s outlook in China, US hinges strongly on virus
 
Hyatt’s outlook in China, US hinges strongly on virus
05 NOVEMBER 2020 5:12 PM

Hyatt Hotels Corporation President and CEO Mark Hoplamazian said business in China is “extremely encouraging” but believes any hotelier who isn’t seeing red flags as COVID-19 cases increase in the U.S. is “asleep.”

CHICAGO—China and the U.S. are on opposite sides of the world and opposite sides of the recovery for Hyatt Hotels Corporation.

Speaking during his company’s third-quarter earnings call, President and CEO Mark Hoplamazian said that the return of performance in mainland China has been “extremely encouraging,” and that country has seen a demonstrable increase in group business, particularly fueled by product launches.

“What we’re seeing is a remarkable evolution in the constraints people live under with respect to how they gather,” he said. “Part of that has to do with the fact that (China’s) whole approach has been reduce the caseload to virtually zero or close to zero, then leverage the opening and accelerate that.”

Meanwhile, Hyatt’s outlook in the United States in particular is much more cautious, and executives are just being realistic with their more conservative expectations within the country, Hoplamazian said.

“If all I did was look at the data that we have realized today, I would have no caution in our tone with respect to what we’re seeing,” he said. “But that’s not really helpful because, unless you’re asleep, you see the (COVID-19) caseloads are increasing daily and to new records in a large number of states in the United States and Europe.”

He said at this point, Hyatt fully expects the growing prevalence of the virus to once again “impact demand in some way, shape or form.”

“Have we seen evidence of that, so far? No,” he said. “Are we anticipating that we should actually be clear about the fact that what we see is likely going to have an impact? Yes.”

Hoplamazian remains hopeful, though, that success in one region will ultimately translate to success in the other.

“We view the China experience as an example of the strong desire people have to travel and gather and the type of demand … that you might expect to see elsewhere once travel restrictions lift and fear around the virus ceases to be such a limiting factor to travel,” he said.

Performance in China
Hoplamazian noted occupancies in Greater China excluding Hong Kong, Macau and Taiwan, “have reached pre-COVID levels as the rebound in domestic travel has fully replaced inbound travelers,” and the company continues to grow in revenue-per-available-room index, up 900 basis points across the region.

Golden Week holiday travel, which extended from 1 October to 8 October, beat prior-year performance numbers, with RevPAR up 17% year over year and food-and-beverage spend up 35%.

While leisure travel continues to be the primary driver in that region as with others across the globe, Hoplamazian said there are good signs across the board.

“We are also seeing some meaningful recovery in both transient business travel and group business as a percentage of realized demand in Greater China during the quarter,” he said.

Performance in the US
Hoplamazian demand rebounded consistently through the summer, peaking with the Labor Day holiday.

“We experienced continued strength through September and October with modest increases in average occupancy levels over the period, driven heavily by weekend business,” he said.

However, the company expects a negative impact going forward from “enhanced restrictions” as COVID-19 cases grow.

“This could result in flat, or perhaps reduced, fourth-quarter demand compared to the third quarter of the year,” he said. “Demand continues to be concentrated in drive-to leisure destinations.”

Due to its heavy reliance on full-service hotels, Hyatt has felt a greater impact from the crisis than some of its counterparts, but Hoplamazian said the company’s Hyatt Place and Hyatt House select-service brands have continued to outperform.

“On average, our open Hyatt Place and Hyatt House hotels ran occupancy levels of approximately 46%, which was well ahead of the roughly 30% occupancy levels at our open full-service hotels,” he said.

Business mix changes
Hoplamazian said the company’s distribution strategy “has not changed, but circumstances certainly have.”

He noted leisure transient demand now accounts for two-thirds of the company’s roomnights, whereas it was less than half a year ago.

“I would describe it as demand discovery,” Hoplamazian said. “We’re out in search of where we can actually attract customers and guests from channels and markets that we wouldn’t necessarily have leaned on in the past.”

He noted that as business travel has greatly reduced, so has the company’s loyalty contribution, since its core members are business travelers.

Hoplamazian said his company has tried to strategically use other channels, mostly online travel agencies but also wholesalers, to “maximize short-term demand in particular markets.”

“The fact that the early part of this recovery was very dominated by people driving to their destinations changed the way in which we went to market,” he said.

Q3 performance
Hyatt reported a 154.2% decrease in net income for the quarter, falling to a net loss of $161 million. Adjusted earnings before interest, taxes, depreciation and amortization fell 129.9% to a loss of $48 million.

The company reported a systemwide RevPAR decline of 72%.

One of the bright spots for the company was a 6% increase in net rooms growth in the quarter, with a pipeline of 101,000 rooms, a year-over-year increase of 9.8%.

As of press time, Hyatt’s stock was trading at $56.79 a share, down 36.7% year to date. The NYSE Composite was down 5.1% for the same period.

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