Hoteliers Signal Slowdown in Room Revenue Growth

   By Aisha Al-Muslim 
 

Hoteliers are forecasting that the amount of money they make per room will be down this year as economic growth slows, but that hasn't stopped efforts to increase the number of properties bearing their names.

Companies like Hilton Worldwide Holdings Inc. (HLT), Hyatt Hotels Corp. (H), and Wyndham Hotels & Resorts Inc. (WH) have told analysts and shareholders that they expected revenue per available room, a key metric in the hospitality industry, to grow at a slower rate in 2019 as compared with 2018.

The gradual deceleration of RevPAR is due to pressure from a maturing global economy, a relative slowdown in China and worries about the impact of Brexit on Europe.

"RevPAR is sensitive to the economy," said SunTrust Robinson Humphrey analyst C. Patrick Scholes.

Meanwhile, the companies are focused on unit growth, even if 2019's prospects are less aggressive than last year. The push to open new hotels is driven by companies looking to increase the volume of royalty and franchise fees from hotel owners, who own the majority of the properties and pay for access to use hotel brand names, corporate reservation systems and marketing services.

"The global pipeline (of new hotels) is essentially like minting money for these companies," Mr. Scholes said. "It is an incredible profitable business model when it works right."

Franchise fees and net unit growth are interconnected, Mr. Scholes said. However, there is a potential downside to expansion, he said.

"These companies bringing on new supply to the industry puts pressure on the existing hotels because if you have a new hotel opening up down the street, well it makes it harder to fill your hotel like you did last year… and it makes little bit harder to push rates up because you got more rooms to fill," Mr. Scholes said.

Hotel companies prefer to grow units at the detriment of systemwide RevPAR because they have such a greater stake in fees from additional units, Bernstein Research analyst David J. Beckel said. Hoteliers should be focusing their growth and strength on growing units, he added.

"It actually works to their benefit to grow units, even if that unit growth comes at the expense of lower RevPAR for the system," Mr. Beckel said.

This is what some of the hoteliers said recently about RevPAR, unit growth and franchise fees. Marriott International Inc., the world's largest hotel company with 30 brands, will report its fourth quarter earnings results on Feb. 28.

HILTON:

This year, Hilton expects system-wide RevPAR to increase 1% to 3%, compared with a 3% rise in 2018. It attributed the slow down to uncertainties in some international markets, specifically China.

Hilton expects net unit growth to be about 6.5% for 2019, compared to 10% in 2018, which was a record year for construction starts and signings. As a result of the added properties, Hilton projects management and franchise fee revenue will increase 7% to 9%. However, that is down from a 12% increase in 2018.

HYATT:

Hyatt said that RevPAR would increase about 1% to 3% for the year, lower than the 3.1% growth last year.

It expects net rooms growth of about 7% to 7.5%, reflecting over 80 new hotel openings. Net rooms growth was 13.6% in 2018. Hyatt executives said they expect management and franchising fees will continue to grow this year. In 2018, Hyatt had double-digit growth in management and franchising fees.

"We intend to continue to drive the evolution of our earnings to be increasingly fee-based through the growth of our managed and franchised business," Hyatt Chief Executive Mark S. Hoplamazian said during the conference call.

The supply of upscale hotels in the U.S. began to outpace demand in 2018, Hyatt executives cautioned analysts on a conference call last week.

WYNDHAM:

For Wyndham, the top priority is bulking up its room count, Chief Executive Geoffrey Ballotti said to analysts last week (Feb. 13). The hotel company's room count is expected to grow 2% to 4%, compared to 2% in 2018.

Wyndham expects organic RevPAR for 2019 to increase between 1% and 3% in constant currency, assuming some negative effects from operations in Puerto Rico, compared to 4% in 2018.

CHOICE HOTELS:

For the full year, Choice Hotels International Inc. (CHH) is guiding domestic RevPAR to increase between 0.5% and 2%, compared to 1.2% in 2018.

It also expects net domestic unit for 2019 to grow 2% to 3%, reflecting terminations for underperforming properties throughout the year. For 2018, domestic units increased 6.6% and domestic royalty fees increased 11%.

"Our new construction domestic pipeline grew by 27% (in 2018) over the previous year and will be a catalyst for our long-term unit, rooms and RevPAR growth," Chief Executive Patrick S. Pacious said during a conference call last week.

MARRIOTT:

For Marriott in 2019, Bernstein analysts are expecting systemwide RevPAR growth of 2.1%, with the consensus outlook being 2.3%. That's down from Bernstein's expectation of 2.7% systemwide RevPAR growth and the consensus of 2.8% for 2018. Bernstein estimates systemwide room growth of 4.9% for 2019 versus the consensus forecast of 5.4%. In 2018, Bernstein expects room growth of 4.7% versus the consensus of 4.8%.

Write to Aisha Al-Muslim at [e-mail]

(END) Dow Jones Newswires

February 22, 2019 11:17 ET (16:17 GMT)

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